<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-49152
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This prospectus supplement relates to an effective registration statement +
+under the Securities Act of 1933, but is not complete and may be changed. +
+This prospectus supplement is not an offer to sell these securities and it is +
+not soliciting an offer to buy these securities in any state where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 6, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 2000
4,700,000 Shares
[LOGO OF SPINNAKER EXPLORATION]
Spinnaker Exploration Company
Common Stock
--------
All of the shares of our common stock offered by this prospectus supplement
will be sold by the selling stockholder identified on page S-33 of this
prospectus supplement and page 13 of the accompanying prospectus. We will not
receive any proceeds from the sale of shares by the selling stockholder. Our
common stock is listed on the New York Stock Exchange under the symbol "SKE."
On December 6, 2000, the last reported sale price was $27.00 per share.
The underwriters have an option to purchase a maximum of 688,743 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 2 of
the accompanying prospectus.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and the Selling
Public Commissions Stockholder
--------- ------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total....................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about December ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston
Banc of America Securities LLC
Deutsche Banc Alex. Brown
ING Barings
UBS Warburg LLC
The date of this prospectus supplement is December , 2000.
<PAGE>
[Map of the onshore U.S. gulf coast and U.S. Gulf of Mexico showing the
location of our existing lease blocks, our discoveries and the coverage area of
the 3-D seismic data to which we have licenses.]
S-2
<PAGE>
----------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary....... S-4
Cautionary Statement About Forward-
Looking Statements................. S-10
Price Range of Common Stock......... S-11
Capitalization...................... S-12
Business and Properties............. S-13
Management.......................... S-30
Security Ownership of the Selling
Stockholder, Management and Certain
Beneficial Holders................. S-33
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Underwriting.......................................................... S-35
Notice to Canadian Residents.......................................... S-37
Legal Matters......................................................... S-38
Experts............................................................... S-38
Glossary of Natural Gas and Oil Terms................................. S-39
Report of Independent Petroleum Engineers............................. A-1
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
About Spinnaker Exploration
Company...................... 2
Risk Factors.................. 2
Forward-Looking Statements.... 11
Use of Proceeds............... 12
Description of Capital Stock.. 12
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selling Stockholder................................................... 13
Plan of Distribution.................................................. 14
Validity of Securities................................................ 16
Experts............................................................... 16
Where You Can Find More Information................................... 16
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus supplement
and the accompanying prospectus, but does not contain all information that may
be important to you. This prospectus supplement and the accompanying prospectus
include specific terms of this offering, information about our business and
financial data. We encourage you to read this prospectus supplement and the
accompanying prospectus in their entirety before making an investment decision.
Unless otherwise indicated, this prospectus supplement assumes no exercise of
the underwriters' over-allotment option. We have provided definitions for some
of the natural gas and oil industry terms used in this prospectus supplement
and the accompanying prospectus in the "Glossary of Natural Gas and Oil Terms"
on page S-39 of this prospectus supplement.
About Spinnaker
Spinnaker Exploration Company is an independent energy company engaged in
the exploration, development and production of natural gas and oil in the U.S.
Gulf of Mexico. We have license rights to approximately 8,900 blocks of mostly
contiguous, recent vintage 3-D seismic data in the Gulf of Mexico, including
approximately 5,750 blocks from our 3-D seismic data agreement with Petroleum
Geo-Services ASA. This database covers an area of approximately 35 million
acres, which we believe is one of the largest recent vintage 3-D seismic
databases of any independent exploration and production company in the Gulf of
Mexico. We consider recent vintage 3-D seismic data to be data generated since
1990. As of November 30, 2000, we had 207 leasehold interests located in Texas
state and federal waters covering approximately 739,000 gross and 340,000 net
acres. We believe our regional 3-D seismic approach allows us to create and
maintain a large inventory of high-quality prospects and provides us the
opportunity to enhance our exploration success and efficiently deploy our
capital resources. We also believe our license rights to large quantities of
high-quality seismic data and our management and technical staff are important
factors for our current and future success.
Our Chief Executive Officer, Petroleum Geo-Services and Warburg, Pincus
Ventures, L.P. formed Spinnaker in December 1996. Petroleum Geo-Services, a
leader in acquiring 3-D seismic data, received most of its equity ownership in
Spinnaker in exchange for providing us with access to its inventory of 3-D
seismic data covering a substantial portion of the natural gas and oil
producing area of the Gulf of Mexico. We plan to continue to grow our inventory
of 3-D seismic data through our agreement with Petroleum Geo-Services and
through acquisitions from other seismic data vendors.
Since our inception, we have participated in drilling 58 exploratory wells
in the Gulf of Mexico, with 36 of these wells being completed as discoveries.
As of June 30, 2000, Ryder Scott Company, L.P. estimated our net proved
reserves at approximately 123.1 Bcfe, 89 percent of which was natural gas,
representing an increase of approximately 129 percent over our estimated net
proved reserves of 53.8 Bcfe at December 31, 1998. Our average daily production
increased to approximately 128,000 Mcfe for the two-month period ended
November 30, 2000, from daily production of approximately 8,000 Mcfe at
December 31, 1998. Within our current inventory of leasehold interests, we have
identified approximately 90 exploratory prospects or leads. Based on 3-D
seismic analysis on blocks where we currently have no leasehold interest, we
also have identified over 100 additional leads that may result in additional
prospects. Our capital expenditure budget for 2000 includes approximately
$153.0 million for exploration, development, leasehold acquisitions and other
capital expenditures, of which we incurred $111.0 million through September 30,
2000. We expect to drill approximately 27 wells during 2001. Our capital
expenditure budget for 2001 includes approximately $176.0 million for
exploration, development, leasehold acquisitions and other capital
expenditures.
S-4
<PAGE>
Our Strategy
Our goals are to expand our reserve base, cash flow and net income and to
generate an attractive return on capital. We emphasize the following elements
in our strategy to achieve these goals:
Focus on the Gulf of Mexico. We have assembled a large 3-D seismic database
and focus our exploration activities in the Gulf of Mexico because we believe
this area represents one of the most attractive exploration regions in North
America. We also believe our geographic focus provides us with an excellent
opportunity to develop and maintain competitive advantages through the
combination of our 3-D seismic database, regional exploration and operating
expertise, and joint venture relationships.
Maintain a large database of 3-D seismic data. We believe our large database
of 3-D seismic data allows us to generate and maintain a large inventory of
high-quality exploratory prospects. We believe the 3-D seismic data we have
received from Petroleum Geo-Services will continue to serve as the foundation
for our exploration program. We will continue to supplement that data with 3-D
seismic data acquisitions from other seismic data vendors.
Employ a rigorous prospect selection process. We use our large inventory of
contiguous areas of 3-D seismic data to select prospects by tying regional 3-D
seismic analysis to actual drilling results. Through this process, we enhance
our understanding of the geology before selecting prospects and increase the
probability of accurately identifying hydrocarbon-bearing zones.
Emphasize technical expertise. Our 15 explorationists have an average of
over 20 years experience in exploration in the Gulf of Mexico. In our efforts
to attract and retain explorationists, we offer an entrepreneurial culture, an
extensive 3-D seismic database, state-of-the-art computer-aided exploration
technology and other technical tools.
As Spinnaker matures, we are moving towards retaining larger working
interests in prospects located in water depths of less than 2,000 feet. The
combination of larger working interests and our technical expertise has allowed
us to act as the operator for an increasing number of these prospects,
providing us with more control of costs, the timing and amount of capital
expenditures, and the selection of technology.
Sustain a balanced, diversified exploration effort. We believe that our
exploration approach results in portfolio balance and diversity among:
. shallow water, or water depths of less than 600 feet, and deep water
prospects;
. shallow drilling depth, or drilling depths of less than 12,000 feet, and
deep drilling depth prospects; and
. lower-risk, lower-potential prospects and higher-risk, higher-potential
prospects.
We have used joint ventures to help diversify our exploration activities.
Our 3-D seismic data's broad coverage of the Gulf of Mexico allows us to
participate in a variety of geologically diverse exploration opportunities and
create a diversified prospect portfolio. We intend to manage our exposure in
deep water exploration activities by focusing on prospects where commercial
feasibility of the prospect can be evaluated with a small number of wells, and
where we believe 3-D seismic analysis provides attractive risk/reward benefits.
We also strive to diversify our exploration efforts by seeking to limit the
budgeted amount of the leasehold acquisition and drilling cost of the first
exploratory well on any one prospect to less than 10 percent of our annual
capital budget.
We believe that maintaining continuity in our exploration activity during
all phases of the commodity price cycles is an important element to balance and
diversification. By positioning Spinnaker to have a
S-5
<PAGE>
continuous exploration program, we can potentially take advantage of reduced
competition for prospects and lower drilling and other oilfield service costs
during periods of low natural gas and oil prices.
Risks related to our strategy. Prospective investors should carefully
consider the matters set forth in the accompanying prospectus under the caption
"Risk Factors," as well as the other information set forth in this prospectus
supplement and the accompanying prospectus, including that our future operating
results are difficult to forecast because of our limited operating history, the
3-D seismic data and other technologies we use cannot eliminate exploration
risk, our ability to find additional reserves could be materially impaired if
Petroleum Geo-Services terminates our data agreement, our relatively small
number of offshore properties increases our exposure to production problems,
reserve estimate inaccuracies materially affect the quantities and net present
value of our reserves, our Gulf of Mexico focus subjects us to higher reserve
replacement needs, and the natural gas and oil business involves many operating
and financial risks, especially in the deep waters of the Gulf of Mexico. One
or more of these matters could negatively impact our ability to implement
successfully our business strategy.
Significant Exploration Discoveries
The following table summarizes the most significant of our 36 exploration
discoveries since our inception. Please also read "Business and Properties--
Exploration and Development Activities--Significant Exploration and Development
Areas" for a more detailed discussion of these discoveries.
<TABLE>
<CAPTION>
Spinnaker Approximate Date Production
Working Water Depth Commenced/
Discovery Block Operator Interest (feet) Expected
--------------- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
High Island 202......... Spinnaker 75% 50 May 2000
South Timbalier
219/211................ Spinnaker 72 3/4% 150 February 2000
North Padre Island 883.. Spinnaker 35% 80 September 2000
Brazos A-19............. Shell 15% 130 First half 2002
High Island A-18........ Spinnaker 100% 60 October 2000
Garden Banks 367
(Dulcimer)............. Mariner 33 1/3% 1,100 April 1999
Mississippi Canyon 496
(Zia).................. Shell 12 1/2% 1,800 Second half 2002
South Timbalier 220..... Samedan 33 1/3% 150 August 1998
West Cameron 39......... Spinnaker 60% 30 January 1999
Vermilion 375........... Spinnaker 70% 300 October 2000
West Cameron 522........ Newfield 46% 180 March 1998
High Island A-7......... Spinnaker 53% 50 September 2000
</TABLE>
Our Executive Offices
Our executive offices are located at 1200 Smith Street, Suite 800, Houston,
Texas 77002, and our telephone number is (713) 759-1770.
The Offering
<TABLE>
<S> <C>
Common stock offered by the selling
stockholder............................ 4,700,000 shares
Use of proceeds......................... Spinnaker will not receive any of the
proceeds from the offering.
New York Stock Exchange symbol.......... SKE
</TABLE>
S-6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The following table sets forth some of our historical consolidated financial
data. You should read the following data in conjunction with our consolidated
financial statements incorporated by reference into the accompanying
prospectus.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------------- -------------------
1997 1998 1999 1999 2000
-------- -------- ------- -------- ---------
Statement of Operations
Data: (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 201 $ 3,298 $34,258 $ 19,883 $ 62,767
-------- -------- ------- -------- ---------
Expenses:
Lease operating expenses... 72 474 5,411 3,515 6,353
Depreciation, depletion
and amortization--natural
gas and oil properties.... 68 2,738 20,788 13,058 29,633
Depreciation and
amortization--other....... 349 437 213 152 223
Write-down of natural gas
and oil properties (1).... -- 2,642 -- -- --
General and
administrative............ 1,965 3,809 4,860 3,398 4,953
Stock appreciation rights
expense (2)............... -- -- 1,651 1,651 --
-------- -------- ------- -------- ---------
Total expenses........... 2,454 10,100 32,923 21,774 41,162
-------- -------- ------- -------- ---------
Income (loss) from
operations................. (2,253) (6,802) 1,335 (1,891) 21,605
Other income (expense):
Interest income............ 91 221 528 134 1,329
Interest expense........... -- (516) (3,771) (3,460) (631)
Capitalized interest....... -- 237 966 966 17
-------- -------- ------- -------- ---------
Income (loss) before income
taxes...................... (2,162) (6,860) (942) (4,251) 22,320
Income tax provision....... -- -- -- -- 5,766
-------- -------- ------- -------- ---------
Income (loss) before
cumulative effect of change
in accounting principle.... (2,162) (6,860) (942) (4,251) 16,554
Cumulative effect of change
in accounting principle
(3)........................ -- -- (395) (395) --
-------- -------- ------- -------- ---------
Net income (loss)........... $ (2,162) $ (6,860) $(1,337) $ (4,646) $ 16,554
======== ======== ======= ======== =========
Accrual of dividends on
preferred stock............ (1,326) (7,094) (7,911) (7,790) --
-------- -------- ------- -------- ---------
Net income (loss) available
to common stockholders..... $ (3,488) $(13,954) $(9,248) $(12,436) $ 16,554
======== ======== ======= ======== =========
Basic income (loss) per
common share (4)(5):
Income (loss) before
cumulative effect of
change in accounting
principle................. $ (0.88) $ (3.44) $ (1.06) $ (2.70) $ 0.77
Cumulative effect of
change in accounting
principle (3)............. -- -- (0.05) (0.09) --
-------- -------- ------- -------- ---------
Net income (loss) per
common share.............. $ (0.88) $ (3.44) $ (1.11) $ (2.79) $ 0.77
======== ======== ======= ======== =========
Diluted income (loss) per
common share (4)(5):
Income (loss) before
cumulative effect of
change in accounting
principle................. $ (0.88) $ (3.44) $ (1.06) $ (2.70) $ 0.73
Cumulative effect of
change in accounting
principle (3)............. -- -- (0.05) (0.09) --
-------- -------- ------- -------- ---------
Net income (loss) per
common share.............. $ (0.88) $ (3.44) $ (1.11) $ (2.79) $ 0.73
======== ======== ======= ======== =========
Weighted average number of
common shares outstanding--
basic (4)(5)............... 3,960 4,059 8,355 4,461 21,458
======== ======== ======= ======== =========
Weighted average number of
common shares outstanding--
diluted (4)(5)............. 3,960 4,059 8,355 4,461 22,715
======== ======== ======= ======== =========
Other Data:
Adjusted EBITDA (6)......... $ (1,836) $ (985) $23,987 $ 12,970 $ 51,461
Net cash provided by (used
in) operating activities... (5,523) (2,776) 14,905 15,449 50,828
Net cash used in investing
activities................. (15,236) (68,503) (85,101) (67,227) (109,628)
Net cash provided by
financing activities....... 18,863 70,738 88,507 53,000 140,616
Capital expenditures........ 15,578 85,681 79,810 57,098 130,385
</TABLE>
<TABLE>
<CAPTION>
At December 31, At
------------------------- September 30,
1997 1998 1999 2000
------- -------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 2,682 $ 2,141 $ 20,452 $102,268
Current assets.......................... 6,348 6,737 32,126 138,223
Total assets............................ 22,358 102,769 189,553 390,663
Short-term debt......................... -- 19,000 -- --
Other current liabilities............... 2,096 18,378 12,451 50,515
Total equity (5)........................ 18,879 56,913 177,102 336,301
</TABLE>
S-7
<PAGE>
--------
(1) At December 31, 1998, we recognized a non-cash write-down of natural gas
and oil properties in the amount of approximately $2.6 million in
connection with the ceiling limitation required by the full cost method of
accounting for natural gas and oil properties. The write-down was primarily
the result of the decline in natural gas prices experienced in 1998 and
through April 9, 1999. As permitted by applicable Securities and Exchange
Commission rules, in calculating the amount of the write-down, we used post
year-end natural gas and oil price increases of $0.26 per MMBtu of natural
gas and $4.52 per barrel of oil from December 31, 1998 to April 9, 1999. If
we had used only December 31, 1998 natural gas and oil prices, we would
have recognized a total non-cash write-down of natural gas and oil
properties of approximately $13.0 million.
(2) The stock option agreements of two of our officers provided that they could
elect to have Spinnaker deliver shares equal to the appreciation in the
value of the stock over the option price in lieu of purchasing the amount
of shares under option. Based on our estimate of the share value of
Spinnaker, we recorded compensation expense of approximately $1.7 million
in 1999 related to the stock appreciation rights of the stock option
agreements. In July 1999, these two officers agreed to eliminate the stock
appreciation rights feature of their stock option agreements.
(3) The cumulative effect of change in accounting principle represents our
adoption of Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities."
(4) Spinnaker was originally formed as a limited liability company, and we
issued common units and preferred units. In connection with our conversion
to a corporation in January 1998, we exchanged common stock for all then
outstanding common units and preferred stock for all then outstanding
preferred units. We express all historical unit data in shares of common
stock.
(5) In connection with our initial public offering, we issued 8,000,000 shares
of common stock, converted all then outstanding shares of preferred stock
into 6,061,840 shares of common stock and issued 1,200,248 shares of common
stock to certain holders of the previously outstanding preferred stock in
lieu of payment of accrued cash dividends. On August 16, 2000, we completed
our public offering of 5,600,000 shares of common stock.
(6) As used in this prospectus supplement, Adjusted EBITDA means earnings
before interest, income taxes, depreciation, depletion and amortization,
write-down of natural gas and oil properties, and stock appreciation rights
expense. Adjusted EBITDA is not a calculation based upon generally accepted
accounting principles. Adjusted EBITDA should not be considered as an
alternative to net income as an indicator of our operating performance, or
as an alternative to cash flow as a better measure of liquidity. Adjusted
EBITDA measures presented in this prospectus supplement may not be
comparable to other similarly titled measures reported by other companies.
In evaluating Adjusted EBITDA, Spinnaker believes that investors should
consider, among other things, the amount by which Adjusted EBITDA exceeds
interest costs, how Adjusted EBITDA compares to principal repayments on
debt and how Adjusted EBITDA compares to capital expenditures for each
period.
S-8
<PAGE>
Summary Reserve Information
The table below presents our summary reserve information as of June 30,
2000. Estimates of proved reserves are based on the June 30, 2000 reserve
report prepared by Ryder Scott Company, L.P., our independent petroleum
engineering consultants. Appendix A to this prospectus supplement contains a
letter prepared by Ryder Scott Company, L.P. summarizing the reserve report.
For additional information relating to our natural gas and oil reserves, please
read "Business and Properties--Natural Gas and Oil Reserves."
The present value of future net cash flows attributable to our proved
reserves using prices and costs in effect at June 30, 2000, discounted at 10
percent per annum, was determined by using prices of $4.55 per Mcf of natural
gas and $32.72 per barrel of oil, which represents market prices in effect at
June 30, 2000 of $4.37 per MMBtu of natural gas and $32.50 per barrel of oil,
adjusted for transportation and grade differences.
<TABLE>
<CAPTION>
As of
June 30, 2000
-------------
<S> <C>
Estimated proved reserves:
Natural gas (MMcf)............................................ 109,500
Oil and condensate (MBbls).................................... 2,262
Total (MMcfe)............................................... 123,070
Proved developed reserves as a percentage of proved reserves.... 41%
Present value of future net cash flows (before income taxes)
discounted at 10% (in thousands) (1)........................... $376,716
Standardized measure of discounted future net cash flows (in
thousands) (1)................................................. $303,393
</TABLE>
--------
(1) Includes unrealized losses of $16.3 million for the effects of our hedging
activities using natural gas and oil prices in effect at June 30, 2000.
Summary Operating Data
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
--------------------- -------------------
1997 1998 1999 1999 2000
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf)............... 70 1,675 11,962 7,447 18,008
Oil and condensate (MBbls)....... -- 12 180 124 149
Total (MMcfe).................. 70 1,747 13,044 8,189 18,901
Average sales price per unit:
Natural gas revenues from
production (per Mcf)............ $ 2.87 $ 1.89 $ 2.49 $ 2.37 $ 3.76
Effects of hedging activities
(per Mcf)....................... -- -- 0.08 -- (0.44)
------ ------ ------- --------- ---------
Average price (per Mcf)........ $ 2.87 $ 1.89 $ 2.57 $ 2.37 $ 3.32
Oil and condensate revenues from
production (per Bbl)............ $18.51 $11.61 $ 20.33 $ 18.24 $ 28.44
Effects of hedging activities
(per Bbl)....................... -- -- (0.57) -- (8.74)
------ ------ ------- --------- ---------
Average price (per Bbl)........ $18.51 $11.61 $ 19.76 $ 18.24 $ 19.70
Total revenues from production
(per Mcfe)...................... $ 2.87 $ 1.89 $ 2.57 $ 2.43 $ 3.81
Effects of hedging activities
(per Mcfe)...................... -- -- 0.06 -- (0.49)
------ ------ ------- --------- ---------
Total average price (per
Mcfe)......................... $ 2.87 $ 1.89 $ 2.63 $ 2.43 $ 3.32
Expenses (per Mcfe):
Lease operating expenses (1)..... $ 1.03 $ 0.27 $ 0.41 $ 0.43 $ 0.34
Depreciation, depletion and
amortization--natural gas and
oil properties.................. $ 0.97 $ 1.57 $ 1.59 $ 1.59 $ 1.57
</TABLE>
--------
(1) Lease operating expenses per Mcfe for the nine months ended September 30,
2000 include approximately $0.04 per Mcfe associated with workovers on
four wells. Lease operating expenses per Mcfe for the nine months ended
September 30, 1999 and the year ended December 31, 1999 include
approximately $0.13 per Mcfe associated with workovers on two wells and
well control activities on another well.
S-9
<PAGE>
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus supplement and the accompanying
prospectus, including information incorporated by reference, contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The forward-
looking statements speak only as of the date made. These forward-looking
statements may be identified by the use of the words "believe," "expect,"
"anticipate," "will," "contemplate," "would" and similar expressions that
contemplate future events. These future events include the following matters:
. financial position;
. business strategy;
. budgets;
. amount, nature and timing of capital expenditures;
. drilling of wells;
. natural gas and oil reserves;
. timing and amount of future production of natural gas and oil;
. operating costs and other expenses;
. cash flow and anticipated liquidity;
. prospect development and property acquisitions; and
. marketing of natural gas and oil.
Numerous important factors, risks and uncertainties may affect our operating
results, including:
. the risks associated with exploration;
. our ability to find, acquire, market, develop and produce new properties;
. natural gas and oil price volatility;
. uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures;
. operating hazards attendant to the natural gas and oil business;
. downhole drilling and completion risks that are generally not recoverable
from third parties or insurance;
. potential mechanical failure or under-performance of significant wells;
. climactic conditions;
. availability and cost of material and equipment;
. delays in anticipated start-up dates;
. actions or inactions of third-party operators of our properties;
. our ability to find and retain skilled personnel;
. availability of capital;
. the strength and financial resources of our competitors;
. regulatory developments;
S-10
<PAGE>
. environmental risks; and
. general economic conditions.
Any of the factors listed above and other factors contained in this
prospectus supplement and the accompanying prospectus could cause our actual
results to differ materially from the results implied by these or any other
forward-looking statements made by us or on our behalf. We cannot assure you
that our future results will meet our expectations. You should pay particular
attention to the risk factors and cautionary statements described in the
accompanying prospectus under the caption "Risk Factors."
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the New York Stock Exchange on July 26,
2000 under the symbol "SKE." Prior to that date, our common stock traded on The
Nasdaq National Market under the symbol "SPNX." The following table sets forth
the range of high and low sales prices per share of common stock for each
calendar quarter.
<TABLE>
<CAPTION>
Sales Price
-------------
High Low
------ ------
<S> <C> <C>
1999:
Third Quarter (from September 29, 1999)....................... $14.75 $13.00
Fourth Quarter................................................ $16.75 $12.56
2000:
First Quarter................................................. $25.00 $13.25
Second Quarter................................................ $30.50 $19.50
Third Quarter ................................................ $42.25 $24.03
Fourth Quarter (through December 5, 2000)..................... $41.19 $24.75
</TABLE>
On December 6, 2000, the closing sale price of our common stock, as reported
by the New York Stock Exchange, was $27.00 per share.
S-11
<PAGE>
CAPITALIZATION
The following table presents our capitalization and other information as of
September 30, 2000. You should read the table in conjunction with our
consolidated financial statements incorporated by reference into the
accompanying prospectus.
<TABLE>
<CAPTION>
At
September 30, 2000
------------------
(in thousands)
<S> <C>
Cash and cash equivalents.................................. $102,268
========
Short-term debt............................................ $ --
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding.............. --
Common stock, $0.01 par value, 50,000,000 shares
authorized; 26,290,682 shares issued and 26,272,906 shares
outstanding............................................... 263
Additional paid-in capital................................. 346,562
Accumulated deficit........................................ (10,480)
Less: Treasury stock, at cost, 17,776 shares............... (44)
--------
Total stockholders' equity............................... 336,301
--------
Total capitalization................................... $336,301
========
</TABLE>
S-12
<PAGE>
BUSINESS AND PROPERTIES
Overview
Spinnaker Exploration Company is an independent energy company engaged in
the exploration, development and production of natural gas and oil in the U.S.
Gulf of Mexico. We currently have license rights to approximately 8,900 blocks
of mostly contiguous, recent vintage 3-D seismic data in the Gulf of Mexico,
including approximately 5,750 blocks from our 3-D seismic data agreement with
Petroleum Geo-Services. This database covers an area of approximately 35
million acres, which we believe is one of the largest recent vintage 3-D
seismic databases of any independent exploration and production company in the
Gulf of Mexico. We consider recent vintage 3-D seismic data to be data
generated since 1990. As of November 30, 2000, we had 207 leasehold interests
located in Texas state and federal waters covering approximately 739,000 gross
and 340,000 net acres. We believe our regional 3-D seismic approach allows us
to create and maintain a large inventory of high-quality prospects and provides
us the opportunity to enhance our exploration success and efficiently deploy
our capital resources. We also believe our license rights to large quantities
of high-quality seismic data and our management and technical staff are
important factors for our current and future success.
Our Chief Executive Officer, Petroleum Geo-Services and Warburg, Pincus
Ventures, L.P. formed Spinnaker in December 1996. Petroleum Geo-Services, a
leader in acquiring 3-D seismic data, received most of its equity ownership in
Spinnaker in exchange for providing us with access to its inventory of 3-D
seismic data covering a substantial portion of the natural gas and oil
producing area of the Gulf of Mexico. We plan to continue to grow our inventory
of 3-D seismic data through our agreement with Petroleum Geo-Services and
through acquisitions from other seismic data vendors.
Since our inception, we have participated in drilling 58 exploratory wells
in the Gulf of Mexico, with 36 of these wells being completed as discoveries.
As of June 30, 2000, Ryder Scott Company, L.P. estimated our net proved
reserves at approximately 123.1 Bcfe, 89 percent of which was natural gas,
representing an increase of approximately 129 percent over our estimated net
proved reserves of 53.8 Bcfe at December 31, 1998. Our average daily production
increased to approximately 128,000 Mcfe for the two-month period ended
November 30, 2000 from daily production of approximately 8,000 Mcfe at December
31, 1998. Within our current inventory of leasehold interests, we have
identified approximately 90 exploratory prospects or leads. Based on 3-D
seismic analysis on blocks where we currently have no leasehold interest, we
also have identified over 100 additional leads that may result in additional
prospects. Our capital expenditure budget for 2000 includes approximately
$153.0 million for exploration, development, leasehold acquisitions and other
capital expenditures, of which we incurred $111.0 million through September 30,
2000. We expect to drill approximately 27 wells during 2001. Our capital
expenditure budget for 2001 includes approximately $176.0 million for
exploration, development, leasehold acquisitions and other capital
expenditures.
Our Strategy
Our goals are to expand our reserve base, cash flow and net income and to
generate an attractive return on capital. We emphasize the following elements
in our strategy to achieve these goals:
. Focus on the Gulf of Mexico
. Maintain a large database of 3-D seismic data
. Employ a rigorous prospect selection process
. Emphasize technical expertise
. Sustain a balanced, diversified exploration effort
Focus on the Gulf of Mexico. We have assembled a large 3-D seismic database
and focus our exploration activities in the Gulf of Mexico because we believe
this area represents one of the most attractive exploration
S-13
<PAGE>
regions in North America. The Gulf of Mexico has the following characteristics
which make it attractive to exploration and production companies:
. Prolific exploration and production history
. Open access to acreage
. Substantial existing oilfield service infrastructure
. Attractive taxation and royalty rates
. Relatively high-productivity wells
. Geographic proximity to well-developed markets for natural gas and oil
. Geologic diversity that offers a variety of exploration opportunities
We also believe our geographic focus provides us with an excellent
opportunity to develop and maintain competitive advantages through the
combination of our 3-D seismic database, regional exploration and operating
expertise, and joint venture relationships.
Maintain a large database of 3-D seismic data. We believe our large database
of 3-D seismic data allows us to generate and maintain a large inventory of
high-quality exploratory prospects. We believe the 3-D seismic data we have
received from Petroleum Geo-Services will continue to serve as the foundation
for our exploration program. We will continue to supplement that data with 3-D
seismic data acquisitions from other seismic data vendors.
Employ a rigorous prospect selection process. We use our large inventory of
contiguous areas of 3-D seismic data to select prospects by tying regional 3-D
seismic analysis to actual drilling results. Through this process, we enhance
our understanding of the geology before selecting prospects and increase the
probability of accurately identifying hydrocarbon-bearing zones.
Emphasize technical expertise. Our 15 explorationists have an average of
over 20 years experience in exploration in the Gulf of Mexico. In our efforts
to attract and retain explorationists, we offer an entrepreneurial culture, an
extensive 3-D seismic database, state-of-the-art computer-aided exploration
technology and other technical tools.
As Spinnaker matures, we are moving towards retaining larger working
interests in prospects located in water depths of less than 2,000 feet. The
combination of larger working interests and our technical expertise has allowed
us to act as the operator for an increasing number of these prospects,
providing us with more control of costs, the timing and amount of capital
expenditures, and the selection of technology.
Sustain a balanced, diversified exploration effort. We believe that our
exploration approach results in portfolio balance and diversity among:
. shallow water, or water depths of less than 600 feet, and deep water
prospects;
. shallow drilling depth, or drilling depths of less than 12,000 feet, and
deep drilling depth prospects; and
. lower-risk, lower-potential prospects and higher-risk, higher-potential
prospects.
We have used joint ventures to help diversify our exploration activities.
Our 3-D seismic data's broad coverage of the Gulf of Mexico allows us to
participate in a variety of geologically diverse exploration opportunities and
create a diversified prospect portfolio. We intend to manage our exposure in
deep water exploration activities by focusing on prospects where commercial
feasibility of the prospect can be evaluated with a small number of wells, and
where we believe 3-D seismic analysis provides attractive risk/reward benefits.
We also strive to diversify our exploration efforts by seeking to limit the
budgeted amount of the
S-14
<PAGE>
leasehold acquisition and drilling cost of the first exploratory well on any
one prospect to less than 10 percent of our annual capital budget.
We believe that maintaining continuity in our exploration activity during
all phases of the commodity price cycles is an important element to balance and
diversification. By positioning Spinnaker to have a continuous exploration
program, we can potentially take advantage of reduced competition for prospects
and lower drilling and other oilfield service costs during periods of low
natural gas and oil prices.
Petroleum Geo-Services Data Agreement
Data Covered by the Agreement
Subject to the exceptions discussed below, we are entitled to receive and
use all of Petroleum Geo-Services' standard and enhanced multi-client 3-D
seismic data covering the Gulf of Mexico including its bays, channels,
tributaries, estuaries and transition zones that Petroleum Geo-Services
acquires or processes for itself prior to March 31, 2002 or is in the process
of acquiring or processing as of that date. However, Petroleum Geo-Services is
not obligated under our agreement to acquire any further data of any kind. At
this time, Petroleum Geo-Services is not involved in acquiring 3-D seismic data
in the Gulf of Mexico. Even if Petroleum Geo-Services elects to resume 3-D
seismic data acquisition in the Gulf of Mexico, it again could elect to cease
3-D seismic data acquisition as a result of a change of control of Petroleum
Geo-Services or changes in Petroleum Geo-Services' competitive, financial or
technological status. We are also entitled to enhanced data processed by third
parties if Petroleum Geo-Services retains a material royalty or similar
interest in that data.
As part of its business activities, Petroleum Geo-Services acquires both
proprietary and multi-client marine seismic data. When Petroleum Geo-Services
acquires proprietary data, it does so on an exclusive contractual basis for its
customers. In this case, Petroleum Geo-Services simply provides acquisition
services. When Petroleum Geo-Services acquires multi-client data, however, it
owns the data itself and transfers the possession and use of copies of this
data to the industry at large. We are entitled to receive only multi-client
data from Petroleum Geo-Services.
Standard data is the basic 3-D, time-migrated seismic data, and dragged
array and vertical cable data as now provided as the standard product to
Petroleum Geo-Services' 3-D seismic survey customers. Enhanced data is data
created through additional computer processing of Petroleum Geo-Services'
standard data. Enhanced data includes processed data referred to as pre-stack
depth migrated data, 3-D amplitude versus offset processing and refined pre-
stack time migrated data. We have license rights to approximately 4,450 blocks
of standard data and 1,300 blocks of enhanced data under our Petroleum Geo-
Services agreement.
Petroleum Geo-Services also acquires an advanced form of 3-D marine seismic
data, sometimes referred to as multi-component data, that requires the
simultaneous recording of information with instruments located on the ocean
floor and instruments dragged behind a marine seismic vessel. We are entitled
to select for our use up to 60 blocks of multi-component data that Petroleum
Geo-Services acquires, if any, prior to March 31, 2002 or is in the process of
acquiring as of that date. We must select multi-component data in groups of
blocks which are all contiguous on at least one side and which include at least
five blocks.
Petroleum Geo-Services markets Gulf of Mexico seismic data through seismic
data marketing vendors. We have entered into agreements with some of these
marketing vendors which modify, to some extent, our rights under our agreement
with Petroleum Geo-Services. Material modifications of our rights resulting
from these agreements are noted below. If Petroleum Geo-Services enters into a
marketing agreement with a new party, then Petroleum Geo-Services has agreed to
use good faith efforts to obtain the consent of the new party to our rights
under our agreement with Petroleum Geo-Services. If Petroleum Geo-Services does
not obtain the consent of this new party, however, then we may not be entitled
to the future data of Petroleum Geo-Services that is marketed by that party. A
majority of the data we have received is subject to agreements with marketing
vendors.
S-15
<PAGE>
Rights to Use the Data
We may use the data received under our agreement as follows:
. for our internal needs, including using the data in connection with the
drilling of wells or the acquiring of interests in natural gas or oil
properties;
. make maps and other work products from the data;
. make the data and work product available to our consultants and
contractors for interpretation, analysis, evaluation, mapping and
additional processing; provided, that the data and work product, other
than maps, may not be removed from our premises and must be held in
confidence by those individuals; and
. show data and work products to prospective and existing investors and
participants in farm-outs and exploration or development groups for the
sole purpose of evaluating their participation in such ventures;
provided, that the data and work product, other than maps, may not be
removed from our premises and must be held in confidence by those
individuals.
Our agreement with Petroleum Geo-Services provides that our rights to use
data are perpetual subject to the termination provisions discussed below.
However, our related agreements with Petroleum Geo-Services' marketing vendors
provide that our rights terminate automatically after 25 years. The data we
receive under the Petroleum Geo-Services agreement remains the property of
Petroleum Geo-Services subject to the rights granted to us in the agreement.
Restrictions on Transfer and Assignment
We have the limited right to transfer a copy of standard or enhanced data to
a qualified transferee. A qualified transferee is a party with which we have
entered into a joint venture or other contractual arrangement with respect to
the property relating to the copied data. A qualified transferee must have
substantial business interests other than this joint venture or contractual
relationship, must not have been formed to acquire the copied data and must
have executed a customary license agreement with Petroleum Geo-Services or one
of its vendors. A transfer of a copy of standard data together with the related
enhanced data covering one block counts as the transfer of 1.5 blocks. We may
transfer copies only up to an aggregate of 568.6 blocks. We must transfer
copies of data in groups of blocks that are contiguous on at least one side and
which include at least 20 blocks.
We may assign our rights under our agreement with Petroleum Geo-Services,
directly or by merger, to a successor to all or substantially all of our
business or assets or the business or assets of Spinnaker Exploration Company,
L.L.C., our principal subsidiary, as long as the successor is not a Petroleum
Geo-Services competitor. A Petroleum Geo-Services competitor is a company that
provides 3-D marine seismic data in the Gulf of Mexico as a significant part of
its business or an affiliate of such company. If the successor to our business
or assets is not a Petroleum Geo-Services major customer, then that successor
may in turn transfer the rights under our agreement with Petroleum Geo-Services
to a successor of all of its business or assets as long as that successor is
not a Petroleum Geo-Services competitor. A Petroleum Geo-Services major
customer is a customer that has purchased from Petroleum Geo-Services products
and services at least equal to 7.5 percent of Petroleum Geo-Services' prior 12
months gross receipts for all seismic data sales and related services in the
Gulf of Mexico or an affiliate of that customer. No other transfers of rights
under the agreement by us or our successors are permitted. In addition, one of
our agreements with a Petroleum Geo-Services marketing vendor provides that we
may not assign our rights to Petroleum Geo-Services data marketed by that
vendor without the consent of that vendor.
S-16
<PAGE>
Termination Events
Petroleum Geo-Services may terminate substantially all of our rights under
the agreement by giving us notice after any of the following events:
. we transfer data or our rights under the agreement in violation of the
agreement;
. a Petroleum Geo-Services competitor acquires control of us or our
principal subsidiary;
. a Petroleum Geo-Services major customer acquires control of us or our
principal subsidiary after another Petroleum Geo-Services major customer
has previously acquired control of us or our principal subsidiary;
. we knowingly breach one of the provisions of the agreement relating to
the use, transfer or disclosure of the data and the breach results in
significant damages to Petroleum Geo-Services;
. we unknowingly breach one of these provisions of the agreement, the
breach results in significant damages to Petroleum Geo-Services and we
fail to diligently prevent a subsequent breach after we receive notice of
the breach;
. we commit a material breach of one of the other provisions of the
agreement and fail to remedy the breach within 90 days after notice to
us; or
. we commence a voluntary bankruptcy or similar proceeding or an
involuntary bankruptcy or similar proceeding is commenced against us and
remains undismissed for 30 days.
Non-Compete
Petroleum Geo-Services has agreed that it will not disclose to any person
data covering the majority of the blocks in any survey in the Gulf of Mexico
that is marketed by Petroleum Geo-Services as a single survey in exchange for
interests in any natural gas or oil property or natural gas and oil company.
This restriction terminates on March 31, 2002.
Additional Services
Under our data agreement with Petroleum Geo-Services, we have access to 3-D
seismic data to March 31, 2003 through the proprietary high technology data
archival and retrieval system of PGS Data Management Inc., a subsidiary of
Petroleum Geo-Services.
We have agreed to purchase $2.0 million of seismic-related services from
Petroleum Geo-Services prior to December 31, 2002. We paid to Petroleum Geo-
Services approximately $59,000 in 1997, $122,000 in 1998, $318,000 in 1999 and
$429,000 in the first nine months of 2000 for seismic-related services.
Limitation of Liability
The aggregate liability of Petroleum Geo-Services under the agreement for
all claims made by us is limited to $45.0 million. Our liability for claims
made against us by Petroleum Geo-Services under the agreement is not limited.
Use of Computer-Aided Exploration Technology
Computer-aided exploration is the process of using a computer workstation
and common database to accumulate and analyze seismic, production and other
data regarding a geographic area. In general, computer-aided exploration
involves accumulating various 2-D and 3-D seismic data with respect to a
potential drilling location and correlating that data with historical well
control and production data from similar properties. The available data is then
analyzed using computer software and modeling techniques to project the likely
geologic setting of a potential drilling location and potential locations of
undiscovered natural gas and oil reserves. This
S-17
<PAGE>
process relies on a comparison of actual data for the potential drilling
location and historical data for the density and sonic characteristics of
different types of rock formations, hydrocarbons and other subsurface
minerals, resulting in a projected 3-D image of the subsurface. This modeling
is performed through the use of advanced interactive computer workstations and
various combinations of available computer software developed solely for this
application.
We have invested extensively in the advanced computer hardware and software
necessary for 3-D seismic exploration. We currently have 18 workstations in-
house to analyze seismic data. Our explorationists can access a diverse
software tool kit including modeling, mapping, well path description, time
slice analysis, pre- and post-stack seismic processing, synthetic generation,
fluid replacement studies and seismic attribute analyses. Additionally, we
have invested in direct-link telecommunications technology that provides us
with disk-to-disk downloading of data volumes directly from Petroleum Geo-
Services that allows very rapid loading on our in-house storage. This
capability has benefited us when new data sets are made available only a short
time prior to state and federal lease sales.
Exploration and Development Activities
Significant Exploration and Development Areas
The following table summarizes the most significant of our 36 exploration
discoveries since our inception.
<TABLE>
<CAPTION>
Spinnaker Approximate Date Production
Working Water Depth Commenced/
Discovery Block Operator Interest (feet) Expected
--------------- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
High Island 202......... Spinnaker 75% 50 May 2000
South Timbalier
219/211................ Spinnaker 72 3/4% 150 February 2000
North Padre Island 883.. Spinnaker 35% 80 September 2000
Brazos A-19............. Shell 15% 130 First half 2002
High Island A-18........ Spinnaker 100% 60 October 2000
Garden Banks 367
(Dulcimer)............. Mariner 33 1/3% 1,100 April 1999
Mississippi Canyon 496
(Zia).................. Shell 12 1/2% 1,800 Second half 2002
South Timbalier 220..... Samedan 33 1/3% 150 August 1998
West Cameron 39......... Spinnaker 60% 30 January 1999
Vermilion 375........... Spinnaker 70% 300 October 2000
West Cameron 522........ Newfield 46% 180 March 1998
High Island A-7......... Spinnaker 53% 50 September 2000
</TABLE>
High Island 202. High Island 202 is located approximately 35 miles off the
Texas coast. The #1 exploratory well was drilled to a total measured depth of
13,500 feet in November 1999 and encountered 122 net feet of pay. The #2
exploratory well was drilled to a total measured depth of 15,700 feet in
February 2000 and encountered 149 net feet of pay. The #4 exploratory well was
drilled to a total measured depth of 8,200 feet in June 2000 and encountered
48 net feet of pay. The #3 exploratory well was drilled to a total measured
depth of 14,700 feet in August 2000 and encountered 66 net feet of pay. The
#A-4 exploratory well was drilled to a total measured depth of 13,700 feet in
November 2000 and encountered 131 net feet of pay. We are currently drilling
the #A-5 well on this block. A pipeline upgrade project was completed at our
High Island 199 processing facility which significantly increased sales
capacity from the High Island 202 project area.
South Timbalier 219/211. South Timbalier 219 is located approximately 50
miles off the Louisiana coast. The discovery well was drilled to a total
measured depth of 10,800 feet in August 1999 and encountered 76 net feet of
pay. The South Timbalier 211 discovery well was drilled to a total measured
depth of 10,300 feet in September 1999 and encountered 56 net feet of pay.
North Padre Island 883. North Padre Island 883 is located approximately 45
miles off the Texas coast. The #1 exploratory well was drilled to a total
measured depth of 11,600 feet in January 2000 and encountered 29 net feet of
pay. The #2 exploratory well was drilled to a total measured depth of 13,000
feet in March 2000 and encountered 66 net feet of pay. The #3 exploratory well
was drilled to a total measured depth of 13,900 feet in December 2000 and
encountered productive intervals.
S-18
<PAGE>
Brazos A-19. Brazos A-19 is located approximately 32 miles off the Texas
coast. The discovery well was drilled to a total measured depth of 18,800 feet
in May 1998 and encountered 150 net feet of pay. The well commenced production
in October 1999; however, the operator reported to us that during a shutdown of
the well, it detected a pressure buildup in the production casing. The well has
been plugged and abandoned and the operator plans to drill a replacement well
in 2001.
High Island A-18. High Island A-18 is located approximately 40 miles off the
Texas coast. The discovery well was drilled to a total measured depth of 8,600
feet in July 2000 and encountered 39 net feet of pay.
Garden Banks 367 (Dulcimer). Dulcimer is located approximately 159 miles off
the Louisiana coast. The discovery well was drilled to a total measured depth
of 11,400 feet in February 1998 and encountered 124 net feet of pay. In May
2000, Dulcimer began to produce lower gas rates in conjunction with the onset
of reservoir-related water production. The well had been producing
approximately 43 million cubic feet of gas per day after cumulative production
of approximately 19 billion cubic feet of natural gas equivalent. We are
currently sidetracking the well to an updip location in this fault block. An
additional exploratory target has previously been defined on the block that, if
drilled successfully, would benefit from the existing infrastructure.
Mississippi Canyon 496 (Zia). Zia is located approximately 33 miles off the
Louisiana coast. The discovery well was drilled to a total measured depth of
21,800 feet in November 1998 and encountered 217 net feet of pay. A second well
is planned during the second half of 2001.
Planned Exploration Prospects
We expect to drill approximately 27 exploration prospects in 2001. We have
analyzed 3-D seismic data covering each of these prospects. We continue to
review and interpret data covering these prospects and believe that many of the
prospects have the potential for additional drill sites. We operate several of
these prospects. We typically have participated in prospects with industry
partners to share the up-front costs associated with our exploration
activities, to mitigate our exploration risk and to increase the number of
prospects in which we can participate.
Although we expect to drill these prospects, there can be no assurance that
these wells will be drilled at all or within the expected time frame. Please
read the "Risk Factors" section in the accompanying prospectus for a discussion
of some factors that may affect the timing of drilling.
Natural Gas and Oil Reserves
The following table presents our estimated net proved natural gas and oil
reserves and the net present value of our reserves at June 30, 2000 based on a
reserve report prepared by Ryder Scott Company, L.P. Appendix A to this
prospectus supplement contains a letter prepared by Ryder Scott Company, L.P.
summarizing the reserve report. The present value, discounted at 10 percent per
annum, of estimated future net cash flows and the standardized measure of
discounted future net cash flows shown in the table are not intended to
represent the current market value of the estimated natural gas and oil
reserves Spinnaker owns.
The present value of future net cash flows and the standardized measure of
discounted future net cash flows as of June 30, 2000 was determined by using
prices of $4.55 per Mcf of natural gas and $32.72 per barrel of oil, which
represents market prices in effect at June 30, 2000 of $4.37 per MMBtu of
natural gas and $32.50 per barrel of oil, adjusted for transportation and grade
differences.
<TABLE>
<CAPTION>
Proved Reserves
------------------------------
Developed Undeveloped Total
--------- ----------- --------
<S> <C> <C> <C>
Natural gas (MMcf)........................... 48,113 61,387 109,500
Oil and condensate (MBbls)................... 337 1,925 2,262
Total proved reserves (MMcfe)................ 50,131 72,939 123,070
Present value of future net cash flows
(before income taxes) discounted at 10% (in
thousands) (1).............................. $166,665 $210,051 $376,716
Standardized measure of discounted future net
cash flows (in thousands) (1)............... $134,226 $169,167 $303,393
</TABLE>
S-19
<PAGE>
--------
(1) Includes unrealized losses of $16.3 million for the effects of our hedging
activities using natural gas and oil prices in effect at June 30, 2000.
The process of estimating natural gas and oil reserves is complex. It
requires various assumptions, including assumptions relating to natural gas and
oil prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. We must project production rates and timing of
development expenditures. We analyze available geological, geophysical,
production and engineering data, and the extent, quality and reliability of
this data can vary. Therefore, estimates of natural gas and oil reserves are
inherently imprecise.
Actual future production, natural gas and oil prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves most likely will vary from our estimates. Any
significant variance could materially affect the estimated quantities and net
present value of reserves shown in this prospectus supplement. In addition, we
may adjust estimates of proved reserves to reflect production history, results
of exploration and development, prevailing natural gas and oil prices and other
factors, many of which are beyond our control. At June 30, 2000, approximately
74 percent of our proved reserves were either undeveloped or non-producing.
Because most of our reserve estimates are not based on a lengthy production
history and are calculated using volumetric analysis, these estimates are less
reliable than estimates based on a lengthy production history.
At June 30, 2000, approximately 59 percent of our proved reserves were
undeveloped. Recovery of undeveloped reserves generally requires significant
capital expenditures and successful drilling operations. The reserve data
assumes that we will make these expenditures. Although we estimate our reserves
and the costs associated with developing them in accordance with industry
standards, the estimated costs may be inaccurate, development may not occur as
scheduled and results may not be as estimated.
You should not assume that the present value of future net cash flows
referred to in this prospectus supplement is the current market value of our
estimated natural gas and oil reserves. In accordance with Securities and
Exchange Commission requirements, we base the estimated discounted future net
cash flows from proved reserves on prices and costs on the date of the
estimate. Actual future prices and costs may differ materially from those used
in the present value estimate.
S-20
<PAGE>
Volumes, Prices and Operating Expenses
The following table presents information regarding the production volumes
of, average sales prices received for and average production costs associated
with our sales of natural gas and oil for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
-------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf)...................... 70 1,675 11,962 7,447 18,008
Oil and condensate (MBbls).............. -- 12 180 124 149
Total (MMcfe)......................... 70 1,747 13,044 8,189 18,901
Average sales price per unit:
Natural gas revenues from production
(per Mcf).............................. $ 2.87 $ 1.89 $ 2.49 $ 2.37 $ 3.76
Effects of hedging activities (per
Mcf)................................... -- -- 0.08 -- (0.44)
------ ------ ------ ------ ------
Average price (per Mcf)............... $ 2.87 $ 1.89 $ 2.57 $ 2.37 $ 3.32
Oil and condensate revenues from
production (per Bbl)................... $18.51 $11.61 $20.33 $18.24 $28.44
Effects of hedging activities (per
Bbl)................................... -- -- (0.57) -- (8.74)
------ ------ ------ ------ ------
Average price (per Bbl)............... $18.51 $11.61 $19.76 $18.24 $19.70
Total revenues from production (per
Mcfe).................................. $ 2.87 $ 1.89 $ 2.57 $ 2.43 $ 3.81
Effects of hedging activities (per
Mcfe).................................. -- -- 0.06 -- (0.49)
------ ------ ------ ------ ------
Total average price (per Mcfe)........ $ 2.87 $ 1.89 $ 2.63 $ 2.43 $ 3.32
Expenses (per Mcfe):
Lease operating expenses (1)............ $ 1.03 $ 0.27 $ 0.41 $ 0.43 $ 0.34
Depreciation, depletion and
amortization--natural gas and oil
properties............................. $ 0.97 $ 1.57 $ 1.59 $ 1.59 $ 1.57
</TABLE>
--------
(1) Lease operating expenses per Mcfe for the nine months ended September 30,
2000 include approximately $.04 per Mcfe associated with workovers on four
wells. Lease operating expenses per Mcfe for the nine months ended
September 30, 1999 and the year ended December 31, 1999 include
approximately $0.13 per Mcfe associated with workovers on two wells and
well control activities on another well.
Development, Exploration and Acquisition Capital Expenditures
The following table presents information regarding our net costs incurred in
the purchase of proved and unproved properties and in exploration and
development activities:
<TABLE>
<CAPTION>
Nine
Year Ended December 31, Months Ended
----------------------- September
1997 1998 1999 30, 2000
------- ------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Property acquisition costs:
Unproved............................. $ 4,458 $15,791 $13,911 $ 17,422
Proved............................... -- -- -- --
Exploration costs...................... 7,116 46,620 45,152 63,754
Development costs (1).................. 2,422 23,067 23,614 42,897
------- ------- ------- --------
Total costs incurred............... $13,996 $85,478 $82,677 $124,073
======= ======= ======= ========
</TABLE>
--------
(1) Includes costs of completions, platforms, facilities and pipelines
associated with exploratory wells.
S-21
<PAGE>
Drilling Activity
The following table shows our drilling activity. In the table, "gross"
refers to the total wells in which we have a working interest and "net" refers
to gross wells multiplied by our working interest in such wells.
<TABLE>
<CAPTION>
Nine
Year Ended December 31, Months Ended
----------------------------- September 30,
1997 1998 1999 2000
--------- --------- --------- ---------------
Gross Net Gross Net Gross Net Gross Net
----- --- ----- --- ----- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................... 4 1.5 9 2.9 8 4.6 9 6.0
Nonproductive................ -- -- 6 2.3 4 1.9 12 5.3
--- --- --- --- --- --- ------ -------
Total...................... 4 1.5 15 5.2 12 6.5 21 11.3
=== === === === === === ====== =======
Development Wells:
Productive................... -- -- -- -- -- -- -- --
Nonproductive................ -- -- -- -- -- -- -- --
--- --- --- --- --- --- ------ -------
Total...................... -- -- -- -- -- -- -- --
=== === === === === === ====== =======
</TABLE>
Since September 30, 2000, we have drilled five gross (3.0 net) productive
exploratory wells and one gross (0.3 net) nonproductive exploratory well. In
1999, we drilled an exploratory well that was preliminarily determined to be
unsuccessful and was temporarily abandoned. Upon reprocessing of the seismic
data, further analysis of the well and related sidetrack and examination of
proved category reserves, we have determined that the development would be
commercial, and the well has been reclassified as a discovery. We are currently
drilling four gross (1.7 net) exploratory wells.
Productive Wells
The following table sets forth the number of productive natural gas and oil
wells in which we owned an interest as of September 30, 2000:
<TABLE>
<CAPTION>
Total
Productive
Wells
----------
Gross Net
----- ----
<S> <C> <C>
Natural gas....................................................... 29 14.9
Oil............................................................... 1 0.1
--- ----
Total........................................................... 30 15.0
=== ====
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including natural gas wells awaiting pipeline connections to commence
deliveries and oil wells awaiting connection to production facilities.
Acreage Data
The following table presents information regarding our developed and
undeveloped lease acreage at November 30, 2000. Developed acreage refers to
acreage within producing units and undeveloped acreage refers to acreage that
has not been placed in producing units.
<TABLE>
<CAPTION>
Developed Undeveloped
Acreage Acreage Total
--------- ------------ ---------
Gross Net Gross Net Gross Net
----- --- ------ ----- ----- ---
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal Waters Offshore Louisiana.............. 40 19 354 157 394 176
Federal Waters Offshore Texas.................. 40 25 260 120 300 145
Texas State Waters............................. 10 4 35 15 45 19
--- --- ----- ----- --- ---
Total........................................ 90 48 649 292 739 340
=== === ===== ===== === ===
</TABLE>
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<PAGE>
Our lease agreements generally terminate if wells have not been drilled on
the acreage within a period of five years from the date of the lease if located
on the shelf in less than 200 meters of water or ten years if located in deeper
waters of the Gulf of Mexico.
Marketing
Most of our natural gas and oil production is sold under price sensitive or
market price contracts. Our revenues, profitability and future growth depend
substantially on prevailing prices for natural gas and oil. The price received
by us for our natural gas and oil production fluctuates widely. For example,
natural gas and oil prices declined significantly in 1998 and, for an extended
period of time, remained substantially below prices obtained in previous years.
Among the factors that can cause this fluctuation are:
. the level of consumer product demand;
. weather conditions;
. domestic and foreign governmental regulations;
. the price and availability of alternative fuels;
. political conditions in natural gas and oil producing regions;
. the domestic and foreign supply of natural gas and oil;
. the price of foreign imports; and
. overall economic conditions.
Decreases in the prices of natural gas and oil could adversely affect the
carrying value of our proved reserves and our revenues, profitability and cash
flow. Although we are not currently experiencing any significant involuntary
curtailment of our natural gas or oil production, market, economic and
regulatory factors may in the future materially affect our ability to sell our
natural gas or oil production. For the years ended December 31, 1997 and 1998,
sales to Cokinos Energy Corporation were 100 percent of our natural gas and oil
revenues, respectively. For the year ended December 31, 1999, sales to Columbia
Energy Services were 68 percent and sales to Cokinos Energy Corporation were 32
percent of our natural gas and oil revenues.
Two customers currently purchase all of our natural gas production at
current market prices. The terms of our arrangements require our customers to
pay us within 60 days after we deliver our production. As a result, if our
customers were to default on their payment obligations to us, our near-term
earnings and cash flows would be adversely affected. However, due to the
availability of other markets and pipeline connections, we do not believe that
the loss of these customers or any other customers would adversely affect our
ability to market our production.
To reduce our exposure to fluctuations in the prices of natural gas and oil,
we enter into hedging arrangements with respect to a portion of our expected
production. Hedging arrangements expose us to risks in some circumstances,
including the following:
. production is less than expected;
. the other party to the hedging contract defaults on its contract
obligations; or
. there is a change in the expected differential between the underlying
price in the hedging agreement and the actual prices received.
In addition, these hedging arrangements have limited and may continue to
limit the benefit we would receive from increases in the prices for natural gas
and oil. We cannot assure you that the hedging transactions we have entered
into, or will enter into, will adequately protect us from fluctuations in the
prices of natural gas and oil.
On the other hand, we may choose not to engage in hedging transactions in
the future. As a result, we may be more adversely affected by changes in
natural gas and oil prices than our competitors who engage in
S-23
<PAGE>
hedging transactions. For further information concerning our hedging
transactions, please read the documents incorporated by reference into the
accompanying prospectus.
Competition
We compete with major and independent natural gas and oil companies for
property acquisitions. We also compete for the equipment and labor required to
operate and develop these properties. Most of our competitors have
substantially greater financial and other resources. As a result, in the deep
water where exploration is more expensive, our competitors may be better able
to withstand sustained periods of unsuccessful drilling. In addition, larger
competitors may be able to absorb the burden of any changes in federal, state
and local laws and regulations more easily than we can, which would adversely
affect our competitive position. These competitors may be able to pay more for
exploratory prospects and productive natural gas and oil properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than we can. Our ability to explore for natural gas and oil
prospects and to acquire additional properties in the future will depend upon
our ability to conduct operations, to evaluate and select suitable properties
and to consummate transactions in this highly competitive environment. In
addition, most of our competitors have been operating in the Gulf of Mexico for
a much longer time than we have and have demonstrated the ability to operate
through industry cycles.
Regulation
Federal Regulation of Sales and Transportation of Natural Gas. Historically,
the transportation and sale for resale of natural gas in interstate commerce
have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas
Policy Act of 1978 and the regulations promulgated thereunder by the Federal
Energy Regulatory Commission. In the past, the federal government has regulated
the prices at which natural gas could be sold. Deregulation of natural gas
sales by producers began with the enactment of the Natural Gas Policy Act of
1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act, which
removed all remaining Natural Gas Act of 1938 and Natural Gas Policy Act of
1978 price and non-price controls affecting producer sales of natural gas
effective January 1, 1993. Congress could, however, re-enact price controls in
the future.
Our sales of natural gas are affected by the availability, terms and cost of
pipeline transportation. The price and terms for access to pipeline
transportation remain subject to extensive federal regulation. Commencing in
April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a
series of related orders, which required interstate pipelines to provide open-
access transportation on a basis that is equal for all natural gas suppliers.
The Federal Energy Regulatory Commission has stated that it intends for Order
No. 636 and its future restructuring activities to foster increased competition
within all phases of the natural gas industry. Although Order No. 636 does not
directly regulate our production and marketing activities, it does affect how
buyers and sellers gain access to the necessary transportation facilities and
how we and our competitors sell natural gas in the marketplace. The courts have
largely affirmed the significant features of Order No. 636 and the numerous
related orders pertaining to individual pipelines, although some appeals remain
pending and the Federal Energy Regulatory Commission continues to review and
modify its regulations regarding the transportation of natural gas. For
example, the Federal Energy Regulatory Commission recently issued Order Nos.
637, 637-A and 637-B which, among other things, (i) lift the cost-based cap on
pipeline transportation rates in the capacity release market until September
30, 2002, for short-term releases of pipeline capacity of less than one year,
(ii) permit pipelines to charge different maximum cost-based rates for peak and
off-peak periods, (iii) encourage, but do not mandate, auctions for pipeline
capacity, (iv) require pipelines to implement imbalance management services,
(v) restrict the ability of pipelines to impose penalties for imbalances,
overruns and non-compliance with operational flow orders, and (vi) implement a
number of new pipeline reporting requirements. These orders also require the
Federal Energy Regulatory Commission Staff to analyze whether the Federal
Energy Regulatory Commission should implement additional fundamental policy
changes, including, among other things, whether to pursue performance-based
ratemaking or other non-cost based ratemaking techniques and whether the
Federal Energy Regulatory Commission should mandate greater standardization in
terms and conditions of service across the interstate pipeline grid. In
addition, the Federal
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<PAGE>
Energy Regulatory Commission implemented new regulations governing the
procedure for obtaining authorization to construct new pipeline facilities and
has issued a policy statement, which it largely affirmed in recent orders on
rehearing, establishing a presumption in favor of requiring owners of new
pipeline facilities to charge rates based solely on the costs associated with
such new pipeline facilities. We cannot predict what further action the Federal
Energy Regulatory Commission will take on these matters, nor can we accurately
predict whether the Federal Energy Regulatory Commission's actions will achieve
the goal of increasing competition in markets in which our natural gas is sold.
However, we do not believe that any action taken will affect us in a way that
materially differs from the way it affects other natural gas producers,
gatherers and marketers.
The Outer Continental Shelf Lands Act requires that all pipelines operating
on or across the Outer Continental Shelf provide open-access, non-
discriminatory service. Although the Federal Energy Regulatory Commission has
opted not to impose the regulations of Order No. 509, in which the Federal
Energy Regulatory Commission implemented the Outer Continental Shelf Lands Act,
on gatherers and other non-jurisdictional entities, the Federal Energy
Regulatory Commission has retained the authority to exercise jurisdiction over
those entities if necessary to permit non-discriminatory access to service on
the Outer Continental Shelf. The Federal Energy Regulatory Commission recently
issued Order No. 639, requiring that virtually all non-proprietary pipeline
transporters of natural gas on the Outer Continental Shelf report information
on their affiliations, rates and conditions of service. Among the Federal
Energy Regulatory Commission's stated purposes in issuing such rules was the
desire to provide shippers on the Outer Continental Shelf with greater
assurance of open-access services on pipelines located on the Outer Continental
Shelf and non-discriminatory rates and conditions of service on such pipelines.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the Federal Energy Regulatory Commission
and the courts. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the Federal Energy Regulatory Commission and
Congress will continue.
Federal Leases. A substantial portion of our operations is located on
federal natural gas and oil leases, which are administered by the Minerals
Management Service. Such leases are issued through competitive bidding, contain
relatively standardized terms and require compliance with detailed Minerals
Management Service regulations and orders pursuant to the Outer Continental
Shelf Lands Act which are subject to interpretation and change by the Minerals
Management Service. For offshore operations, lessees must obtain Minerals
Management Service approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency, lessees must obtain a permit
from the Minerals Management Service prior to the commencement of drilling. The
Minerals Management Service has promulgated regulations requiring offshore
production facilities located on the Outer Continental Shelf to meet stringent
engineering and construction specifications. The Minerals Management Service
also has regulations restricting the flaring or venting of natural gas, and has
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the Minerals
Management Service has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the installation and removal of all
production facilities. To cover the various obligations of lessees on the Outer
Continental Shelf, the Minerals Management Service generally requires that
lessees have substantial net worth or post bonds or other acceptable assurances
that such obligations will be met. The cost of these bonds or other surety can
be substantial, and there is no assurance that bonds or other surety can be
obtained in all cases. We are currently in compliance with the bonding
requirements of the Minerals Management Service. Under some circumstances, the
Minerals Management Service may require any of our operations on federal leases
to be suspended or terminated. Any such suspension or termination could
materially adversely affect our financial condition and results of operations.
The Minerals Management Service recently issued a final rule that amended
its regulations governing the calculation of royalties and the valuation of
crude oil produced from federal leases. This rule provides that the
S-25
<PAGE>
Minerals Management Service will collect royalties based on the market value of
oil produced from federal leases. The lawfulness of the new rule has been
challenged in federal court. We cannot predict whether this new rule will be
upheld in federal court, nor can we predict whether the Minerals Management
Service will take further action on this matter. We believe this rule will not
have a material impact on our financial condition, liquidity or results of
operations.
State and Local Regulation of Drilling and Production. We own interests in
properties located in the state waters of the Gulf of Mexico offshore Texas and
Louisiana and occasionally may conduct operations in the state waters offshore
Mississippi. These states regulate drilling and operating activities by
requiring, among other things, drilling permits and bonds and reports
concerning operations. The laws of these states also govern a number of
environmental and conservation matters, including the handling and disposing of
waste materials, unitization and pooling of natural gas and oil properties and
establishment of maximum rates of production from natural gas and oil wells.
Some states prorate production to the market demand for natural gas and oil.
Oil Price Controls and Transportation Rates. Sales of crude oil, condensate
and natural gas liquids by us are not currently regulated and are made at
market prices. The price we receive from the sale of these products may be
affected by the cost of transporting the products to market. Effective as of
January 1, 1995, the Federal Energy Regulatory Commission implemented
regulations generally grandfathering all previously approved interstate
transportation rates and establishing an indexing system for those rates by
which adjustments are made annually based on the rate of inflation, subject to
certain conditions and limitations. These regulations have generally been
approved on judicial review. Beginning later this year, the Federal Energy
Regulatory Commission will conduct a scheduled review of the indexing system.
Any changes resulting from that review, however, would not take effect before
July 2001. The Federal Energy Regulatory Commission's regulation of oil
transportation rates may tend to increase the cost of transporting oil and
natural gas liquids by interstate pipeline, although the annual adjustments may
result in decreased rates in a given year. We are unable at this time to
predict the effects of these regulations, if any, on the transportation costs
associated with oil production from our properties. However, we do not believe
that these regulations affect us any differently than other producers.
Environmental Regulations. Our operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years.
Offshore drilling in some areas has been opposed by environmental groups and,
in some areas, has been restricted. To the extent laws are enacted or other
governmental action is taken that prohibits or restricts offshore drilling or
imposes environmental protection requirements that result in increased costs to
the natural gas and oil industry in general and the offshore drilling industry
in particular, our business and prospects could be adversely affected.
The Oil Pollution Act of 1990 and regulations thereunder impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills in United States waters. A
"responsible party" includes the owner or operator of a facility or vessel, or
the lessee or permittee of the area in which an offshore facility is located.
The Oil Pollution Act of 1990 assigns liability to each responsible party for
oil removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Even if applicable, the
liability limits for offshore facilities require the responsible party to pay
all removal costs, plus up to $75.0 million in other damages. Few defenses
exist to the liability imposed by the Oil Pollution Act of 1990.
The Oil Pollution Act of 1990 also requires a responsible party to submit
proof of its financial ability to cover environmental cleanup and restoration
costs that could be incurred in connection with an oil spill. As amended by the
Coast Guard Authorization Act of 1996, the Oil Pollution Act of 1990 requires
parties responsible for offshore facilities to provide financial assurance in
the amount of $35.0 million to cover
S-26
<PAGE>
potential Oil Pollution Act of 1990 liabilities. This amount can be increased
up to $150.0 million if a study by the Minerals Management Service indicates
that an amount higher than $35.0 million should be required. On August 11,
1998, the Minerals Management Service adopted a rule implementing these Oil
Pollution Act of 1990 financial responsibility requirements. We are in
compliance with this rule.
The Oil Pollution Act of 1990 also imposes other requirements, such as the
preparation of an oil spill contingency plan. We have such a plan in place. We
are also regulated by the Clean Water Act and similar state laws. The Clean
Water Act prohibits any discharge into waters of the United States except in
strict conformance with permits issued by federal and state agencies. Failure
to comply with the ongoing requirements of these laws or inadequate cooperation
during a spill event may subject a responsible party to civil or criminal
enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorizes regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the Outer Continental Shelf Lands Act can result
in substantial civil and criminal penalties, as well as potential court
injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or private
prosecution.
The Comprehensive Environmental Response, Compensation, and Liability Act,
also known as the "Superfund" law, imposes liability, without regard to fault
or the legality of the original conduct, on some classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances found at the site.
Persons who are or were responsible for releases of hazardous substances under
the Comprehensive Environmental Response, Compensation, and Liability Act may
be subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
Our operations are also subject to regulation of air emissions under the
Clean Air Act, comparable state and local requirements and the Outer
Continental Shelf Lands Act. Future regulations under these laws could lead to
the gradual imposition of new air pollution control requirements on our
operations. Therefore, we may incur capital expenditures over the next several
years to upgrade our air pollution control equipment. We do not believe that
our operations would be materially affected by any such requirements, nor do we
expect such requirements to be any more burdensome to us than to other
companies our size involved in natural gas and oil exploration and production
activities.
In addition, legislation has been proposed in Congress from time to time
that would reclassify some natural gas and oil exploration and production
wastes as "hazardous wastes," which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If
Congress were to enact this legislation, it could increase our operating costs,
as well as those of the natural gas and oil industry in general. Initiatives to
further regulate the disposal of natural gas and oil wastes are also pending in
some states, and these various initiatives could have a similar impact on us.
Our management believes that we are in substantial compliance with current
applicable environmental laws and regulations and that continued compliance
with existing requirements will not have a material adverse impact on us.
S-27
<PAGE>
Operating Hazards and Insurance
The natural gas and oil business involves a variety of operating risks,
including:
. fires;
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of underground natural gas, oil and formation water;
. natural disasters;
. pipe or cement failures;
. casing collapses;
. embedded oilfield drilling and service tools;
. abnormally pressured formations; and
. environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and
equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
If we experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, which could adversely
affect our ability to conduct operations.
As part of our strategy, we explore for natural gas and oil in the deep
waters of the Gulf of Mexico where operations are more difficult than in
shallower waters. Our deep water drilling and operations require the
application of recently developed technologies that involve a higher risk of
mechanical failure. Furthermore, the deep waters of the Gulf of Mexico lack the
physical and oilfield service infrastructure present in the shallower waters of
the Gulf of Mexico. As a result, deep water operations may require a
significant amount of time between a discovery and the time that we can market
the natural gas or oil, increasing the risk involved with these operations.
Offshore operations also are subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions, and damage
or loss from hurricanes or other adverse weather conditions. These conditions
can cause substantial damage to facilities and interrupt production. As a
result, we could incur substantial liabilities that could reduce or eliminate
the funds available for exploration, development or leasehold acquisitions, or
result in loss of properties.
In accordance with industry practice, we maintain insurance against some,
but not all, potential risks and losses. We do not carry business interruption
insurance. For some risks, we may not obtain insurance if we believe the cost
of available insurance is excessive relative to the risks presented. In
addition, pollution and environmental risks generally are not fully insurable.
If a significant accident or other event occurs and is not fully covered by
insurance, it could adversely affect us.
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<PAGE>
Employees
At November 30, 2000, we had 43 full-time employees. We believe that our
relationships with our employees are satisfactory. None of our employees is
covered by a collective bargaining agreement. From time to time, we use the
services of independent consultants and contractors to perform various
professional services, particularly in the areas of construction, design, well-
site surveillance, permitting and environmental assessment. Independent
contractors usually perform field and on-site production operation services for
us, including pumping, maintenance, dispatching, inspection and testing.
Legal Proceedings
From time to time, we may be a party to various legal proceedings. We
currently are not a party to any material litigation.
S-29
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of our
executive officers and directors at November 30, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Roger L. Jarvis......... 46 Chairman of the Board, President and Chief Executive Officer
James M. Alexander...... 49 Vice President, Chief Financial Officer and Secretary
William D. Hubbard...... 56 Vice President--Exploration
Kelly M. Barnes......... 47 Vice President--Land
L. Scott Broussard...... 43 Vice President--Drilling and Production
Jimmy W. Bennett........ 53 Vice President--Systems Technology and Processing
Jeffrey C. Zaruba....... 36 Treasurer
Bjarte Bruheim.......... 45 Director
Sheldon R. Erikson...... 59 Director
Jeffrey A. Harris....... 44 Director
Michael E. McMahon...... 53 Director
Reidar Michaelsen....... 57 Director
Howard H. Newman........ 53 Director
</TABLE>
The following biographies describe the business experience of our executive
officers and directors.
Roger L. Jarvis has served as President, Chief Executive Officer and a
director of Spinnaker since 1996 and as Chairman of Spinnaker since 1998. From
1986 to 1994, Mr. Jarvis served in various capacities with King Ranch Inc. and
its subsidiary, King Ranch Oil and Gas, Inc., including Chief Executive
Officer, President and Director of King Ranch Inc. and Chief Executive Officer
and President of King Ranch Oil and Gas, Inc., where he expanded its activities
in the Gulf of Mexico. Mr. Jarvis served as Chief Executive Officer, President
and Principal of (American) Barrick Exploration from 1981 to 1986. In 1979, he
co-founded an engineering and geological consulting firm, Lawson Engineering
Incorporated, where he worked until 1981. From 1976 to 1979, Mr. Jarvis worked
for Amoco Production Company as a petroleum engineer.
James M. Alexander has served as Vice President, Chief Financial Officer and
Secretary of Spinnaker since 1996. Mr. Alexander served as President of
Alexander Consulting from 1992 to 1994, and again from 1995 to 1996. From 1994
to 1995, he served as Chief Financial Officer and then President of Enron
Global Power and Pipeline L.L.C. Mr. Alexander also has served in various
positions within the corporate finance departments of Howard, Weil, Labouisse,
Friedrichs; Drexel Burnham Lambert; Lehman Brothers; and The First Boston
Corporation. Mr. Alexander is a director of Dril-Quip, Inc. Mr. Alexander
announced in July his intention to retire on or before May 1, 2001.
William D. Hubbard has served as Vice President--Exploration of Spinnaker
since 1996. He served as Senior Vice President--Exploration at Global Natural
Resources Corp. from 1992 to 1996, where he was responsible for both onshore
and offshore exploration. From 1987 to 1992, Mr. Hubbard served as Vice
President--Exploration at Adobe Resources Corporation, which merged into Santa
Fe Energy Resources, Inc. in 1992.
Kelly M. Barnes has served as Vice President--Land of Spinnaker since 1997.
From 1992 to 1996, he served as Vice President--Land and Assistant Corporate
Secretary of Global Natural Resources Corporation of Nevada and its affiliated
corporations. Prior to joining Global Natural Resources Corporation of Nevada,
Mr. Barnes held various managerial positions with Adobe Resources Corporation
and its predecessors from 1976 to 1992.
L. Scott Broussard has served as Vice President--Drilling and Production of
Spinnaker since August 1999 after joining Spinnaker as Operations Manager in
1998. Mr. Broussard served as Vice President and co-
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<PAGE>
owner of HTK Consultants, Inc., an engineering consulting firm, from 1994 to
1998. From 1990 to 1994, he served as Drilling Engineer for Samedan Oil
Corporation, supervising operations in the Gulf of Mexico. From 1981 to 1990,
he served in various capacities with Placid Oil Company, including the position
of Senior Drilling Engineer and supervising operations in the deepwater Gulf of
Mexico.
Jimmy W. Bennett has served as Vice President--Systems Technology and
Processing since May 2000. From 1997 to 2000, Mr. Bennett served as Spinnaker's
Systems Manager. Prior to joining Spinnaker, Mr. Bennett served as Systems
Manager for King Ranch Oil and Gas, Inc. from 1991 to 1997. From 1969 to 1991,
he held various seismic data processing and acquisition positions including
Manager, Seismic Processing and Acquisition for Superior Oil Company and
Seismic Processing Specialist with Chevron Oil Company.
Jeffrey C. Zaruba has served as Treasurer since joining Spinnaker in August
1999. From 1992 to 1999, Mr. Zaruba served as Assistant Controller and held
various financial and tax reporting positions with Cliffs Drilling Company,
which merged with R&B Falcon Corporation in 1998. From 1987 to 1992, he was an
Audit Manager and held senior and staff audit positions with Arthur Young.
Bjarte Bruheim has served as a director of Spinnaker since 1996. Mr. Bruheim
has served as the President and Chief Operating Officer of Petroleum Geo-
Services since March 1993 and was President of PGS Exploration (U.S.), Inc.
from 1991 to 1994. Mr. Bruheim was employed with Geco Geophysical Company,
Inc., Houston from 1981 to 1991, most recently as Vice President, Marine
Operations North/South America.
Sheldon R. Erikson has served as a director of Spinnaker since February
2000. Mr. Erikson has served as the Chairman of the Board of Cooper Cameron
Corporation since 1996 and President and Chief Executive Officer and Director
since 1995. He was Chairman of the Board from 1988 to 1995, and President and
Chief Executive Officer from 1987 to 1995, of The Western Company of North
America. Previously, he was President of the Joy Petroleum Equipment Group of
Joy Manufacturing Company. He is a director of Triton Energy Corporation, Layne
Christensen Co., National Ocean Industries Association, Petroleum Equipment
Suppliers Association and American Petroleum Institute.
Jeffrey A. Harris has served as a director of Spinnaker since 1996. Mr.
Harris has been a Member and Managing Director of E.M. Warburg, Pincus & Co.,
LLC and a general partner of Warburg, Pincus & Co. since 1988, where he has
been employed since 1983. He is currently a member of that firm's Operating
Committee. Mr. Harris serves on the board of directors of Industri-Matematik
International, ECsoft Group plc and Knoll, Inc.
Michael E. McMahon has served as a director of Spinnaker since October 1999.
Mr. McMahon has served as a partner in RockPort Partners LLC, an investment
company, since June 1998. From July 1997 to June 1998, Mr. McMahon was a
Managing Director of Chase Securities, Inc., and from October 1994 until July
1997, Mr. McMahon was a Managing Director of Lehman Brothers. Prior to joining
Lehman Brothers, Mr. McMahon had been a partner in Aeneas Group, Inc., a
subsidiary of Harvard Management Company, Inc., since January 1993. Harvard
Management Company, Inc. is a private investment company responsible for
managing the endowment fund of Harvard University. Mr. McMahon was primarily
responsible for the fund's energy and commodities investments. Mr. McMahon also
has served as a director of Triton Energy Limited since 1993.
Reidar Michaelsen has served as a director of Spinnaker since 1996. He has
served as the Chairman of the Board and Chief Executive Officer of Petroleum
Geo-Services since 1993. He was President of Petroleum Geo-Services from 1991
to 1993. Mr. Michaelsen served as managing director of Norsk Vekst AAS from
1989 to 1991. He headed the Selmer Sande Group from 1986 to 1989 and was with
Geco Geophysical Company, Inc., Houston from 1982 to 1986, reaching the
position of managing director.
Howard H. Newman has served as a director of Spinnaker since 1996. Mr.
Newman has been employed by E.M. Warburg, Pincus & Co., LLC since January 1984
and has been a partner of Warburg, Pincus & Co.
S-31
<PAGE>
since January 1987. Prior to that, he held various positions with Morgan
Stanley & Co., Incorporated from 1974 to 1983. At Warburg Pincus, Mr. Newman is
currently Vice Chairman and a member of its Operating, Compensation and
Investment Policy Committees. He is also a director of ADVO, Inc., Cox
Insurance Holdings, Plc, Dime Bancorp Inc., Eagle Family Foods Holdings, Inc.,
EEX Corporation, Newfield Exploration Company, and several privately held
companies. He also serves as Vice Chairman of the Yale Alumni Fund.
S-32
<PAGE>
SECURITY OWNERSHIP OF THE SELLING STOCKHOLDER, MANAGEMENT
AND CERTAIN BENEFICIAL HOLDERS
The selling stockholder in this offering is Seismic Energy Holdings, Inc., a
wholly owned subsidiary of Petroleum Geo-Services ASA. The following table
presents information regarding beneficial ownership of our common stock as of
November 30, 2000 by:
. the selling stockholder
. each other person who we know owns beneficially more than 5 percent of
our common stock;
. each of our directors;
. our chief executive officer and each of our four other most highly
compensated executive officers; and
. all our executive officers and directors as a group.
Unless otherwise indicated, each person listed has sole voting and
dispositive power over the shares indicated as owned by that person, and the
address of each stockholder is the same as our address. Furthermore, under the
regulations of the Securities and Exchange Commission, shares are deemed to be
"beneficially owned" by a person if the holder directly or indirectly has or
shares the power to vote or dispose of these shares, whether or not the holder
has any pecuniary interest in these shares, or if the holder has the right to
acquire the power to vote or dispose of these shares within 60 days, including
any right to acquire through the exercise of any option, warrant or right.
Therefore, in this table the shares beneficially owned by Messrs. Jarvis,
Alexander, Hubbard, Barnes, Broussard, Erikson and McMahon include 1,101,312,
441,759, 207,384, 115,717, 42,199, 5,300 and 9,100 shares, respectively, that
may be acquired within 60 days through the exercise of stock options. Please
note that the address of Warburg, Pincus Ventures, L.P. and Messrs. Harris and
Newman is 466 Lexington Avenue, 10th Floor, New York, New York 10017, and the
address of Petroleum Geo-Services and Messrs. Bruheim and Michaelsen is
Strandvein 50E, P.O. Box 89, N-1325, Lysaker, Norway.
<TABLE>
<CAPTION>
Beneficial Ownership
-------------------------------------------
Percent
--------------------
Shares Sold
in Before After
Beneficial Owner Shares Offering(3) Offering Offering(3)
---------------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Petroleum Geo-Services ASA (1).. 5,388,743 4,700,000 20.5% 2.6%
Warburg, Pincus Ventures, L.P.
(2)............................ 6,800,585 -- 25.9 25.9
Roger L. Jarvis................. 1,200,030 -- 4.4 4.4
James M. Alexander.............. 542,418 -- 2.0 2.0
William D. Hubbard.............. 230,102 -- * *
Kelly M. Barnes................. 126,017 -- * *
L. Scott Broussard.............. 43,762 -- * *
Bjarte Bruheim (1).............. 5,393,743 4,700,000 20.5 2.6
Sheldon R. Erikson.............. 5,300 -- * *
Jeffrey A. Harris (2)........... 6,800,585 -- 25.9 25.9
Michael E. McMahon.............. 23,575 -- * *
Reidar Michaelsen (1)........... 5,393,743 4,700,000 20.5 2.6
Howard H. Newman (2)............ 6,800,585 -- 25.9 25.9
All executive officers and
directors as a group
(13 persons)................... 14,426,164 4,700,000 51.1 34.4
</TABLE>
--------
* Represents beneficial ownership of less than 1 percent.
(1) The 5,388,743 shares are owned directly by Seismic Energy Holdings, Inc.,
a wholly owned subsidiary of Petroleum Geo-Services. Mr. Michaelsen serves
as Chairman of the Board and Chief Executive Officer and Mr. Bruheim
serves as President and Chief Operating Officer of Petroleum Geo-Services.
As such, Messrs. Michaelsen and Bruheim may be deemed to have voting or
investment power with respect to
S-33
<PAGE>
the 5,388,743 shares beneficially owned by Petroleum Geo-Services. Messrs.
Michaelsen and Bruheim disclaim beneficial ownership of the securities
owned by Petroleum Geo-Services.
(2) The sole general partner of Warburg, Pincus Ventures, L.P. is Warburg,
Pincus & Co., a New York general partnership. E. M. Warburg, Pincus &
Co., LLC, a New York limited liability company, manages Warburg, Pincus
Ventures, L.P. The members of E. M. Warburg, Pincus & Co., LLC are
substantially the same as the partners of Warburg, Pincus & Co. Lionel I.
Pincus is the managing partner of Warburg, Pincus & Co. and the managing
member of E. M. Warburg, Pincus & Co., LLC and may be deemed to control
both Warburg, Pincus & Co. and E. M. Warburg, Pincus & Co., LLC. Messrs.
Newman and Harris are Managing Directors and members of E.M. Warburg,
Pincus & Co., LLC and general partners of Warburg, Pincus & Co. As such,
Messrs. Newman and Harris may be deemed to have voting or investment
power with respect to the 6,800,585 shares beneficially owned by Warburg,
Pincus Ventures. Messrs. Newman and Harris disclaim beneficial ownership
of the shares owned by Warburg, Pincus ventures.
(3) Excludes 688,743 shares that may be sold to the underwriters in
connection with their over-allotment option. If the underwriters' over-
allotment option is exercised in full, none of Petroleum Geo-Services,
Seismic Energy Holdings, Inc., Bjarte Bruheim and Reidar Michaelsen will
beneficially own more than one percent of our outstanding common stock.
S-34
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, the selling stockholder has agreed to sell to
the underwriters named below the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Banc of America Securities LLC.....................................
Deutsche Bank Securities Inc.......................................
ING Barings LLC....................................................
UBS Warburg LLC....................................................
---------
Total............................................................ 4,700,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
The selling stockholder has granted to the underwriters a 30-day option to
purchase on a pro rata basis up to 688,743 additional outstanding shares at the
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus supplement and
to selling group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the
underwriters may change the public offering price and concession and discount
to broker/dealers.
We will have no out-of-pocket expenses for this offering. The following
table summarizes the compensation and expenses the selling stockholder will
pay:
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions payable
by the selling
stockholder............ $ $ $ $
Expenses payable by the
selling stockholder.... $ $ $ $
</TABLE>
Credit Suisse First Boston Corporation, one of the underwriters for this
offering, is a subsidiary of Credit Suisse Group, which indirectly holds a 19.9
percent passive minority interest in Warburg, Pincus & Co., the general partner
of Warburg, Pincus Ventures, one of our principal stockholders.
We, the selling stockholder, Warburg, Pincus Ventures and our officers and
directors who own shares of our common stock have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 60 days after the date of this prospectus
supplement, except we may issue securities under our employee benefit plans.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities under the Securities Act, or to contribute to payments that
the underwriters may be required to make in that respect.
S-35
<PAGE>
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of our common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
S-36
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling stockholder and the dealer from
whom the purchase confirmation is received that:
. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;
. where required by law, that the purchaser is purchasing as principal and
not as agent; and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholder may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed for common stock acquired on the same date and under the same prospectus
exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
S-37
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
supplement and the accompanying prospectus will be passed on for us by Vinson &
Elkins L.L.P., Houston, Texas. Certain legal matters relating to the common
stock offered by this prospectus supplement and the accompanying prospectus
will be passed on by Baker Botts L.L.P., Houston, Texas, as counsel for the
underwriters. Baker Botts L.L.P. also represents the selling stockholder in
connection with various matters related to this offering.
EXPERTS
The audited consolidated financial statements included in Spinnaker
Exploration Company's Form 10-K for the year ended December 31, 1999,
incorporated by reference in the accompanying prospectus and elsewhere in the
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference therein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The estimated reserve evaluations and related calculations of Ryder Scott
Company, L.P., independent petroleum engineering consultants, included or
incorporated by reference in this prospectus supplement or the accompanying
prospectus have been included in reliance on the authority of said firm as
experts in petroleum engineering.
S-38
<PAGE>
GLOSSARY OF NATURAL GAS AND OIL TERMS
The following is a description of the meanings of some of the natural gas
and oil industry terms used in this prospectus supplement and the accompanying
prospectus. The meanings of the terms "proved reserves," "proved developed
reserves," "proved developed producing reserves," "proved developed non-
producing reserves" and "proved undeveloped reserves" are provided in Appendix
A to this prospectus supplement.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in this
prospectus supplement in reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet of natural gas.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Block. A block depicted on the Outer Continental Shelf Leasing and Official
Protraction Diagrams issued by the U.S. Minerals Management Service or a
similar depiction on official protraction or similar diagrams issued by a state
bordering on the Gulf of Mexico.
Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Completion. The installation of permanent equipment for the production of
natural gas or oil, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
Condensate. Liquid hydrocarbons associated with the production of a
primarily natural gas reserve.
Developed acreage. The number of acres that are allocated or assignable to
productive wells or wells capable of production.
Development well. A well drilled into a proved natural gas or oil reservoir
to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.
Exploratory well. A well drilled to find and produce natural gas or oil
reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of natural gas or oil in another reservoir or
to extend a known reservoir.
Farm-in or farm-out. An agreement under which the owner of a working
interest in a natural gas and oil lease assigns the working interest or a
portion of the working interest to another party who desires to drill on the
leased acreage. Generally, the assignee is required to drill one or more wells
in order to earn its interest in the acreage. The assignor usually retains a
royalty or reversionary interest in the lease. The interest received by an
assignee is a "farm-in" while the interest transferred by the assignor is a
"farm-out."
Field. An area consisting of either a single reservoir or multiple
reservoirs, all grouped on or related to the same individual geological
structural feature and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Lead. A specific geographic area which, based on supporting geological,
geophysical or other data, is deemed to have potential for the discovery of
commercial hydrocarbons.
S-39
<PAGE>
MBbls. Thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. Thousand cubic feet of natural gas.
Mcfe. Thousand cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMBls. Million barrels of crude oil or other liquid hydrocarbons.
MMBtu. Million British Thermal Units.
MMcf. Million cubic feet of natural gas.
MMcfe. Million cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interest owned in
gross acres or wells, as the case may be.
Net feet of pay. The true vertical thickness of reservoir rock estimated to
both contain hydrocarbons and be capable of contributing to producing rates.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Prospect. A specific geographic area which, based on supporting geological,
geophysical or other data and also preliminary economic analysis using
reasonably anticipated prices and costs, is deemed to have potential for the
discovery of commercial hydrocarbons.
Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible natural gas and/or oil that is confined by
impermeable rock or water barriers and is separate from other reservoirs.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of natural gas and oil regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and receive a
share of production.
S-40
<PAGE>
[RYDER SCOTT COMPANY LOGO]
July 24, 2000
Spinnaker Exploration Company
1200 Smith Street, Suite 800
Houston, Texas 77002
Gentlemen:
At your request, we have prepared an estimate of the proved reserves, future
production, and income attributable to certain leasehold and royalty interests
of Spinnaker Exploration Company (Spinnaker) as of June 30, 2000. The subject
properties are located in the federal waters offshore Louisiana and in the
state and federal waters offshore Texas. The income data were estimated using
the Securities and Exchange Commission (SEC) guidelines for future price and
cost parameters.
The estimated proved reserves and future income amounts presented in this
report are related to hydrocarbon prices. June 30, 2000 hydrocarbon prices were
used in the preparation of this report as required by SEC guidelines; however,
actual future prices may vary significantly from June 30, 2000 prices.
Therefore, volumes of reserves actually recovered and amounts of income
actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Spinnaker Exploration Company
As of June 30, 2000
----------------
<TABLE>
<CAPTION>
Proved
----------------------------------------------------
Developed
--------------------------
Producing Non-Producing Undeveloped Total Proved
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Remaining Reserves
Oil/Condensate--
Barrels................ 220,208 116,107 1,925,304 2,261,619
Gas--MMCF............... 31,183 16,930 61,387 109,500
Income Data
Future Gross Revenue.... $148,551,259 $80,878,604 $341,087,081 $570,516,944
Deductions.............. 12,391,633 9,725,236 69,415,582 91,532,451
------------ ----------- ------------ ------------
Future Net Income
(FNI).................. $136,159,626 $71,153,368 $271,671,499 $478,984,493
Discounted FNI @ 10%.... $124,855,680 $58,072,891 $210,051,307 $392,979,878
</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.
A-1
<PAGE>
The future gross revenue is after the deduction of production taxes. The
deductions are comprised of the normal direct costs of operating the wells, ad
valorem taxes, recompletion costs, development costs, certain gas, oil and
condensate processing and transportation fees which are shown as "other"
deductions, 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. No attempt was made to quantify or otherwise account for any
accumulated gas production imbalances that may exist. Gas reserves account for
approximately 87 percent and liquid hydrocarbon reserves account for the
remaining 13 percent of total future gross revenue from proved reserves.
The discounted future net income shown on the previous page was calculated
using a discount rate of 10 percent per annum compounded monthly. This
discounted future net income should not be construed as our estimate of fair
market value.
Reserves Included in This Report
The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The definitions
of proved reserves is included in the section entitled "Reserve Definitions"
which is attached with this report.
The proved developed non-producing reserves included herein are comprised of
the shut-in and behind pipe categories. The various reserve status categories
are defined in the section entitled "Reserve Status Categories" which is
attached with this report.
Estimates of Reserves
In general, the proved producing reserves included herein were estimated by
performance methods which utilized various extrapolations of historical
production and pressure data available through June 2000; however, certain of
the producing reserves were estimated by the volumetric method in those cases
where there were inadequate historical performance data to establish a
definitive trend and where the use of production performance data as a basis
for the reserve estimates was considered to be inappropriate. The proved non-
producing and undeveloped reserves included herein were estimated by the
volumetric method which utilized all pertinent wells and 3-D seismic data
available through June 2000.
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
Initial production rates are based on the current producing rates for those
wells now on production. Test data and other related information were used to
estimate the anticipated initial production rates for those wells or locations
which are not currently producing. Where applicable the estimated future
production rates were held constant until a decline in ability to produce was
anticipated. An estimated rate of decline was then applied to depletion of the
reserves. For reserves not yet on production, sales were estimated to commence
at an anticipated date furnished by Spinnaker.
The future production rates from the wells and locations included herein may
be more or less than estimated because of changes in market demand or
allowables set by regulatory bodies. Wells or 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>
Hydrocarbon Prices
Spinnaker furnished us with prices in effect at June 30, 2000 and these
prices were held constant throughout the life of the properties. These prices
were $4.369 per MMBTU of gas at Henry Hub, Louisiana, and $32.50 per barrel at
the Cushing NYMEX Pricing Hub based on light sweet crude on June 30, 2000. The
product prices used for each property reflect adjustments to these initial
prices for BTU content, liquid gravity and quality, local conditions, and/or
distance from market. Certain additional gas, oil and condensate processing and
transportation fees are included in this report as costs and are shown as
"other" deductions. In accordance with Securities and Exchange Commission
guidelines, changes in liquid and gas prices subsequent to June 30, 2000 were
not taken into account in this report. Future prices used in this report are
discussed in more detail in the section entitled "Hydrocarbon Pricing
Parameters" which is attached with this report.
Costs
The operating costs for the producing wells included herein were based on
the operating expense reports of Spinnaker since the inception of production.
The estimates of future operating costs furnished by Spinnaker for the non-
producing and undeveloped wells and locations included herein were accepted as
reasonable. The estimates of future operating costs include only those costs
directly applicable to the leases and wells. When applicable, the operating
costs include a portion of general and administrative costs allocated directly
to the leases and wells under terms of operating agreements. 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.
Development costs were furnished to us by Spinnaker and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. Certain gas, oil and condensate processing and transportation
fees are included in this report as "other" deductions. The estimated net cost
of abandonment after salvage was included for the offshore properties included
herein where abandonment costs net of salvage are significant. The estimates of
the net abandonment costs furnished by Spinnaker were accepted without
independent verification.
Current costs were held constant throughout the life of the properties.
General
The estimates of reserves presented herein were based upon a detailed study
of the properties in which Spinnaker 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. Spinnaker 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 Spinnaker were accepted
without independent verification. The estimates presented in this report are
based on data available through June 2000.
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 omitted from consideration in making this evaluation.
A-3
<PAGE>
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.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
/s/ John E. Hodgin
-------------------------------------
John E. Hodgin, C.P.G.
Executive Vice President--Geoscience
JEH/plk
Approved:
/s/ Don P. Roesle, P.E.
-------------------------------
Don P. Roesle, P.E.
President and Chief Operating Officer
A-4
<PAGE>
HYDROCARBON PRICING PARAMETERS
Securities and Exchange Commission Parameters
Oil and Condensate
Spinnaker furnished us with oil and condensate prices in effect at June 30,
2000 and these prices were held constant to depletion of the properties. In
accordance with the Securities and Exchange Commission guidelines, changes in
liquid prices subsequent to June 30, 2000 were not considered in this report.
Product prices which were actually used for each property reflect adjustment
for gravity, quality, local conditions, and/or distance from market.
Gas
Spinnaker furnished us with gas prices in effect at June 30, 2000. The
prices used herein have been adjusted for the BTU content, local conditions,
and/or distance from market. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price increases
which may occur as a result of inflation nor do they make any allowance for
seasonal variations in gas prices which may cause future yearly average gas
prices to differ somewhat from the June 30, 2000 gas prices used herein.
RESERVE DEFINITIONS
Introduction
Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward. All
reserve estimates involve some degree of uncertainty. The uncertainty depends
chiefly on the amount of reliable geologic and engineering data available at
the time of the estimate and the interpretation of these data.
Reserves estimates will generally be revised as additional geologic or
engineering data become available or as economic conditions change. Reserves do
not include quantities of petroleum being held in inventory, and may be reduced
for usage or processing losses if required for financial reporting.
Proved Reserves (SEC Definitions)
Securities and Exchange Commission Regulation S-X Rule 4-10 paragraph (a)
defines proved reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas, and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes:
(A) that portion delineated by drilling and defined by gas-oil
and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which
can be reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of
information on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.
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(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when 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.
(iii) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
(B) crude oil, natural gas, and natural gas liquids, the recovery of
which is subject to reasonable doubt because of uncertainty as to
geology, reservoir characteristics, or economic factors;
(C) crude oil, natural gas, and natural gas liquids, that may occur
in undrilled prospects; and
(D) crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such sources.
Proved developed oil and gas reserves. Proved developed oil and gas reserves
are reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas expected to be
obtained through the application of fluid injection or other improved recovery
techniques for supplementing the natural forces and mechanisms of primary
recovery should be included as "proved developed reserves" only after testing
by a pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved.
Proved undeveloped reserves. Proved undeveloped oil and gas reserves are
reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably certain of production
when drilled. Proved reserves for other undrilled units can be claimed only
where it can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no circumstances
should estimates for proved undeveloped reserves be attributable to any acreage
for which an application of fluid injection or other improved recovery
technique is contemplated, unless such techniques have been proved effective by
actual tests in the area and in the same reservoir.
Certain Staff Accounting Bulletins published subsequent to the promulgation
of Regulation S-X have dealt with matters relating to the application of
financial accounting and disclosure rules for oil and gas producing activities.
In particular, the following interpretations extracted from Staff Accounting
Bulletins set forth the Commission staff's view on specific questions
pertaining to proved oil and gas reserves.
Economic producibility of estimated proved reserves can be supported to the
satisfaction of the Office of Engineering if geological and engineering data
demonstrate with reasonable certainty that those reserves can be recovered in
future years under existing economic and operating conditions. The relative
importance of the many pieces of geological and engineering data which should
be evaluated when classifying reserves cannot be identified in advance. In
certain instances, proved reserves may be assigned to reservoirs on the basis
of a combination of electrical and other type logs and core analyses which
indicate the reservoirs are analogous to similar reservoirs in the same field
which are producing or have demonstrated the ability to produce on a formation
test. (extracted from SAB-35)
Statements in Staff Accounting Bulletins are not rules or interpretations of
the Commission nor are they published as bearing the Commission's official
approval; they represent interpretations and practices followed by the Division
of Corporation Finance and the Office of the Chief Accountant in administering
the disclosure requirements of the Federal securities laws.
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RESERVE STATUS CATEGORIES
In accordance with guidelines adopted by the Society of Petroleum Engineers
(SPE) and the World Petroleum Congress (WPC), developed reserves may be sub-
categorized as producing or non-producing.
Producing. Reserves sub-categorized as producing are expected to be
recovered from completion intervals which are open and producing at the time of
the estimate. Improved recovery reserves are considered producing only after
the improved recovery project is in operation.
Non-Producing. Reserves sub-categorized as non-producing include shut-in and
behind pipe reserves. Shut-in reserves are expected to be recovered from (1)
completion intervals which are open at the time of the estimate but which have
not started producing, (2) wells which were shut-in awaiting pipeline
connections or as a result of a market interruption, or (3) wells not capable
of production for mechanical reasons. Behind pipe reserves are expected to be
recovered from zones in existing wells, which will require additional
completion work or future recompletion prior to the start of production.
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PROSPECTUS
5,388,743 Shares
SPINNAKER EXPLORATION COMPANY
Common Stock
----------------
This prospectus relates to the offer and sale from time to time of up to
5,388,743 shares of our common stock for the account of the selling stockholder
identified on page 13 of this prospectus. We will not receive any of the
proceeds from the sale of shares by the selling stockholder. Our common stock
is listed for trading on the New York Stock Exchange under the symbol "SKE." On
November 30, 2000, the last reported sales price for our common stock was
$26.00 per share.
Investing in our common stock involves risks. See "Risk Factors" on page 2.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
The date of this prospectus is December 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
About Spinnaker Exploration Company......................................... 2
Risk Factors................................................................ 2
Forward-Looking Statements.................................................. 11
Use of Proceeds............................................................. 12
Description of Capital Stock................................................ 12
Selling Stockholder......................................................... 13
Plan of Distribution........................................................ 14
Validity of Securities...................................................... 16
Experts..................................................................... 16
Where You Can Find More Information......................................... 16
</TABLE>
----------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We will not make an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate only as of the date on the cover page.
In this prospectus, references to "Spinnaker," "the Company," "we," "us" and
"our" mean Spinnaker Exploration Company.
<PAGE>
ABOUT SPINNAKER EXPLORATION COMPANY
Spinnaker Exploration Company is an independent energy company engaged in
the exploration, development and production of natural gas and oil in the U.S.
Gulf of Mexico. We have license rights to approximately 8,900 blocks of mostly
contiguous, recent vintage 3-D seismic data in the Gulf of Mexico, including
approximately 5,750 blocks from our 3-D seismic data agreement with Petroleum
Geo-Services ASA. This database covers an area of approximately 35 million
acres, which we believe is one of the largest recent vintage 3-D seismic
databases of any independent exploration and production company in the Gulf of
Mexico. We consider recent vintage 3-D seismic data to be data generated since
1990. We have approximately 200 leasehold interests located in Texas state and
federal waters covering approximately 739,000 gross and 340,000 net acres. We
believe our regional 3-D seismic approach allows us to create and maintain a
large inventory of high-quality prospects and provides us the opportunity to
enhance our exploration success and efficiently deploy our capital resources.
We also believe our license rights to large quantities of high-quality seismic
data and our management and technical staff are important factors for our
current and future success.
Our Chief Executive Officer, Petroleum Geo-Services and Warburg, Pincus
Ventures, L.P. formed Spinnaker in December 1996. Petroleum Geo-Services, a
leader in acquiring 3-D seismic data, received most of its equity ownership in
Spinnaker in exchange for providing us with access to its inventory of 3-D
seismic data covering a substantial portion of the natural gas and oil
producing area of the Gulf of Mexico. We plan to continue to grow our inventory
of 3-D seismic data through our agreement with Petroleum Geo-Services and
through acquisitions from other seismic data vendors.
Our executive offices are located at 1200 Smith Street, Suite 800, Houston,
Texas 77002, and our telephone number is (713) 759-1770.
RISK FACTORS
Investing in our common stock will provide you with an equity ownership in
Spinnaker. As one of our stockholders, you will be subject to risks inherent in
our business. The trading price of your shares will be affected by the
performance of our business relative to, among other things, competition,
market conditions and general economic and industry conditions. The value of
your investment may decrease, resulting in a loss. You should carefully
consider the following factors as well as other information contained in this
prospectus before deciding to invest in shares of our common stock.
Because we have a limited operating history and have incurred losses from
operations and net losses in recent years, our future operating results are
difficult to forecast. Our failure to achieve or sustain profitability in the
future could adversely affect the market price of our common stock.
We were formed in December 1996 and, as a result, we have a limited
operating history. Our limited operating history and the unpredictable results
of our exploration and development strategy make it difficult to forecast our
operating results. In considering whether to invest in our common stock, you
should consider the limited historical financial and operating information
available on which to base your evaluation of our performance. In addition,
because we have a limited operating history and fewer financial resources than
many companies in our industry, we may be at a disadvantage in bidding for
exploratory prospects and in developing natural gas and oil properties.
We have incurred losses from operations and net losses in recent years. We
incurred net losses of $328,000 in 1996, $2.2 million in 1997, $6.9 million in
1998 and $1.3 million in 1999. Our development of and participation in an
increasingly larger number of prospects has required and will continue to
require substantial capital expenditures. We cannot assure you that we will
achieve or sustain profitability or positive cash flows from operating
activities in the future. Our failure to achieve or sustain profitability in
the future could adversely affect the market price of our common stock.
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Exploration is a high-risk activity, and the 3-D seismic data and other
advanced technologies we use cannot eliminate exploration risk and require
experienced technical personnel whom we may be unable to attract or retain.
Our future success will depend on the success of our exploratory drilling
program. Exploration activities involve numerous risks, including the risk that
no commercially productive natural gas or oil reservoirs will be discovered. In
addition, we often are uncertain as to the future cost or timing of drilling,
completing and producing wells. Furthermore, our drilling operations may be
curtailed, delayed or canceled as a result of the additional exploration time
and expense associated with a variety of factors, including:
. unexpected drilling conditions;
. pressure or irregularities in formations;
. equipment failures or accidents;
. adverse weather conditions;
. compliance with governmental requirements; and
. shortages or delays in the availability of drilling rigs or equipment.
Even when used and properly interpreted, 3-D seismic data and visualization
techniques only assist geoscientists in identifying subsurface structures and
hydrocarbon indicators. They do not allow the interpreter to know conclusively
if hydrocarbons are present or economically producible. We could incur losses
as a result of these expenditures. Poor results from our exploration activities
could affect our future cash flows and results of operations materially and
adversely.
Our exploratory drilling success will depend, in part, on our ability to
attract and retain experienced explorationists and other professional
personnel. Competition for explorationists and engineers with experience in the
Gulf of Mexico is extremely intense. If we cannot retain our current personnel
or attract additional experienced personnel, our ability to compete in the Gulf
of Mexico could be adversely affected.
If Petroleum Geo-Services terminates our data agreement, our ability to find
additional reserves could be materially impaired. If Petroleum Geo-Services
does not resume 3-D seismic data acquisition in the Gulf of Mexico during the
remaining term of our agreement, we may incur additional costs to acquire data
from other vendors, which costs could be material.
Our success depends heavily on our access to 3-D seismic data, and our
primary source for 3-D seismic data is our data agreement with Petroleum Geo-
Services. If Petroleum Geo-Services terminates our agreement, we would lose
access to a large portion of our 3-D seismic data which loss could have a
material adverse effect on our ability to find additional reserves.
Petroleum Geo-Services may terminate our data agreement on several grounds,
including if a Petroleum Geo-Services competitor acquires control of us or we
breach the agreement subject to specified exceptions.
We have license rights under our Petroleum Geo-Services data agreement to
approximately 5,750 blocks of 3-D seismic data in the Gulf of Mexico. Our
agreement does not require Petroleum Geo-Services to acquire or process any
further data. At this time, Petroleum Geo-Services has elected to cease 3-D
seismic data acquisitions in the Gulf of Mexico. We cannot assure you that
Petroleum Geo-Services will resume 3-D seismic data acquisitions in the Gulf of
Mexico during the remaining term of our agreement. If Petroleum Geo-Services
does not resume 3-D seismic data acquisition in the Gulf of Mexico during the
remaining term of our agreement, we may incur additional costs to acquire data
from other vendors, which costs could be material. Even if Petroleum Geo-
Services elects to resume 3-D seismic data acquisitions in the Gulf of Mexico,
it again could elect to cease 3-D seismic data acquisitions as a result of a
change of control of Petroleum Geo-Services or changes in Petroleum Geo-
Services' competitive, financial or technological status.
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Petroleum Geo-Services also could significantly increase the acquisition or
processing of data in the Gulf of Mexico that it is not required to share with
us. For example, Petroleum Geo-Services could focus on acquiring and processing
data on an exclusive contractual basis and not for sale to multiple customers.
In addition, if Petroleum Geo-Services were to engage new marketing vendors who
would not agree to the terms of our agreement with Petroleum Geo-Services, then
we would not have access to the data marketed through those vendors. Petroleum
Geo-Services also could elect to acquire or process other seismic data,
including future generations of seismic data, to which we are not entitled or
for which our rights are limited. Our right to enhanced data also could be
adversely affected if Petroleum Geo-Services were to elect to sell the right to
enhance and market its data without retaining a material royalty or similar
interest.
Natural gas and oil prices fluctuate widely, and low prices could have a
material adverse impact on our business.
Our revenues, profitability and future growth depend substantially on
prevailing prices for natural gas and oil. Prices also affect the amount of
cash flow available for capital expenditures and our ability to borrow and
raise additional capital. The amount we can borrow under our credit facility is
subject to periodic redetermination based in part on changing expectations of
future prices. Lower prices may also reduce the amount of natural gas and oil
that we can economically produce.
Prices for natural gas and oil fluctuate widely. For example, natural gas
and oil prices declined significantly in 1998 and, for an extended period of
time, remained substantially below prices obtained in previous years. Among the
factors that can cause this fluctuation are:
. the level of consumer product demand;
. weather conditions;
. domestic and foreign governmental regulations;
. the price and availability of alternative fuels;
. political conditions in natural gas and oil producing regions;
. the domestic and foreign supply of natural gas and oil;
. the price of foreign imports; and
. overall economic conditions.
Reserve estimates depend on many assumptions that may turn out to be
inaccurate. Any material inaccuracies in these reserve estimates or underlying
assumptions will materially affect the quantities and net present value of our
reserves.
The process of estimating natural gas and oil reserves is complex. It
requires interpretations of available technical data and various assumptions,
including assumptions relating to economic factors. Any significant
inaccuracies in these interpretations or assumptions could materially affect
the estimated quantities and net present value of reserves shown in this
prospectus.
In order to prepare these estimates, we must project production rates and
timing of development expenditures. We must also analyze available geological,
geophysical, production and engineering data, and the extent, quality and
reliability of this data can vary. The process also requires economic
assumptions such as natural gas and oil prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. Therefore,
estimates of natural gas and oil reserves are inherently imprecise.
Actual future production, natural gas and oil prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves most likely will vary from our estimates. Any
significant variance could materially affect the estimated quantities and
present value of reserves shown in
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<PAGE>
this prospectus. In addition, we may adjust estimates of proved reserves to
reflect production history, results of exploration and development, prevailing
natural gas and oil prices and other factors, many of which are beyond our
control. At June 30, 2000, 74 percent of our proved reserves were either proved
undeveloped or proved non-producing. Moreover, the producing wells included in
our reserve report had produced for a relatively short period of time as of
June 30, 2000. Because most of our reserve estimates are not based on a lengthy
production history and are calculated using volumetric analysis, these
estimates are less reliable than estimates based on a lengthy production
history.
You should not assume that the present value of future net cash flows from
our proved reserves included or incorporated by reference in this prospectus is
the current market value of our estimated natural gas and oil reserves. In
accordance with Securities and Exchange Commission requirements, we base the
estimated discounted future net cash flows from our proved reserves on prices
and costs on the date of the estimate. Actual future prices and costs may
differ materially from those used in the net present value estimate.
A significant part of the value of our production and reserves is concentrated
in a small number of offshore properties. Because of this concentration, any
production problems or inaccuracies in reserve estimates related to those
properties are more likely to adversely impact our business.
During the first nine months of 2000, over 64 percent of our daily
production came from four of our properties in the Gulf of Mexico. If
mechanical problems, storms or other events curtailed a substantial portion of
this production, our cash flow would be adversely affected. In addition, at
June 30, 2000, our proved reserves were located on 25 discoveries in the Gulf
of Mexico, with approximately 51 percent of our proved reserves attributable to
four of these discoveries. If the actual reserves associated with any one of
these four discoveries are less than our estimated reserves, our results of
operations and financial condition could be adversely affected.
We are vulnerable to operational, regulatory and other risks associated with
the Gulf of Mexico because we currently explore and produce exclusively in that
area.
Our operations and revenues are impacted acutely by conditions in the Gulf
of Mexico because we currently explore and produce exclusively in that area.
This concentration of activity makes us more vulnerable than many of our
competitors to the risks associated with the Gulf of Mexico, including delays
and increased costs relating to:
. adverse weather conditions;
. drilling rig and other oilfield services; and
. compliance with environmental and other laws and regulations.
Recently, higher prices for natural gas and oil have led to greater demand for
drilling rig and other oilfield services. As a result, we have experienced
increasing costs and reduced availability of these services.
Relatively short production periods for Gulf of Mexico properties subject us to
higher reserve replacement needs, require significant capital expenditures to
replace production and may impair our ability to reduce production during
periods of low natural gas and oil prices.
Production of reserves from reservoirs in the Gulf of Mexico generally
declines more rapidly than from reservoirs in many other producing regions of
the world. This results in recovery of a relatively higher percentage of
reserves from properties in the Gulf of Mexico during the initial few years of
production. As a result, our reserve replacement needs from new prospects are
greater and require us to incur significant capital expenditures to replace
production.
Also, our revenues and return on capital will depend significantly on prices
prevailing during these relatively short production periods. Our potential need
to generate revenues to fund ongoing capital
5
<PAGE>
commitments or reduce indebtedness may limit our ability to slow or shut-in
production from producing wells during periods of low prices for natural gas
and oil.
The failure to replace our reserves would adversely affect our production and
cash flows.
Our future natural gas and oil production depends on our success in finding
or acquiring additional reserves. If we fail to replace reserves, our level of
production and cash flows would be adversely impacted. In general, production
from natural gas and oil properties declines as reserves are depleted, with the
rate of decline depending on reservoir characteristics. Our total proved
reserves decline as reserves are produced unless we conduct other successful
exploration and development activities or acquire properties containing proved
reserves, or both. Our ability to make the necessary capital investment to
maintain or expand our asset base of natural gas and oil reserves would be
impaired to the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable. We may not be successful in
exploring for, developing or acquiring additional reserves. If we are not
successful, our future production and revenues will be adversely affected.
Hedging our production has limited and may continue to limit our potential
gains from increases in commodity prices or result in losses.
To reduce our exposure to fluctuations in the prices of natural gas and oil,
we enter into hedging arrangements with respect to a portion of our expected
production. Hedging arrangements expose us to risks in some circumstances,
including the following:
. production is less than expected;
. the other party to the hedging contract defaults on its contract
obligations; or
. there is a change in the expected differential between the underlying
price in the hedging agreement and actual prices received.
These hedging arrangements have limited and may continue to limit the
benefit we could receive from increases in the prices for natural gas and oil.
The fair market value of our hedges on September 30, 2000 was a liability of
approximately $21.6 million. The estimated intrinsic value of our open collar
arrangements as of September 30, 2000 was equal to an unrealized loss of
approximately $8.7 million for the last three months of 2000 and an unrealized
loss of approximately $8.4 million in 2001 using NYMEX natural gas and oil
prices as of September 29, 2000. However, if we choose not to engage in hedging
arrangements in the future, we may be more adversely affected by changes in
natural gas and oil prices than our competitors who engage in hedging
arrangements.
The natural gas and oil business involves many operating risks that can cause
substantial losses.
The natural gas and oil business involves a variety of operating risks,
including:
. fires;
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of underground natural gas, oil and formation water;
. natural disasters;
. pipe or cement failures;
. casing collapses;
. embedded oilfield drilling and service tools;
. abnormally pressured formations; and
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. environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and
equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
If we experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, which could adversely
affect our ability to conduct operations.
Offshore operations are also subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions and damage or
loss from hurricanes or other adverse weather conditions. These conditions can
cause substantial damage to facilities and interrupt production. As a result,
we could incur substantial liabilities that could reduce or eliminate the funds
available for exploration, development or leasehold acquisitions, or result in
loss of equipment and properties.
We do not carry business interruption insurance. For some risks, we may not
obtain insurance if we believe the cost of available insurance is excessive
relative to the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. If a significant accident or other event
occurs and is not fully covered by insurance, it could adversely affect our
operations.
Exploration for natural gas and oil in the deep waters of the Gulf of Mexico
involves greater operational and financial risks than exploration in shallower
waters, and our expansion into the deep water could result in substantial
losses.
As part of our strategy, we explore for natural gas and oil in the deep
waters of the Gulf of Mexico where operations are more difficult and costly
than in shallower waters. Our deep water drilling and operations require the
application of recently developed technologies that involve a higher risk of
mechanical failure. We have experienced and will continue to experience
significantly higher drilling costs for our deep water prospects. Furthermore,
the deep waters of the Gulf of Mexico lack the physical and oilfield service
infrastructure present in the shallower waters of the Gulf of Mexico. As a
result, deep water operations may require a significant amount of time between
a discovery and the time that we can market the natural gas or oil, increasing
both the financial and operational risk involved with these operations.
We cannot control the activities on properties we do not operate.
Other companies operate some of the properties in which we have an interest.
As a result, we have a limited ability to exercise influence over operations
for these properties or their associated costs. Our dependence on the operator
and other working interest owners for these projects and our limited ability to
influence operations and associated costs could materially adversely affect the
realization of our targeted returns on capital in drilling or acquisition
activities. The success and timing of our drilling and development activities
on properties operated by others therefore depend on a number of factors that
are outside of our control, including:
. timing and amount of capital expenditures;
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. the operator's expertise and financial resources;
. approval of other participants in drilling wells; and
. selection of technology.
Our success depends on our Chief Executive Officer and other key personnel, the
loss of whom could disrupt our business operations.
We depend to a large extent on the efforts and continued employment of our
President and Chief Executive Officer, Roger L. Jarvis, and other key
personnel. If Mr. Jarvis or these other key personnel resign or become unable
to continue in their present role and if they are not adequately replaced, our
business operations could be adversely affected.
We may have difficulty financing our planned growth.
We have experienced and expect to continue to experience substantial capital
expenditure and working capital needs, particularly as a result of our drilling
program. In the future, we may require additional financing, in addition to
cash generated from our operations, to fund our planned growth. We cannot be
certain that additional financing will be available to us on acceptable terms
or at all. In the event additional capital resources are unavailable, we may
curtail our drilling, development and other activities or be forced to sell
some of our assets on an untimely or unfavorable basis.
Competition in our industry is intense, and we are smaller and have a more
limited operating history than most of our competitors in the Gulf of Mexico.
We compete with major and independent natural gas and oil companies for
property acquisitions. We also compete for the equipment and labor required to
operate and develop properties. Most of our competitors have substantially
greater financial and other resources than us. As a result, in the deep water
where exploration is more expensive, our competitors may be better able to
withstand sustained periods of unsuccessful drilling. In addition, larger
competitors may be able to absorb the burden of any changes in federal, state
and local laws and regulations more easily than we can, which would adversely
affect our competitive position. These competitors may be able to pay more for
exploratory prospects and productive natural gas and oil properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than we can. Our ability to explore for natural gas and oil
prospects and to acquire additional properties in the future will depend on our
ability to conduct operations, to evaluate and select suitable properties and
to consummate transactions in this highly competitive environment. In addition,
most of our competitors have been operating in the Gulf of Mexico for a much
longer time than we have and have demonstrated the ability to operate through
industry cycles.
Our competitors may use superior technology which we may be unable to afford or
which would require costly investment by us in order to compete.
Our industry is subject to rapid and significant advancements in technology,
including the introduction of new products and services using new technologies.
As our competitors use or develop new technologies, we may be placed at a
competitive disadvantage, and competitive pressures may force us to implement
new technologies at a substantial cost. In addition, our competitors may have
greater financial, technical and personnel resources that allow them to enjoy
technological advantages and may in the future allow them to implement new
technologies before we can. We cannot be certain that we will be able to
implement technologies on a timely basis or at a cost that is acceptable to us.
One or more of the technologies that we currently use or that we may implement
in the future may become obsolete, and we may be adversely affected. For
example, marine seismic acquisition technology has been characterized by rapid
technological advancements in recent years and further significant
technological developments could substantially impair our 3-D seismic data's
value.
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A small number of customers purchase all of our natural gas production. As a
result, if these customers default on their payment obligations, our near-term
earnings and cash flows would be adversely affected.
As of November 1, 2000, two customers purchase all of our natural gas
production at current market prices. The terms of our arrangement require our
customers to pay us within 60 days after we deliver our production. As a
result, if our customers were to default on their payment obligations to us,
our near-term earnings and cash flows would be adversely affected.
We are subject to complex laws and regulations, including environmental
regulations, that can adversely affect the cost, manner or feasibility of doing
business.
Exploration for and development, production and sale of natural gas and oil
in the U.S. and especially in the Gulf of Mexico are subject to extensive
federal, state and local laws and regulations, including environmental laws and
regulations. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Matters subject to regulation
include:
. discharge permits for drilling operations;
. drilling bonds;
. reports concerning operations; and
. taxation.
Under these laws and regulations, we could be liable for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. We do not believe that full
insurance coverage for all potential environmental damages is available at a
reasonable cost. Failure to comply with these laws and regulations also may
result in the suspension or termination of our operations and subject us to
administrative, civil and criminal penalties. Moreover, these laws and
regulations could change in ways that substantially increase our costs. For
example, Congress or the Minerals Management Service could decide to limit
exploratory drilling or natural gas production in some areas of the Gulf of
Mexico. Accordingly, any of these liabilities, penalties, suspensions,
terminations or regulatory changes could materially and adversely affect our
financial condition and results of operations.
Petroleum Geo-Services, Warburg, Pincus Ventures and our management own a
significant amount of common stock, giving them influence or control in
corporate transactions and other matters, and the interests of Warburg, Pincus
Ventures or Petroleum Geo-Services could differ from those of other
stockholders.
Prior to the sale of any shares of common stock by Petroleum Geo-Services in
connection with this prospectus, Warburg, Pincus Ventures, Petroleum Geo-
Services, and our executive officers beneficially own approximately 51 percent
of our outstanding shares of common stock. After the sale of all of the shares
of common stock held by Petroleum Geo-Services in connection with this
prospectus, Warburg, Pincus Ventures and our executive officers will
beneficially own approximately 32 percent of our outstanding shares of common
stock. As a result, these stockholders are in a position to significantly
influence or control the outcome of matters requiring a stockholder vote,
including the election of directors, the adoption of an amendment to our
certificate of incorporation or bylaws and the approval of mergers and other
significant corporate transactions. In addition, representatives of Petroleum
Geo-Services and Warburg, Pincus Ventures currently constitute a majority of
our board of directors. Their control of Spinnaker may delay or prevent a
change of control of Spinnaker and may adversely affect the voting and other
rights of other stockholders.
Furthermore, conflicts of interest could arise in the future between
Spinnaker, on the one hand, and Warburg, Pincus Ventures or Petroleum Geo-
Services, on the other hand, concerning, among other things, potential
competitive business activities or business opportunities. Except for the
limited restrictions placed on Petroleum Geo-Services in our data agreement
with Petroleum Geo-Services, neither Warburg, Pincus Ventures nor Petroleum
Geo-Services are restricted from competitive natural gas and oil exploration
and production
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activities or investments. Warburg, Pincus Ventures currently has significant
equity interests in other public and private natural gas and oil companies. The
interests of Warburg, Pincus Ventures or Petroleum Geo-Services could differ
from those of our other stockholders.
Substantially all of our outstanding shares may be sold into the market in the
near future. This could cause the market price of our common stock to drop
significantly, even if our business is doing well.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock in the market or the perception that such
sales could occur. This could make it more difficult to raise funds through
future offerings of common stock.
Our certificate of incorporation and bylaws contain provisions that could
discourage an acquisition or change of control of Spinnaker.
Our certificate of incorporation authorizes our board of directors to issue
preferred stock without stockholder approval. If our board of directors elects
to issue preferred stock, it could be more difficult for a third party to
acquire control of us, even if that change of control might be beneficial to
stockholders. In addition, provisions of the certificate of incorporation and
bylaws, such as no stockholder action by written consent and limitations on
stockholder proposals at meetings of stockholders, could also make it more
difficult for a third party to acquire control of us. Please read "Description
of Capital Stock" for additional details concerning the provisions of our
certificate of incorporation and bylaws.
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FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, including information
incorporated by reference, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The forward-looking statements speak only as
of the date made. The forward-looking statements may be identified by the use
of the words "believe," "expect," "anticipate," "will," "contemplate," "would"
and similar expressions that contemplate future events. These future events
include the following matters:
. financial position;
. business strategy;
. budgets;
. amount, nature and timing of capital expenditures;
. drilling of wells;
. natural gas and oil reserves;
. timing and amount of future production of natural gas and oil;
. operating costs and other expenses;
. cash flow and anticipated liquidity;
. prospect development and property acquisitions; and
. marketing of natural gas and oil.
Numerous important factors, risks and uncertainties may affect our operating
results, including:
. the risks associated with exploration;
. our ability to find, acquire, market, develop and produce new properties;
. natural gas and oil price volatility;
. uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures;
. operating hazards attendant to the natural gas and oil business;
. downhole drilling and completion risks that are generally not recoverable
from third parties or insurance;
. potential mechanical failure or under-performance of significant wells;
. climactic conditions;
. availability and cost of material and equipment;
. delays in anticipated start-up dates;
. actions or inactions of third-party operators of our properties;
. our ability to find and retain skilled personnel;
. availability of capital;
. the strength and financial resources of our competitors;
. regulatory developments;
. environmental risks; and
. general economic conditions.
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Any of the factors listed above and other factors contained in this
prospectus or in our periodic reports filed with the Securities and Exchange
Commission and incorporated by reference in this prospectus could cause our
actual results to differ materially from the results implied by these or any
other forward-looking statements made by us or on our behalf. We cannot assure
you that our future results will meet our expectations. You should pay
particular attention to the cautionary statements described under "Risk
Factors."
USE OF PROCEEDS
Spinnaker will not receive any proceeds from the sale of the shares of
common stock by the selling stockholder.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. As of November 28, 2000, we had outstanding 26,276,334 shares
of common stock and no shares of preferred stock.
Common Stock
Subject to any special voting rights of any series of preferred stock that
we may issue in the future, each share of common stock has one vote on all
matters voted on by our stockholders, including the election of our directors.
No share of common stock affords any cumulative voting or preemptive rights or
is convertible, redeemable, assessable or entitled to the benefits of any
sinking or repurchase fund. Holders of common stock will be entitled to
dividends in the amounts and at the times declared by our board of directors in
its discretion out of funds legally available for the payment of dividends.
Holders of common stock will share equally in our assets on liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any preferred stock then outstanding. All outstanding shares of
common stock are fully paid and non-assessable.
Preferred Stock
At the direction of our board, we may issue shares of preferred stock from
time to time. Our board of directors may, without any action by holders of the
common stock:
. adopt resolutions to issue preferred stock in one or more classes or
series;
. fix or change the number of shares constituting any class or series of
preferred stock; and
. establish or change the rights of the holders of any class or series of
preferred stock.
The rights any class or series of preferred stock may include:
. general or special voting rights;
. preferential liquidation or preemptive rights;
. preferential cumulative or noncumulative dividend rights;
. redemption or put rights; and
. conversion or exchange rights.
We may issue shares of or rights to purchase preferred stock, the terms of
which might:
. adversely affect voting or other rights evidenced by, or amounts
otherwise payable with respect to, the common stock;
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. discourage an unsolicited proposal to acquire us; or
. facilitate a particular business combination involving us.
Any of these actions could discourage a transaction that some or a majority
of our stockholders might believe to be in their best interests or in which our
stockholders might receive a premium for their stock over its then market
price.
Registration Rights
We, Petroleum Geo-Services, Warburg, Pincus Ventures and some of our other
stockholders are parties to a registration rights agreement. That agreement
grants Petroleum Geo-Services and Warburg, Pincus Ventures the right to require
us to file a registration statement covering all or part of their shares of
common stock at our expense under some circumstances, subject to the following
restrictions:
. we are not required to register the shares if Petroleum Geo-Services or
Warburg, Pincus Ventures proposes to sell them at an aggregate price to
the public of less than $20.0 million;
. we are not required to effect more than one requested registration for an
underwritten offering in any six-month period; and
. we generally are not required to effect more than two requested
registrations for underwritten offerings and more than one requested
registration covering the resale of securities for either Petroleum Geo-
Services or Warburg, Pincus Ventures unless we are then eligible to
register the requested sale on Form S-3.
Some of our stockholders also have rights to include their shares at our
expense under some circumstances, in a registration statement filed by us for
purposes of a public offering. An underwriter participating in these offerings
may limit the number of shares offered, and the number will be allocated first
to us, then to participating stockholders on a pro rata basis.
SELLING STOCKHOLDER
On October 25, 2000, we received written notice of a demand by Petroleum
Geo-Services requesting us to register under the registration rights agreement
described under "Description of Capital Stock--Registration Rights" all shares
of our common stock held by Seismic Energy Holdings, Inc., a wholly owned
subsidiary of Petroleum Geo-Services. In this prospectus, we refer to Petroleum
Geo-Services and Seismic Energy Holdings, Inc. collectively as the "selling
stockholder" or, unless the context otherwise requires, as "Petroleum Geo-
Services." As of November 28, 2000, the selling stockholder owned an aggregate
of 5,388,743 shares of our common stock, which represents approximately 21% of
our outstanding common stock.
The selling stockholder is obligated to bear all expenses incurred with the
registration of the shares of our common stock held by the selling stockholder;
provided that we are obligated to pay any internal expenses we incur in
connection with this registration, such as the salaries of our officers and
directors.
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PLAN OF DISTRIBUTION
Shares may be sold or distributed from time to time by Petroleum Geo-
Services and, to the extent permitted by our registration rights agreement with
Petroleum Geo-Services, by its donees or transferees and its other successors
in interest. Petroleum Geo-Services may sell its shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.
Petroleum Geo-Services may accept or reject, in whole or in part, any proposed
purchase of shares, whether the purchase is to be made directly or through
agents.
Petroleum Geo-Services may offer their shares at various times in one or
more of the following transactions:
. in underwritten transactions;
. in ordinary brokers' transactions and transactions in which the broker
solicits purchasers;
. in transactions involving cross or block trades or otherwise on the New
York Stock Exchange;
. in transactions "at the market" to or through market makers in our common
stock or into an existing market for the common stock;
. in other ways not involving market makers or established trading markets,
including direct sales of the shares to purchasers or sales of the shares
effected through agents;
. through transactions in options, swaps or other derivatives which may or
may not be listed on an exchange;
. in privately negotiated transactions;
. in transactions to cover short sales; or
. in a combination of any of the foregoing transactions.
Petroleum Geo-Services also may sell their shares in accordance with Rule 144
under the Securities Act of 1933.
From time to time, Petroleum Geo-Services may pledge or grant a security
interest in some or all of the shares owned by them. If Petroleum Geo-Services
defaults in performance of its secured obligations, the pledged or secured
parties may offer and sell the shares from time to time by this prospectus.
Petroleum Geo-Services also may transfer and donate shares in other
circumstances. The number of shares beneficially owned by Petroleum Geo-
Services will decrease as and when it transfers or donates its shares or
defaults in performing obligations secured by its shares. The plan of
distribution for the shares offered and sold under this prospectus will
otherwise remain unchanged, except that the transferees, donees, pledgees,
other secured parties or other successors in interest will be selling
stockholders for purposes of this prospectus.
Petroleum Geo-Services may sell short the common stock. Petroleum Geo-
Services may deliver this prospectus in connection with such short sales and
use the shares offered by this prospectus to cover such short sales.
Petroleum Geo-Services may enter into hedging transactions with broker-
dealers. The broker-dealers may engage in short sales of the common stock in
the course of hedging the positions they assume with Petroleum Geo-Services,
including positions assumed in connection with distributions of the shares by
such broker-dealers. Petroleum Geo-Services also may enter into option or other
transactions with broker-dealers that involve the delivery of shares to the
broker-dealers, who may then resell or otherwise transfer such shares. In
addition, Petroleum Geo-Services may loan or pledge shares to a broker-dealer,
which may sell the loaned shares or, upon a default by Petroleum Geo-Services
of the secured obligation, may sell or otherwise transfer the pledged shares.
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Petroleum Geo-Services may use brokers, dealers, underwriters or agents to
sell its shares. The persons acting as agents may receive compensation in the
form of commissions, discounts or concessions. This compensation may be paid by
the selling stockholder or the purchasers of the shares of whom such persons
may act as agent, or to whom they may sell as principal, or both. The
compensation as to a particular person may be less than or in excess of
customary commissions. Petroleum Geo-Services and any agents or broker-dealers
that participate with Petroleum Geo-Services in the offer and sale of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933. Any commissions they receive and any profit they realize on the
resale of the shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933. Neither we nor Petroleum Geo-
Services can presently estimate the amount of such compensation.
If Petroleum Geo-Services sells shares in an underwritten offering, the
underwriters may include Credit Suisse First Boston Corporation and/or others.
The underwriters may acquire the shares for their own account and resell the
shares from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In such event, we will set forth in a supplement to this
prospectus the names of the underwriters and the terms of the transactions,
including any underwriting discounts, concessions or commissions and other
items constituting compensation of the underwriters and broker-dealers. The
underwriters from time to time may change any public offering price and any
discounts, concessions or commissions allowed or reallowed or paid to broker-
dealers. Unless otherwise set forth in a supplement, the obligations of the
underwriters to purchase the shares will be subject to certain conditions, and
the underwriters will be obligated to purchase all of the shares specified in
the supplement if they purchase any of the shares.
We have informed Petroleum Geo-Services that during such time as it may be
engaged in a distribution of the shares, it is required to comply with
Regulation M under the Securities Exchange Act of 1934. With exceptions,
Regulation M prohibits Petroleum Geo-Services, any affiliated purchasers and
other persons who participate in such a distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete.
We have informed Petroleum Geo-Services that it is legally required to
deliver copies of this prospectus in connection with any sale of securities
registered hereunder in accordance with applicable prospectus delivery
requirements.
Under our registration rights agreement with Petroleum Geo-Services,
Petroleum Geo-Services is required to bear the expenses relating to this
offering, excluding any internal expenses incurred by Spinnaker for our
officers and employees performing duties in connection with this offering.
We have agreed to indemnify Petroleum Geo-Services and their respective
controlling persons against certain liabilities, including certain liabilities
under the Securities Act of 1933. We will not receive any of the proceeds from
the sale by Petroleum Geo-Services of the shares offered by this prospectus.
This offering by Petroleum Geo-Services will terminate on the date specified
in our registration rights agreement with Petroleum Geo-Services, or, if
earlier, on the date on which Petroleum Geo-Services has sold all of its
shares.
In order to comply with certain state securities laws, if applicable, the
shares offered by this document will not be sold in a particular state unless
such shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with,
and, if so required, will only be sold in that state through registered or
licensed brokers or dealers.
The shares of common stock originally issued by Spinnaker to Petroleum Geo-
Services bear legends as to their restricted transferability. Upon the
effectiveness of the registration statement of which this prospectus is a part,
and the transfer by Petroleum Geo-Services of any of the shares pursuant
thereto, new certificates representing those shares will be issued to the
transferee, free of any such legends unless otherwise required by law.
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VALIDITY OF SECURITIES
The validity of the shares offered by this prospectus has been passed upon
for Spinnaker by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The audited consolidated financial statements included in Spinnaker
Exploration Company's Form 10-K for the year ended December 31, 1999 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The estimated reserve evaluations and related calculations of Ryder Scott
Company, L.P., independent petroleum engineering consultants, included or
incorporated by reference in this registration statement have been included in
reliance on the authority of said firm as experts in petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we file with the
Securities and Exchange Commission. This prospectus does not contain all of the
information contained in the registration statement and all of the exhibits and
schedules thereto. For further information about Spinnaker Exploration Company,
please see the complete registration statement. Summaries of agreements or
other documents in this prospectus are not necessarily complete. Please refer
to the exhibits to the registration statement for complete copies of such
documents.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy any document we file at the
following Securities and Exchange Commission public reference rooms:
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661
You may also inspect and copy our Securities and Exchange Commission
filings, the complete registration statement and other information at the
offices of the New York Stock Exchange located at 20 Broad Street, 16th Floor,
New York, New York 10005.
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the Securities and Exchange Commission at 1-800-
SEC-0330.
We file information electronically with the Securities and Exchange
Commission. Our Securities and Exchange Commission filings also are available
from the Securities and Exchange Commission's Internet site at
http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we may disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
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Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until all of the securities described in
this prospectus are sold:
. The description of our common stock contained in our Registration
Statement on Form 8-A, as filed with the Securities and Exchange
Commission on July 24, 2000;
. Our Annual Report on Form 10-K for the year ended December 31, 1999; and
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing or telephoning us at the following address:
Spinnaker Exploration Company
1200 Smith Street, Suite 800
Houston, Texas 77002
Attention: Secretary
(713) 759-1770
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