Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ For the Fiscal Year Ended: December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . to . . . .
Commission File Number: 1-7627
WAINOCO OIL CORPORATION
(Exact name of registrant as specified in its charter)
Wyoming 74-1895085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Smith Street, Suite 2100 77002-4367
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 658-9900
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock New York Stock Exchange
Alberta Stock Exchange
12% Senior Notes, due 2002 New York Stock Exchange
10 3/4% Subordinated Debentures, due 1998 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
7 3/4% Convertible Subordinated Debentures, Due 2014
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ...
Indicate by check mark if disclosure of delinquent filers pursuant to rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes ... No X
As of February 17, 1993, there were 27,062,177 common shares outstanding, and
the aggregate market value of the common shares (based upon the closing price of
these shares on the New York Stock Exchange) of Wainoco Oil Corporation held by
nonaffiliates was approximately $128.5 million at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1993 are incorporated by reference into Item 2 Part 1 and Items 5 through 8 of
Part II.
Portions of the Annual Proxy Statement for the year ended December 31, 1993 are
incorporated by reference into Items 10 through 13 of Part III.
Table of Contents
Part I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Disagreements on Accounting and Financial Disclosure 12
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Financial Statements Schedules, Exhibits and
Reports on Form 8-K 13
PART 1
ITEM 1. BUSINESS
As used herein, the terms (Wainoco) and (Company) refer to Wainoco Oil
Corporation and its subsidiaries. Wainoco was originally incorporated in Canada
in 1949 and changed its jurisdiction of incorporation to Wyoming in 1976. The
Company's Canadian assets are held by Wainoco Oil Corporation, a Wyoming
corporation, its United States oil and gas operations assets are held through
its subsidiary, Wainoco Oil & Gas Company, a Delaware corporation, and its
refining operations assets are held through its subsidiary, Frontier Holdings
Inc. (Frontier), a Delaware corporation.
Wainoco explores for and produces oil and gas in North America, principally
in western Canada, selected areas of the midcontinent, the Los Angeles Basin and
the Gulf Coast (onshore and offshore). The oil and gas activities of the
Company consist of geological and geophysical evaluation of prospective oil and
gas properties, the acquisition of oil and gas leases or other interests in
exploratory prospects, the drilling of test wells, the acquisition of interests
in developed or partially developed properties and the development and operation
of properties for the production of oil and gas. At December 31, 1993,
approximately 85% of the Company's proved reserves, on a British Thermal Unit
(BTU) equivalent basis, was natural gas. During 1993, oil represented 40% and
gas represented 60% of oil and gas revenues. The Company's oil and gas
exploration and production activities are conducted directly by the Company or
through joint drilling and operating arrangements. Wainoco acts as the operator
of the majority of its production and prospects. Wainoco is also engaged in the
business of crude oil refining and wholesale marketing of refined petroleum
products, including various grades of gasoline, diesel fuel, asphalt, natural
gas liquids and petroleum coke. Wainoco owns and operates an approximately
38,000 barrel per day (BPD) crude oil refinery (the Refinery), located in
Cheyenne, Wyoming. In addition, the Company purchases the crude oil to be
refined and markets the refined petroleum products produced by the Refinery.
The Company's products which accounted for more than 10% of consolidated
revenues were as follows: gasoline at 34%, distillates at 21%, natural gas at
18% and oil at 16% in 1991, and gasoline at 53% and distillates at 28% in 1992,
gasoline at 50% and distillates at 29% in 1993. The Company also owns a 25,000
BPD undivided interest in a crude oil pipeline (Pipeline) running from Guernsey
Station, Wyoming to Cheyenne, Wyoming. The Company directs its activities from
its corporate office in Houston, Texas and its division offices in Calgary,
Alberta, Canada and Denver, Colorado.
Oil and Gas Exploration and Production Operations
Canada - Activities in Canada are conducted through Wainoco Oil Corporation
with emphasis on exploration, development and production in the western Canadian
provinces of British Columbia and Alberta. At December 31, 1993, approximately
72% of estimated proved gas reserves, approximately 33% of estimated proved oil
reserves and approximately 26% of identifiable assets of the Company were
located in western Canada. For the year ended December 31, 1993, Canadian
operations contributed approximately 55% of the Company's oil and gas revenue.
During 1993, the exchange rate of the Canadian dollar averaged
approximately U.S. $.7750. The accounts of the Canadian division have been
translated in accordance with generally accepted accounting principles as
described in Note 1 of the Financial Statements in the 1993 Annual Report to
Shareholders which is incorporated herein by reference.
United States - Activities in the United States are conducted through
Wainoco Oil & Gas Company with the major emphasis of exploration, development
and production of properties in selected areas of the midcontinent, the Los
Angeles Basin and the Gulf Coast (onshore and shallow offshore regions).
Refining Operations
Wainoco's refining activities are conducted through Frontier, which was
acquired in October 1991. The Refinery is located on approximately 120 acres in
Cheyenne, Wyoming, all of which are owned by the Company. The Refinery has a
permitted crude capacity of 41,000 BPD with an effective operating capacity of
38,000 BPD, which represents approximately 7% of the rated crude distillation
capacity in the Rocky Mountain region. The Refinery can also process in excess
of 4,000 BPD of purchased natural gasoline, butanes and other petroleum liquids.
One of Frontier's competitive advantages relative to most other Rocky Mountain
refineries is that it includes substantially all of the major refinery units
that comprise a complex refinery, including a coker. Therefore, the Refinery
has the capability of producing a higher yield of lighter, more valuable
petroleum products such as gasoline and diesel fuel from heavier, less costly
feedstocks such as heavy sour crude oil. The Refinery's units have the capacity
to process a high percentage (up to 90%) of lower cost, more abundant sour crude
oil. The plant's downstream unit configuration affords the Refinery gasoline
octane capability equal to or higher than that of most of its competitors.
Frontier owns a 25,000 BPD undivided interest in a crude oil pipeline from
Guernsey, Wyoming to Cheyenne. This pipeline was constructed to help serve the
Refinery's long-term strategic crude oil needs.
Industry Segments
The Company's industry segment information for the three years ended
December 31, 1993, is set forth in Note 7 of the Financial Statements in the
1993 Annual Report to Shareholders which is incorporated herein by reference.
Operating Hazards and Risks
The Company's oil and gas exploration and production operations are subject
to all of the risks normally incident to the exploration for and production of
oil and gas including blow-outs, cratering, pollution and fires, each of which
could result in damage to or destruction of oil and gas wells or production
facilities or damage to persons and property. As is common in the oil and gas
industry, the Company is not fully insured against all of these risks, either
because insurance is not available or because the Company has elected not to
insure due to high premium costs. The occurrence of a significant event which
was not fully insured could have a material adverse effect on the Company's
financial position.
The Company's refinery operations are subject to significant interruption
if the refinery were to experience a major accident or fire or if it were
damaged by severe weather or other natural disaster. Should the crude oil
pipeline become inoperative, crude oil would be supplied to the Refinery by an
alternative pipeline and from additional tank trucks. A substantial portion,
but not all, of such loss would be covered by business interruption, property or
other insurance carried by Frontier. Frontier's safety measures substantially
mitigate but do not eliminate the risk of damage to the Refinery or the
environment and personal injury should a major adverse event occur. The
occurrence of a significant event which was not fully insured could have a
material adverse effect on the Company's financial position.
Competition
Oil and gas operations - The Company encounters strong competition from
other independent operators and from major oil companies in acquiring properties
suitable for exploration, in contracting for drilling equipment, in securing
trained personnel and in marketing oil and gas production. Many of these
competitors have financial resources and staffs substantially larger than those
available to the Company. The availability of a ready market for oil and gas
discovered by the Company depends on numerous factors beyond its control
including the extent of production and imports of oil and gas, the demand for
its products, the proximity and capacity of natural gas pipelines and the effect
of state, provincial or federal regulations.
Competition in the acquisition of oil and gas prospects and properties has
been intense and remains so for prime prospects. The Company's ability to
discover reserves depends on its ability to select and acquire suitable
prospects for future exploration. Although the Company generates the major
portion of its oil and gas prospects internally, it depends to some extent upon
prospects offered to it by independent consultants and other persons or entities
in the petroleum industry.
Refining operations - Frontier's business is highly competitive and price
is the principal basis of competition. The most important competitive product
marketing area in the Rocky Mountain region is the Denver market, principally
because it is the major population center in the Rockies. There are at least 17
refineries in the Rocky Mountain region (including those owned by several major
integrated oil companies). In addition, two refineries are located in Denver
and two product pipelines from outside the Rockies terminate in the area with an
additional product pipeline to be completed in 1994. Frontier also serves
western Nebraska and eastern Wyoming.
Many of the refineries in the Rocky Mountain region are owned by companies
that have significantly greater financial resources and/or refining capacity
than Frontier. Certain of these competitors, as integrated oil companies, also
have the advantage of owning or controlling crude oil reserves or other sources
of crude oil supply, crude oil and product pipelines and service stations and
other product marketing outlets.
Principal Competitors. Based on proximity to the Denver and Cheyenne
areas, Frontier's principal competitors in the wholesale segment are Sinclair
Oil Company (Sinclair) with a 54,000 BPD refinery near Rawlins, Wyoming and a
22,000 BPD refinery in Casper, Wyoming, Total Petroleum (North America) Ltd.
(Total) with a 32,000 BPD refinery in Denver, Colorado and Conoco, Inc. (Conoco)
with a 50,000 BPD refinery in Denver, Colorado. Frontier sells its products
exclusively at wholesale, principally to independent retailers, jobbers and
major oil companies, while Sinclair, Total and Conoco service both the retail
and wholesale markets.
Frontier is favorably positioned to purchase its crude oil and feedstock
requirements. Because many other refiners in the Rocky Mountain region have
significantly lower sour crude capacity, Frontier faces less competition for
regionally produced crude oil, which is predominantly sour. Regional production
of crude oil still exceeds regional refining capacity. Frontier on occasion
also purchases Canadian sour crude oil, which is available via pipeline into
Guernsey, Wyoming.
Frontier and its principal competitors all service the Denver market.
Because their refineries are located in Denver, Total's and Conoco's product
transportation costs in servicing that area are lower than those of Frontier.
Conversely, Frontier has lower crude transportation costs due to its proximity
to Guernsey, Wyoming, the major crude oil pipeline hub in the Rocky Mountain
region, and further due to its ownership interest in the crude oil pipeline.
Capital Improvement Program. During 1993, Frontier completed a significant
capital improvement program for the refinery. The most significant projects
included: (i) the construction of new sulfur recovery and amine treating units
which increased sour crude processing capacity, (ii) the expansion of the
capacity of the delayed coker unit from 8,200 bpd to 10,000 bpd, (iii) the
upgrading and expansion of the distillate hydrotreater and construction of a
hydrogen plant for adequate hydrogen supply and (iv) several projects which
improve the reliability and safety of various refinery units.
The capital improvement program enables the refinery to produce low sulfur
diesel as required by the Clean Air Act Amendments of 1990, increases the amount
of sour crude processed and improves the operating reliability of the refinery.
The improvements also increased the refinery's diesel capacity. In addition,
Frontier has incurred capital expenditures as a result of Occupational Safety
and Health Act (OSHA) required studies and the replacement of equipment damaged
in a June 1992 fire.
Strategic Position. Wainoco believes that, because the Refinery includes
substantially all of the major refinery units that comprise a complex refinery,
it potentially has three significant advantages over its principal competitors
and most other refineries in the region.
First, the Refinery has the capacity to process a high percentage (up to
90%) of sour crude oil, while most refineries in the Rocky Mountain region can
process only sweet crude or smaller percentages of sour crude. Refineries that
have the ability to process sour crude can benefit from the significantly lower
cost of sour relative to sweet crude oil, which is often referred to as the
"sweet/sour spread." During 1993, Frontier's cost for sour crude oil has ranged
from approximately $3.78 to $4.89 per barrel lower than its cost for sweet
crude.
Second, Frontier owns a 10,000 BPD coker, which, among other things,
enables the Refinery to upgrade resid and other heavy feedstocks into lighter,
more valuable petroleum products. Coker capacity was expanded to 10,000 BPD at
the end of 1992 to accommodate a 10-year agreement to process heavy feedstocks
for Conoco. There are presently only four other cokers in the region.
Third, because of Frontier's combination of downstream process units, the
Company believes that the Refinery has octane capability equal to or greater
than most of its competitors. This capability enabled Frontier to be the first
to introduce 91 octane premium unleaded gasoline to the Rocky Mountain region.
(Due to different altitudes, gasoline used in the Rocky Mountain region
generally has an octane rating two points lower than corresponding grades of
gasoline elsewhere in the United States.)
In addition, as a result of stringent environmental protection laws and the
high cost of the requisite plant modifications, Wainoco believes that, in
general, refiners in the Rocky Mountain region will face barriers to
substantially expanding refinery capacities or sour crude processing capability.
Based in part on the foregoing factors, the Company believes that, assuming
Frontier continues to reduce unplanned refinery unit shutdowns and other
equipment problems, Frontier is capable of competing effectively in its market.
In particular, Frontier has sold and expects to continue to sell refined
products at competitive prices.
Markets. Frontier sells to a broad base of independent retailers, jobbers
and major oil companies in the region. Its largest customer, CITGO Petroleum
Products, comprises approximately 15% of Frontier's 1993 sales. Customer
relations are excellent. Prices are determined by local marketing conditions
and at the "terminal rack" such that the customer typically supplies his own
truck transportation.
Effect of Crude Oil and Refined Product Prices. Frontier's income and cash
flow are derived from the margin between its costs to obtain and refine crude
oil and the price for which it can sell products produced in its refining
process. The price at which Frontier can sell gasoline and its other refined
products will be strongly influenced by the price of crude oil. Although an
increase or decrease in the price of crude oil generally results in a
corresponding increase or decrease in the price of gasoline and refined
products, changes in the prices of refined products generally lag behind changes
in the price for crude oil, both upward and downward. Frontier maintains
inventories of crude oil, intermediate products and refined products, the value
of each of which is subject to rapid fluctuations in market prices. Inventories
are recorded at the lower of cost on a first in, first out (FIFO) basis or
market. A rapid and significant movement in the market prices for crude oil or
refined products could have an adverse short-term impact on earnings and cash
flow. Crude oil prices, in general, are affected by a number of factors,
including domestic and international demand, domestic and foreign energy
legislation, production guidelines established by the Organization of Petroleum
Exporting Countries (OPEC), relative supplies of other fuels, such as natural
gas, and changing international economic and political conditions.
Frontier can process a high percentage of sour crude oil, enabling it to
benefit from the lower cost of sour crude relative to sweet crude. Because
income and cash flow from refining operations are dependent in part on this cost
differential, any narrowing of the sweet/sour crude spread would likely cause a
reduction in operating margin and a decrease in earnings and cash flow of the
refinery. A narrowing of the sweet/sour crude spread could result from, among
other things, a decrease in the supply of sour crude or an increase in sour
crude refining capacity of the refinery's competitors.
General - Wainoco competes with other oil and gas concerns and other
investment opportunities, whether or not related to the petroleum industry, in
raising capital. The Company's ability to compete successfully in the capital
markets is largely dependent on the success of its oil and gas exploration
activities, refining activities and the economic environment in which it
operates.
Current Gas Markets
The Company continues to sell the majority of its natural gas production to
long-term gas contracts managed by companies (aggregators) who purchase large
volumes of natural gas from many producers and resell this gas throughout North
America. The price paid for this gas is a "net-back" price per unit of gas
established by subtracting transportation, processing, storage and
administrative costs from the total revenue generated from all the monthly sales
of gas. During 1993, North America appears to have established a balance of
demand and supply of natural gas. During earlier periods of lower load factors,
the Company negotiated the right to market such excess volumes not taken by the
primary purchaser, to other markets. Such excess volumes are sold in the spot
market.
Wainoco has utilized short term contracts to ensure a diversification of
end-users, and optimize production. Generally, one year renewable contracts
have been used for this purpose. Gas prices are normally negotiated annually as
a fixed price per unit of sales or an indexed price compared to the NYMEX
futures price. Firm transportation and gas processing capacity from major
pipeline companies have been obtained in Canada to ensure continued ability to
produce pursuant to these contracts.
Prior to November 1, 1993, approximately 28% of the Canadian gas sold by
the Company was supplied under contracts that provide for supplies of fixed
volumes of gas. If the Company were not able to supply the gas required under
these contracts (as a result of high demand, for example), it would have been
required to fulfill its supply obligations by purchasing gas in the spot market,
where prices may exceed the contract prices. Subsequent to November 1, 1993,
the risk of such future losses was mitigated through contract expirations and
other factors.
Government Regulations
Oil & Gas Operations -
Environmental Laws and Regulations. The Company's oil and gas exploration
and production activities are subject to laws and regulations relating to
environmental quality and pollution control. The Company believes that such
legislation and regulations have had no material adverse effect on its present
method of operation. In the future, changes in Canadian or United States
federal, state, provincial and local government environmental controls could
require the Company to make significant expenditures. The magnitude of such
expenditures cannot be predicted. Environmental legislation in Alberta has
undergone a major revision to update and consolidate the various acts now
applicable to the industry into the Environmental Protection and Enhancement Act
(EPEA) effective September 1, 1993. The EPEA brings a wider range of activities
within the scope of environmental regulation. Environmental standards and
penalties are generally stricter under the EPEA than under the environmental
regulatory regime it replaces.
Canadian Oil and Gas Operations. Wainoco's Canadian oil and gas production
is subject to the payment to provincial governments, among others, of a
specified percentage of production revenue as a royalty. Royalties paid to the
province of Alberta are subject to a rebate called the Alberta Royalty Tax
Credit (ARTC). The ARTC is based on a price-sensitive formula using the average
West Texas Intermediate (WTI) quarterly oil price. The maximum annual ARTC
limits in 1993, 1992 and 1991 were $1.4 million, $1.5 million and $1.3 million,
respectively. The Company recognized ARTC's of $621,000, $590,000 and $558,000
in 1993, 1992 and 1991, respectively. The Alberta government has made changes
and continues to consider further changes in its royalty structure (including
royalty exemption periods) to provide incentives for exploring and developing
oil and gas reserves.
The government of Canada has relaxed export criteria to expand the export
of natural gas and has a broad policy wherein exports to the United States will
be sold at prices no lower than those prices in the adjoining Canadian market
for comparable end-users.
The Free Trade Agreement implemented in 1989 between Canada and the United
States was intended to foster a more open North American marketplace with a
minimum of direct government interference. Both countries are prohibited from
imposing minimum export or import price requirements or maintaining any
discriminatory export taxes, duties or charges. The agreement also provides for
the elimination of the United States tariffs and the elimination of customs user
fees which were previously imposed.
The North American Free Trade Agreement (NAFTA) implemented in 1994 between
the Governments of Canada, the United States and Mexico provides for the
reduction of Mexican restrictive trade practices in the energy sector and
prohibits discriminatory border restrictions and export taxes. NAFTA also
provides for clearer disciplines on regulators to avoid discriminatory actions
and to minimize disruption of contractual arrangements, which is important for
Canadian natural gas exports.
United States Oil and Gas Operations. The Company is subject to regulation
with respect to various aspects of its natural gas operations under the Natural
Gas Act and the Natural Gas Policy Act of 1978. Additionally, the Company is
significantly affected by certain provisions of the federal income tax laws
applicable to the petroleum industry.
Refinery Operations - The Company's refinery operations are subject to laws
and regulations relating to environmental quality and pollution control. In
1992 and 1993, the Company incurred capital costs of approximately $34.9 million
to upgrade refinery equipment for the manufacture of clean burning diesel fuel
as mandated by the Clean Air Act Amendments of 1990 (the Act). Additional
regulations now being developed under the Act will likely require certain
additional, but lesser, expenditures in the coming years. Although these new
requirements are not yet final, up to an estimated $1 million may be expended
over the next two years to facilitate conventional gasoline formulation and
approximately $4 million may be required over four years beginning in 1995 to
improve refinery controls on emissions of certain petroleum materials designated
as hazardous by the Act. Because other refineries will be required to make
similar expenditures, the Company does not expect such expenditures to
materially adversely impact its competitive position.
Frontier is party to formal agreements with both state and federal agencies
requiring the investigation and possible eventual remediation of certain areas
of refinery property which may have been impacted by past operational
activities. The Company has been addressing, over the past eight years, tasks
required under a consent decree (Consent Decree) entered by the Wyoming State
District Court on November 28, 1984 and involving the State of Wyoming,
Department of Environmental Quality and the predecessor owners of the refinery.
This action primarily addressed the threat of groundwater and surface water
contamination at the refinery. As a result of these investigative efforts,
substantial capital expenditures and remediation of conditions found to exist
have already taken place or are in progress. The continuing requirement for
groundwater remediation activities is the only significant task remaining in
connection with the Consent Decree. Additionally, Frontier entered into a
consent order with the federal Environmental Protection Agency on September 24,
1990 pursuant to the Resource Conservation and Recovery Act. The order requires
the technical investigation of the refinery to determine if certain areas of the
refinery have been adversely impacted by past operational activities. Based
upon the results of the investigation, additional remedial action could be
required.
The Company has been and will be responsible for costs related to
compliance with or remediations resulting from environmental regulations. There
are currently no identified environmental remediation projects of which the
costs can be reasonably estimated. However, the continuation of the present
investigative process, other more extensive investigations over time or changes
in regulatory requirements could result in future liabilities. See the
Financial Review of the 1993 Annual Report to Shareholders which is incorporated
herein by reference for discussion concerning the impact of compliance with
environmental laws and regulations on the Company's capital expenditures and
earnings.
Seasonality
At the Refinery, due to seasonal increases in tourist related volume and
road construction work, a higher demand exists in the Rocky Mountain region for
gasoline and asphalt products during the summer months than during the winter
months. Diesel demand is relatively constant throughout the year because two
major east-west truck routes, and at least two railroads, extend into or through
Frontier's principal marketing area. However, reduced road construction during
the winter months does somewhat reduce demand for diesel. The Refinery normally
schedules its maintenance turnaround work during the spring of each year.
During the spring of 1994, the Refinery has scheduled turnaround work on two of
its major operating units.
Employees
At December 31, 1993, the Company had 417 full-time employees, down from
434 a year earlier. The Company's 97 full-time employees in oil and gas
operations include 7 geologists, 3 geophysicists, 3 land men in exploration and
development and 10 petroleum engineers in drilling and production. The Company
employs 309 full-time people in the refining operations, 43 at the Denver office
and 266 at the Refinery. The Refinery employees include 83 administrative and
technical personnel and 183 union members. The union members are represented by
seven bargaining units, the largest being the Oil, Chemical and Atomic Workers
International Union. Six AFL-CIO affiliated unions represent the Refinery's
craft workers. The Company considers relations with all of its employees to be
good. The current three-year contracts expire in May 1996.
ITEM 2. PROPERTIES
As used in this Form 10-K, bbl means one barrel, bpd means one barrel per
day, bopd means one barrel of oil per day, mbbls means one thousand barrels,
mmbbls means one million barrels, mmbblse means one million barrels equivalent,
mcf means one thousand cubic feet, mmcf means one million cubic feet, bcf means
one billion cubic feet, and bcfe means one billion cubic feet equivalent.
Equivalent gas is based on British Thermal Units at a ratio of six mcf of gas to
one bbl of oil.
Refining Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Charges (bpd)
Sweet crude 6,581 8,766 10,268
Sour crude 25,909 21,015 20,298
Other feed and blend stocks 2,957 3,079 3,061
------ ------ ------
Total 35,447 32,860 33,627
Manufactured product yields (bpd)
Gasoline 15,129 13,131 14,158
Distillates 11,777 10,877 11,467
Asphalt and other 7,128 7,485 6,945
------ ------ ------
Total 34,034 31,493 32,570
Total product sales (bpd)
Gasoline 19,837 19,499 18,164
Distillates 11,819 11,330 11,907
Asphalt and other 7,682 6,500 6,356
------ ------ ------
Total 39,338 37,329 36,427
Operating margin information
(per sales bbl)
Average sales price $22.60 $24.39 $24.92
Material costs
(under FIFO inventory accounting) 17.09 19.56 20.36
------ ------ ------
Product spread 5.51 4.83 4.56
Operating expenses
excluding depreciation 3.55 3.18 3.02
Depreciation .47 .33 .21
------ ------ ------
Operating margin $ 1.49 $ 1.32 $ 1.33
Manufactured product margin
before depreciation (per bbl) $ 2.09 $ 1.76 $ .29
Purchased product margin
(per purchased product bbl) $ (.41) $ .77 $ 1.10
Sweet/sour spread (per bbl) $ 4.48 $ 5.53 $ 5.90
Average sales price (per sales bbl)
Gasoline $25.24 $27.78 $28.15
Distillates 25.06 25.57 25.44
Asphalts and other 12.00 12.16 14.70
</TABLE>
Oil and Gas Operations
Production - The following table summarizes the Company's net oil and gas
production, average daily production, weighted average sales prices and average
production (lifting) cost per dollar of oil and gas sales for the periods
indicated. Average daily production is computed by dividing net production by
the number of days per year. Average sales prices are presented in United
States dollars before deduction of production taxes. Production costs are
expressed in United States dollars including lifting costs and production taxes.
Average production cost is computed by dividing production costs by gross oil
and gas sales.
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net Gas Produced (mmcf)
Canada 15,938 15,995 15,486
United States 2,504 2,954 3,515
--------- --------- ---------
Total 18,442 18,949 19,001
Average Daily Gas Production (mmcf)
Canada 44 44 42
United States 7 8 10
--------- --------- ---------
51 52 52
Average Gas Sales Price (per mcf)
Canada $ 1.15 $ 1.00 $ 1.11
United States 2.12 1.81 1.68
Weighted Average 1.28 1.12 1.22
Net Oil Produced (bbls)
Canada 232,000 267,000 285,000
United States 747,000 844,000 835,000
--------- --------- ---------
979,000 1,111,000 1,120,000
Average Daily Oil Production (bbls)
Canada 636 730 780
United States 2,046 2,306 2,288
--------- --------- ---------
2,682 3,036 3,068
Average Oil Sales Price (per bbl)
Canada $ 12.85 $ 14.13 $ 17.18
United States 16.85 18.51 19.18
Weighted Average 15.90 17.46 18.67
Average Production Cost
(per dollar of oil and gas sales)
Canada $ .25 $ .26 $ .28
United States .45 .41 .43
Weighted Average .34 .34 .36
Average Production Cost
(per BTU equivalent mcf of production)
Canada $ .31 $ .29 $ .36
United States 1.16 1.08 1.10
Weighted Average .63 .54 .61
</TABLE>
Oil and Gas Drilling Activities - The following table shows the number of
completed wells in which the Company has participated, the net interest to the
Company in those wells and the results thereof for the periods indicated
(excluding those wells drilled under farm out arrangements).
As of December 31, 1993, the Company was in the process of drilling four
wells in the United States in which the Company's interest is 0.49 net. Two
wells were oil, one well was dry and one well is still in progress.
<TABLE>
<CAPTION>
Exploratory Development
Oil Gas Dry Total Oil Gas Dry Total
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Wells
1993
Canada 5 8 7 20 0 0 0 0
United States 0 0 2 2 15 0 1 16
---- ---- ---- ---- ---- ---- ---- ----
5 8 9 22 15 0 1 16
1992
Canada 5 1 8 14 1 1 0 2
United States 0 1 3 4 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ----
5 2 11 18 1 1 0 2
1991
Canada 0 3 4 7 0 0 0 0
United States 10 3 4 17 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ----
10 6 8 24 0 0 0 0
Net Wells
1993
Canada 2.34 2.80 3.15 8.29 0 0 0 0
United States 0 0 0.46 0.46 0.09 0 0.44 0.53
---- ---- ---- ---- ---- ---- ---- ----
2.34 2.80 3.61 8.75 0.09 0 0.44 0.53
1992
Canada 1.88 0.50 3.61 5.99 0.06 0.35 0 0.41
United States 0 0.33 1.13 1.46 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ----
1.88 0.83 4.74 7.45 0.06 0.35 0 0.41
1991
Canada 0 0.87 1.72 2.59 0 0 0 0
United States 3.60 0.62 0.78 5.00 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ----
3.60 1.49 2.50 7.59 0 0 0 0
</TABLE>
Principal Oil and Gas Properties - The following presentation is a summary
description of the Company's most significant oil and gas properties. During
1993, the Company was not curtailed other than for mechanical problems relating
to pipeline and compressor repairs and maintenance.
In the Monias area (British Columbia) the Company has an average working
interest of 41.6%. Two pipelines collect gas from the area, allowing the
Company flexibility in seeking gas purchasers. In 1993, Wainoco sold 86% under
long-term contract to CanWest Gas Supply Inc. (CanWest), Northwest Pacific
Energy Marketing Inc. and B.C. Gas Inc. and 14% to pulp mills or exported to the
United States under short-term contracts.
In the Maple Glen-Leo area (Alberta) the Company has an average working
interest of 44.6%. During 1993, all gas sales were made under long-term
contracts with Pan-Alberta Gas Ltd. (Pan-Alta), Western Gas Marketing Limited
(WGML) and Altresco Pittsfield, a cogeneration market.
In the Wardlow area (Alberta) the Company has an average working interest
of 85.6% and 33 additional undeveloped well locations on proved acreage.
Wainoco holds overriding royalty interests in 17,280 gross proved acres and
2,560 gross unproved acres. All production was sold under long-term contracts
to Pan-Alta and WGML.
In the North Cache field (British Columbia) the Company has an average
working interest of 68.5%. Annual production is sold under long-term contracts
to CanWest.
In the Septimus area (British Columbia) the Company has an average working
interest of 58.8%. During 1993, gas was sold to pulp mills or export markets in
the United States under short-term contracts.
In the Oak field (British Columbia) the Company has an average working
interest of 40.5%. During 1993, 92% of production was sold to CanWest under
long-term contracts and 8% was sold under short-term contracts.
In the Conroe field (Texas) the Company has a unit working interest of 17%.
Oil production was sold to Texaco Trading and plant products and gas production
were sold to Union Pacific Resources.
In the High Island Block 93 field (federal offshore Texas) the Company has
working interest of 25%. Production is projected to commence in May 1994 after
completion of the facilities and pipeline.
In Yeary field (Texas) the Company has a 100% working interest. During
1993, oil production was sold to Koch and gas production was sold to Panhandle
Trading and Corpus Christi Gas Marketing.
In the Esther field (Louisiana) the Company has an average working interest
of 26.5%. During 1993, gas production was sold to Louisiana Gas System and
Louisiana Gas Marketing.
In the West Delta 20 field (federal offshore Louisiana) the Company has an
average working interest of 21%. During 1993, gas production was sold to Ledco
Inc. The OCS-G 7789 #3 well was recompleted from the K5B to the K5A zone in
January, 1994 testing at 17 MMCFD. The K5 zone remains behind pipe.
The following table presents data for the year and as of December 31, 1993.
<TABLE>
<CAPTION>
Average Daily
Production Proved Reserve Discounted
Gross Gross Acreage Gas Oil Gas Oil Net Cash
Wells Productive Undeveloped (mcf) (bbls) (mmcf) (mbbls) Flows (1)
----- ---------- ----------- ------ ------ ------ ------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canada
Monias area, British Columbia 38 25,602 9,459 13,789 56 32,136 124 21,854
Maple Glen-Leo area, Alberta 61 47,206 8,320 6,652 45 12,530 104 10,334
Wardlow area, Alberta 110 18,240 2,080 3,507 0 9,377 0 6,846
North Cache field,
British Columbia 4 2,108 3,758 1,827 32 9,975 140 6,167
Septimus area,
British Columbia 4 1,947 13,573 3,211 19 8,560 53 5,756
Oak field, British Columbia 13 6,239 5,041 3,427 53 5,393 103 4,857
United States
Conroe field (1), Texas 1 3,376 0 77 688 28,391 1,121 25,845
High Island Block 93 field,
Federal Offshore (2), Texas 1 5,760 0 0 0 3,343 39 5,866
Yeary field (3), Texas 8 1,696 1,090 648 365 652 675 5,359
Esther field, Louisiana 6 1,875 0 731 7 2,923 41 4,980
West Delta 20,
Federal Offshore, Louisiana 1 2,765 0 525 7 1,904 27 3,388
</TABLE>
(1) Gross wells: 1 unit with 176 wells.
(2) No 1993 sales. Installing pipeline and facilities in 1994.
(3) Average daily production is based on 12/93 data since several wells were
recompleted during the year.
Productive Wells - The following table shows the Company's gross and net
interests in productive oil and gas wells at December 31, 1993.
<TABLE>
<CAPTION>
Oil (1) Gas (1) Total (1)
Gross Net Gross Net Gross Net
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Canada 85 18.2 406 206.1 491 224.3
United States (2) 70 25.6 32 10.4 102 36.0
------ ------ ------ ------ ------ ------
155 43.8 438 216.5 593 260.3
</TABLE>
(1) One or more completions in the same bore hole are counted as one well. The
data in the table includes 37 gross (32.2 net) gas wells and one gross (1
net) oil well with multiple completions.
(2) Includes producing units which contain numerous wells. Each unit is
counted as one gross well and the unit working interest is included in the
net wells.
Acreage - The table below summarizes the Company's interest in productive
and undeveloped acreage as of December 31, 1993.
<TABLE>
<CAPTION>
Productive Undeveloped
Gross Net Gross Net
------ ------ ------ ------
<S> <C> <C> <C> <C>
United States
Arkansas 340 97 0 0
California 200 200 41 41
Colorado 2,360 425 46,518 15,736
Louisiana 15,392 3,141 13,795 4,155
Michigan 102 1 0 0
Mississippi 521 171 108 36
Montana 1,905 231 0 0
New Mexico 17,292 2,919 0 0
Oklahoma 0 0 8,939 8,586
Texas 19,483 8,513 16,992 10,134
Wyoming 7,542 635 86,809 33,535
------- ------- ------- -------
65,137 16,333 173,202 72,223
Canada
Alberta 283,209 80,831 158,175 66,413
British Columbia 73,200 25,549 109,054 47,359
Northwest Territories and Beaufort Sea 0 0 12,775 262
------ ------ ------ ------
356,409 106,380 280,004 114,034
Total 421,546 122,713 453,206 186,257
======= ======= ======= =======
</TABLE>
Reserves - Incorporated herein by reference is the Supplemental Financial
Information contained on pages 30 and 32 of the 1993 Annual Report to
Shareholders which presents the estimated net quantities of the Company's proved
oil and gas reserves and the standardized measure of discounted future net cash
flows attributable to such reserves.
Pursuant to regulations of the United States Department of Energy, Wainoco
is required to file an annual report of proved reserves with the Federal Energy
Regulatory Commission (FERC). The reserve information included in the
Supplemental Financial Information is not inconsistent with the reserve
information which will be furnished to the FERC. Wainoco has not filed oil or
gas reserve information with any other federal agency within the past year,
other than information similar to that included herein.
Other Properties
The Company leases approximately 27,000 square feet of office space in
Houston for its corporate and U.S. oil and gas exploration and production
headquarters on a six-year lease expiring in 1998. The Company also leases a
small office, on an annual basis, in Corpus Christi, Texas. In Canada, the
Company leases approximately 17,000 square feet in Calgary for its Canadian oil
and gas exploration and production office under a lease expiring in 2000.
Frontier leases approximately 23,000 square feet in Denver, Colorado for its
refining operations headquarters which expires in 1995.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings which in the opinion of management would
have a material adverse impact on the Company. See Item 1. Business -
Government Regulations regarding certain ongoing proceedings regarding
environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information on the outside back flysheet of the 1993 Annual Report to
Shareholders under the heading "Common Stock" is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATE
The information on page 14 of the 1993 Annual Report to Shareholders under
the heading "Five Year Financial Data" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information on pages 11 and 13 of the 1993 Annual Report to
Shareholders under the heading "Financial Review" is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the data contained in the 1993 Annual Report
to Shareholders are incorporated herein by reference. See index to financial
statements and supplemental data appearing under Item 14(a)1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Part III of this Form is incorporated by
reference from the definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of its last fiscal
year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements and Supplemental Data Page*
Consolidated Statements of Operations 16
Consolidated Balance Sheets 17
Consolidated Statements of Cash Flows 18
Consolidated Statements of Shareholders' Equity 19
Notes to Financial Statements 20
Report of Independent Public Accountants 28
Oil and Gas Producing Activities 29
Selected Quarterly Financial Data 14
*Reference to page in the 1993 Annual Report to Shareholders, which
portions thereof are incorporated herein by reference.
(a)2. Financial Statements Schedules
Report of Independent Public Accountants
Schedule II - Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other than Related Parties
Schedule III - Condensed Financial Information of Registrant
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information
Other Schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the financial statements or notes thereto.
(a)3. List of Exhibits
* 3.1 - Articles of Domestication of the Company, as amended (filed as
Exhibit 2.3 to Registration Statement No. 2-62518 and Exhibit 2.2 to
Registration Statement No. 2-69149).
* 3.2 - Fourth restated By-Laws of the Company as amended through February
20, 1992 (filed as Exhibit 3.2 to Form 10-K dated December 31,
1992).
* 4.1 - Indenture dated as of October 1, 1978, between the Company and First
City National Bank of Houston, as Trustee relating to the Company's
10 3/4% Subordinated Debentures due 1998 (filed as Exhibit 2.5 to
Registration Statement No. 2-59649).
* 4.2 - Agreement of Resignation, Appointment and Acceptance by and among
the Company, First City National Bank of Houston (Resigning Trustee)
and Texas Commerce Bank National Association, Houston, (Successor
Trustee) relating to the Company's 10 3/4% Subordinated Debentures
due 1998 (filed as Exhibit 4.2 to Form 10-K dated December 31,
1985).
* 4.3 - First Supplemental Indenture dated as of January 20, 1987 between
the Company and Texas Commerce Bank National Association,
supplementing and amending the Indenture dated as of October 1,
1978, relating to the Company's 10 3/4% Subordinated Debentures due
1998 (filed as Exhibit 4.3 to Form 10-K dated December 31, 1986).
* 4.6 - Indenture dated as of June 1, 1989 between the Company and Texas
Commerce Trust Company of New York as Trustee relating to the
Company's 7 3/4% Convertible Subordinated Debentures due 2014 (filed
as Exhibit 4.6 to Form 10-K dated December 31, 1989).
* 4.7 - Indenture dated as of August 1, 1992 between the Company and Bank
One, N.A., as Trustee relating to the Company's 12% Senior Notes due
2002 (filed as Exhibit 4.7 to Form 10-K dated December 31, 1992).
* 10.1 - Amended and Restated Loan Agreement dated October 2, 1991 among the
Company and Bank of Montreal and Morgan Bank of Canada (filed as
Exhibit 10.1 to Form 10-K dated December 31, 1991).
* 10.2 - Amendments dated December 31, 1991 through August 14, 1992 to Loan
Agreement dated October 2, 1991 with Bank of Montreal and Morgan
Bank of Canada (filed as Exhibit 10.2 to Form 10-K dated December
31, 1992).
* 10.3 - Letter Agreement dated January 15, 1992 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada
(filed as Exhibit 10.3 to Form 10-K dated December 31, 1992).
* 10.4 - Waiver and Release dated May 13, 1992 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada
(filed as Exhibit 10.4 to Form 10-K dated December 31, 1992).
* 10.5 - Letter Agreement dated June 30, 1992 to Loan Agreement dated October
2, 1991 with Bank of Montreal and Morgan Bank of Canada (filed as
Exhibit 10.5 to Form 10-K dated December 31, 1992).
10.6 - Letter Agreement dated July 31, 1992 to Loan Agreement dated October
2, 1991 with Bank of Montreal and Morgan Bank of Canada.
10.7 - Amending Agreement dated August 14, 1992 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada.
10.8 - Amending Agreement dated May 18, 1993 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada.
10.9 - Amendment Letter dated August 12, 1993 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada.
10.10 - Waiver dated November 10, 1993 to Loan Agreement dated October 2,
1991 with Bank of Montreal and Morgan Bank of Canada.
10.11 - Amending Agreement dated December 10, 1993 to Loan Agreement dated
October 2, 1991 with Bank of Montreal and Morgan Bank of Canada.
* 10.12 - Credit and Guaranty Agreement dated October 4, 1991 among Wainoco
Oil & Gas Company, the Company, certain banks and Morgan Guaranty
Trust Company of New York (filed as Exhibit 10.2 to Form 10-K dated
December 31, 1991).
* 10.13 - Amendment No. 1 dated December 31, 1991 to Loan Agreement dated
October 4, 1991 with certain banks and Morgan Guaranty Trust Company
of New York (filed as Exhibit 10.7 to Form 10-K dated December 31,
1992).
10.14 - Amendment No. 2 dated June 24, 1992 to Loan Agreement dated October
4, 1991 with certain banks and Morgan Guaranty Trust Company of New
York.
10.15 - Amendment No. 3 dated June 30, 1992 to Loan Agreement dated October
4, 1991 with certain banks and Morgan Guaranty Trust Company of New
York.
10.16 - Amendment No. 4 dated March 31, 1993 to Loan Agreement dated October
4, 1991 with certain banks and Morgan Guaranty Trust Company of New
York.
* 10.17 - Revolving Credit and Letter of Credit Agreement dated August 10,
1992 among Frontier Oil and Refining Company, certain banks and
Union Bank (filed as Exhibit 10.8 to Form 10-K dated December 31,
1992).
* 10.18 - First Amendment dated October 8, 1992 to Loan Agreement among
Frontier Oil and Refining Company, certain banks and Union Bank
(filed as Exhibit 10.9 to Form 10-K dated December 31, 1992).
10.19 - Waiver and Amendment dated March 17, 1993 to Loan Agreement dated
October 4, 1991 with certain banks and Morgan Guaranty Trust Company
of New York.
10.20 - Second Amendment dated April 30, 1993 to Loan Agreement dated
October 4, 1991 with certain banks and Morgan Guaranty Trust Company
of New York.
10.21 - Waiver letter dated August 31, 1993 to Loan Agreement dated October
4, 1991 with certain banks and Morgan Guaranty Trust Company of New
York.
10.22 - Waiver letter dated October 15, 1993 to Loan Agreement dated October
4, 1991 with certain banks and Morgan Guaranty Trust Company of New
York.
10.23 - Third Amendment dated December 31, 1993 to Loan Agreement dated
October 4, 1991 with certain banks and Morgan Guaranty Trust Company
of New York.
10.24 - Credit Agreement dated September 10, 1993 among Wainoco Oil & Gas
Company and Cullen Center Bank and Trust.
* 10.25 - Interest Rate Swap Agreement dated August 5, 1991 between the
Company and Morgan Guaranty Trust Company of New York (filed as
Exhibit 10.10 to Form 10-K dated December 31, 1992).
* 10.26 - Waiver and Amendment Agreement dated May 1, 1992 between the Company
and Morgan Guaranty Trust Company of New York (filed as Exhibit
10.11 to Form 10-K dated December 31, 1992).
* 10.27 - Amendment Agreement dated December 31, 1992 to Interest Rate Swap
Agreement dated August 5, 1991 between the Company and Morgan
Guaranty Trust Company of New York (filed as Exhibit 10.12 to Form
10-K dated December 31, 1992).
* 10.28 - The 1968 Incentive Stock Option Plan as amended and restated (filed
as Exhibit 10.1 to Form 10-K dated December 31, 1987).
* 10.29 - The 1977 Stock Option Plan as amended and restated (filed as Exhibit
10.2 to Form 10-K dated December 31, 1989).
* 10.30 - Employment Agreement dated May 26, 1992 between the Company and
Clark Johnson (filed as Exhibit 10.16 to Form 10-K dated December
31, 1992).
13.1 - Portions of the Company's 1993 Annual Report covering pages 11
through 14, 16 through 32 and back fly sheet.
* 21.1 - Subsidiaries of the Registrant (filed as Exhibit 22.1 to Form 10-K
dated December 31, 1992).
23 - Consent of Arthur Andersen & Co.
*Asterisk indicates exhibits incorporated by reference as shown.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the fourth
quarter of 1993.
(c) Exhibits
The Company's 1993 Annual Report is available upon request. Shareholders
of the Company may obtain a copy of any other exhibits to this Form 10-K at
a charge of $.25 per page. Requests should be directed to:
Michal King
Corporate Communications
Wainoco Oil Corporation
1200 Smith Street, Suite 2100
Houston, Texas 77002-4367
(d) Schedules
Report of Independent Public Accountants on Financial Statement Schedules
To Wainoco Oil Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Wainoco Oil Corporation's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 11, 1994. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules listed
in the index above are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Houston, Texas
February 11, 1994
<TABLE>
<CAPTION>
Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
For the year ended December 31, 1993 Schedule II
Balance at
Beginning of Amount Amount Balance at End of Period
Name of Debtor Period Additions Collected Written Off Current Not Current
- -------------- ------------ --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
S. C. Johnson 0 $160,000 0 0 $160,000 0
</TABLE>
<TABLE>
<CAPTION>
Wainoco Oil Corporation
Condensed Financial Information of Registrant
Balance Sheets
As of December 31, Schedule III
(in thousands)
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 498 $ 1,162
Receivables 3,726 4,006
Other current assets 145 193
---------- ----------
Total current assets 4,369 5,361
---------- ----------
Property, Plant and Equipment, at cost -
Oil and gas properties, on a full-cost basis 148,717 148,707
Furniture, fixtures and other 718 728
---------- ----------
149,435 149,435
Less - Accumulated depreciation,
depletion and amortization (77,078) (72,246)
---------- ----------
72,357 77,189
Investment in Subsidiaries 175,504 155,351
Other Assets 5,268 5,831
---------- ----------
$ 257,498 $ 243,732
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 0 $ 2,499
Accounts payable 4,278 3,522
Other accrued liabilities 6,172 5,595
---------- ----------
Total current liabilities 10,450 11,616
---------- ----------
Deferred Income Taxes 1,598 1,598
Deferred Revenues and Other 936 1,323
Payable to Affiliated Companies 20,274 19,666
Long-Term Debt 158,200 164,573
Shareholders' Equity: 66,040 44,956
---------- ----------
$ 257,498 $ 243,732
========== ==========
</TABLE>
The "Notes to Condensed Financial Information of Registrant" and the "Notes to
Financial Statements of Wainoco Oil Corporation and Subsidiaries" are an
integral part of these financial statements.
<TABLE>
<CAPTION>
Wainoco Oil Corporation
Condensed Financial Information of Registrant
Statements of Operations
For the three years ended December 31, Schedule III
(in thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 21,250 $ 19,708 $ 22,142
Equity in earnings of subsidiaries 16,599 9,149 (12,721)
Other income 991 913 1,869
---------- ---------- ----------
38,840 29,770 11,290
---------- ---------- ----------
Costs and Expenses:
Oil and gas operating costs 5,326 5,117 6,254
Selling and general expenses 4,494 4,549 5,783
Depreciation, depletion and amortization 9,347 9,307 9,643
---------- ---------- ----------
19,167 18,973 21,680
---------- ---------- ----------
Operating Income (Loss) 19,673 10,797 (10,390)
Interest expense, net 17,684 12,190 8,519
---------- ---------- ----------
Income (Loss) Before Income Taxes 1,989 (1,393) (18,909)
Provision (Benefit) for Income Taxes (515) (415) (618)
---------- ---------- ----------
Net Income (Loss) $ 2,504 $ (978) $ (18,291)
========== ========== ==========
</TABLE>
The "Notes to Condensed Financial Information of Registrant" and the "Notes to
Financial Statements of Wainoco Oil Corporation and Subsidiaries" are an
integral part of these financial statements.
<TABLE>
<CAPTION>
Wainoco Oil Corporation
Condensed Financial Information of Registrant
Statements of Cash Flow
For the three years ended December 31, Schedule III
(in thousands)
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities
Net income $ 2,504 $ (978) $ (18,291)
Equity in earnings of subsidiaries (16,599) (9,149) 12,721
Depreciation, depletion and amortization 9,347 9,307 9,643
Other 591 3,488 41
---------- ---------- ----------
Net cash provided (used) by operating activities (4,157) 2,668 4,114
---------- ---------- ----------
Investing Activities
Additions to property, plant and equipment (6,480) (5,703) (11,164)
Proceeds from sale of property 945 179 690
Acquisition costs and other 343 1,163 (25,489)
---------- ---------- ----------
Net cash used by investing activities (5,192) (4,361) (35,963)
---------- ---------- ----------
Financing Activities
Long-term borrowings -
Senior Notes 0 100,000 0
Bank debt 18,700 2,200 40,058
Repayments -
Bank debt (22,700) (42,200) (14,486)
Debentures (4,999) 0 (282)
Common stock offering & commitments 21,725 0 0
Change in intercompany balances, net (13,665) (54,063) 5,991
Dividends paid to parent 9,860 0 0
Other (20) (4,115) 172
---------- ---------- ----------
Net cash provided by financing activities 8,901 1,822 31,453
Effect of exchange rate changes on cash (215) (233) (15)
---------- ---------- ----------
Increase (Decrease) in cash and cash equivalents (663) (104) (411)
Cash and cash equivalents - beginning of period 1,162 1,266 1,677
---------- ---------- ----------
Cash and cash equivalents - end of period $ 499 $ 1,162 $ 1,266
========== ========== ==========
</TABLE>
The "Notes to Condensed Financial Information of Registrant" and the "Notes to
Financial Statements of Wainoco Oil Corporation and Subsidiaries" are an
integral part of these financial statements.
Wainoco Oil Corporation
Notes to Condensed Financial Information of Registrant
December 31, 1993 Schedule III
(1) General
The accompanying condensed financial statements of Wainoco Oil Corporation
(Registrant) should be read in conjunction with the consolidated financial
statements of the Registrant and its subsidiaries included in the Registrant's
1993 Annual Report to Shareholders.
(2) Oil and gas properties
All of the Registrant's oil and gas properties are located in Canada.
Information relating to the Registrant's oil and gas operations is disclosed in
the "Notes to the Financial Statements of Wainoco Oil Corporation and
Subsidiaries."
(3) Long-term debt
The components (in thousands) of long-term debt are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
12% Senior Notes $ 100,000 $ 100,000
7 3/4% Convertible Subordinated Debentures 46,000 46,000
10 3/4% Subordinated Debentures 12,200 17,072
Bank debt 0 4,000
---------- ----------
158,200 167,072
Less current portion 0 2,499
---------- ----------
$ 158,200 $ 164,573
========== ==========
</TABLE>
(4) Five-year maturities of long-term debt
The estimated five-year maturities of long-term debt are $2.5 million in 1995
through 1997 and $5.0 million in 1998.
<TABLE>
<CAPTION>
Property, Plant and Equipment Schedule V
(in thousands)
Balance, Balance
Beginning Other Retirement Translation End of
For the Years Ended December 31, of Period Changes(3) Additions or Sales Adjustment Period
---------- ------- ---------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1993 Refining (1) $ 90,994 $ 0 $ 26,566 $ 0 $ 0 $ 117,560
Pipeline (1) 7,145 0 0 0 0 7,145
Oil and gas (2) 443,430 0 13,371 (2,246) (5,905) 448,650
Furniture, fixtures and
other equipment (1) 3,956 0 714 (248) (30) 4,392
Land and improvements (1) 1,428 0 0 0 0 1,428
---------- ------- ---------- ---------- ------------ -------
546,953 0 40,651 (2,494) (5,935) 579,175
1992 Refining (1) 60,970 0 30,024 0 0 90,994
Pipeline (1) 6,062 0 1,083 0 0 7,145
Oil and gas (2) 448,961 0 10,190 (1,222) (14,499) 443,430
Furniture, fixtures and
other equipment (1) 3,838 0 464 (276) (70) 3,956
Land and improvements (1) 1,428 0 0 0 0 1,428
---------- ------- ---------- ---------- ------------ -------
521,259 0 41,761 (1,498) (14,569) 546,953
1991 Refining (1) 0 57,548 3,422 0 0 60,970
Pipeline (1) 0 6,062 0 0 0 6,062
Oil and gas (2) 410,770 0 45,024 (7,403) 570 448,961
Furniture, fixtures and
other equipment (1) 2,743 1,111 364 (382) 2 3,838
Land and improvements (1) 0 1,003 425 0 0 1,428
---------- ------- ---------- ---------- ------------ -------
$ 413,513 $ 65,724 $ 49,235 $ (7,785) $ 572 $ 521,259
</TABLE>
(1) Depreciation is computed on a straight-line basis at various rates per
year.
(2) Depreciation, depletion and amortization is computed on a quarterly basis
using the composite unit-of-production method based on dollars of future
gross revenue attributable to proved reserves.
(3) Acquisition of Frontier Holdings Inc.
<TABLE>
<CAPTION>
Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment Schedule VI
(in thousands)
Balance, Additions Balance,
Beginning Charged to Translation End of
For the Years Ended December 31, of Period Earnings* Retirements Adjustment Period
---------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
1993 Refining $ 4,067 $ 5,506 $ 0 $ 0 $ 9,573
Pipeline 447 357 0 0 804
Oil and gas 308,582 16,222 0 (3,046) 321,758
Furniture, fixtures and
other equipment 2,332 511 (248) (24) 2,571
Land and improvements 111 88 0 0 199
---------- ---------- ---------- ------------ --------
315,539 22,684 (248) (3,070) 334,905
1992 Refining 745 3,322 0 0 4,067
Pipeline 76 371 0 0 447
Oil and gas 296,548 18,757 0 (6,723) 308,582
Furniture, fixtures and
other equipment 2,077 584 (273) (56) 2,332
Land and improvements 22 89 0 0 111
---------- ---------- ---------- ------------ --------
299,468 23,123 (273) (6,779) 315,539
1991 Refining 0 745 0 0 745
Pipeline 0 76 0 0 76
Oil and gas 261,724 34,673 0 151 296,548
Furniture, fixtures and
other equipment 1,996 368 (288) 1 2,077
Land and improvements 0 22 0 0 22
---------- ---------- ---------- ------------ -------
$ 263,720 $ 35,884 $ (288) $ 152 $299,468
</TABLE>
*Excludes amortization of debenture issue expense of $554 in 1993, $308 in 1992
and $137 in 1991.
<TABLE>
<CAPTION>
Short-Term Borrowings Schedule IX
(dollars in thousands)
Maximum Average Weighted
Category of Weighted amount amount average
aggregate Balance at average outstanding outstanding interest rate
short-term end of interest during the during the during the
borrowings period rate period period period
- ------------------------------------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1992
Notes payable to
financial institutions $ 0 0 $ 8,900 $ 3,115 8.13%
Year Ended
December 31, 1991
Notes payable to
financial institutions 0 0 4,574 102 9.3%
</TABLE>
There were no short-term borrowings for the year ended December 31, 1993.
<TABLE>
<CAPTION>
Supplementary Income Statement Information Schedule X
(in thousands)
Charged to Charged to Charged to
Costs and Expenses Costs and Expenses Costs and Expenses
Item 1993 1992 1991
- -------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C>
Maintenance and repairs $12,405 $12,183 $2,954
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the date indicated.
WAINOCO OIL CORPORATION
By: /s/ James R. Gibbs
--------------------
President
(chief executive officer)
Date: February 22, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Wainoco Oil
Corporation and in the capacities and on the date indicated.
/s/ James R. Gibbs /s/ James S. Palmer
- ---------------------- --------------------
James R. Gibbs James S. Palmer
President and Director Director
(chief executive officer)
/s/ George E. Aldrich /s/ Derek A. Price
- ---------------------- ----------------------
George E. Aldrich Derek A. Price
Vice President - Controller Director
(principal accounting officer)
/s/ John B. Ashmun /s/ Carl W. Schafer
- ---------------------- ----------------------
John B. Ashmun Carl W. Schafer
Chairman of the Board Director
/s/ Douglas Y. Bech /s/ William Scheerer, II
- --------------------- ----------------------
Douglas Y. Bech William Scheerer, II
Director Director
Date: February 22, 1994
AMENDING AGREEMENT
THIS AGREEMENT made as of the 31st day of July, 1992
AMONG
WAINOCO OIL CORPORATION, a body corporate having offices in the City
of Houston, in the State of Texas, one of the United States of
America ("Wainoco")
- and -
BANK OF MONTREAL, a Chartered Bank with head offices in the City of
Montreal, in the Province of Quebec and having an office in the City
of Calgary, in the Province of Alberta ("BMO")
- and -
MORGAN BANK OF CANADA, a Chartered Bank with head offices in the City
of Toronto, in the Province of Ontario ("Morgan")
WHEREAS Wainoco, BMO and Morgan entered into an Amended and Restated
Loan Agreement dated October 2, 1991 as amended by a Letter Agreement dated
October 2, 1991, an Amending Agreement dated December 31, 1991, a Letter
Agreement dated January 15, 1992, an Amending Agreement dated March 2, 1992, an
Amending Agreement dated April 29, 1992, an Amending Agreement dated May 29,
1992, an Amending Agreement dated June 12, 1992 and an Amending Agreement dated
June 30, 1992 (collectively, the "Loan Agreement");
AND WHEREAS the parties wish to amend the Loan Agreement as herein
provided;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
sum of one dollar ($1.00) and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein shall have the meanings given to them in the
Loan Agreement.
2. BMO and Morgan hereby agree that the Drawdown Termination Date is extended
to August 31, 1992.
3. Section 14 of the Loan Agreement is hereby amended by deleting Paragraph
14(d)(ii) in its entirety and replacing the same with the following:
"the ratio of Wainoco's Current Assets to Current Liabilities shall
exceed 1:1 at all times (for the purposes of this Paragraph
14(d)(ii), "Current Assets" shall include any amount by which the
Commitment exceeds the Outstandings and any amount by which the
"Commitment" exceeds the aggregate outstanding principal amount of
the "Loans" as those terms are defined in, and under the terms of,
the Credit and Guaranty Agreement dated as of October 4, 1991 (as
amended from time to time thereafter) among Wainoco Oil & Gas
Company, Morgan Guaranty Trust Company of New York, as agent, and
Bank of Montreal);"
4. This Agreement may be executed in counterpart and the number of
counterparts read together shall form this Agreement.
5. The parties hereby ratify and confirm the terms of the Loan Agreement,
subject to the specific amendments contained herein.
IN WITNESS WHEREOF the parties hereto have executed this Amending Agreement as
of the day first written above.
WAINOCO OIL CORPORATION
Per: /s/ Julie H. Edwards
BANK OF MONTREAL
Per: /s/ Mark Green
MORGAN BANK OF CANADA
Per: /s/ Stephen B. King
AMENDING AGREEMENT
THIS AGREEMENT made as of the 14th day of August, 1992
AMONG
WAINOCO OIL CORPORATION, a body corporate having offices in the City
of Houston, in the State of Texas, one of the United States of
America ("Wainoco")
- and -
BANK OF MONTREAL, a Chartered Bank with head offices in the City of
Montreal, in the Province of Quebec and having an office in the City
of Calgary, in the Province of Alberta ("BMO")
- and -
MORGAN BANK OF CANADA, a Chartered Bank with head offices in the City
of Toronto, in the Province of Ontario ("Morgan")
WHEREAS Wainoco, BMO and Morgan entered into an Amended and Restated
Loan Agreement dated October 2, 1991 as amended by a Letter Agreement dated
October 2, 1991, an Amending Agreement dated December 31, 1991, a Letter
Agreement dated January 15, 1992, an Amending Agreement dated March 2, 1992, an
Amending Agreement dated April 29, 1992, an Amending Agreement dated May 29,
1992, an Amending Agreement dated June 12, 1992, an Amending Agreement dated
June 30, 1992 and an Amending Agreement dated July 31, 1992 (collectively, the
"Loan Agreement");
AND WHEREAS Bank of Montreal and Morgan wish to issue to Wainoco a
letter of credit (the "Letter of Credit") in the form attached as Schedule "A"
hereto, certain terms of which are inconsistent with certain of the current
provisions of the Loan Agreement;
AND WHEREAS the parties wish to amend the Loan Agreement as herein
provided in order to facilitate the issuance of the Letter of Credit;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
sum of one dollar ($1.00) and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein shall, unless otherwise defined, have the
meanings given to them in the Loan Agreement.
2. Section 1 of the Loan Agreement is hereby amended as follows:
(a) by adding the following between the word "monies" and the period in
the fifth line of paragraph 1(l):
", and shall include the Letter of Credit"; and
(b) by adding the following after paragraph 1(ii) as a new paragraph
1(ii.1):
"(ii.1) "Letter of Credit" means the Commercial Letter of Credit
issued by the Agent in the form attached as Schedule "A" to the
Amending Agreement dated August 14th, 1992 among Wainoco, BMO
and Morgan."
3. Section 7 of the Loan Agreement is hereby amended as follows:
(a) by deleting the figure and words "$10,000,000 (Canadian)" in the
third line of paragraph 7(b) and replacing the same with the figures
and words "$12,500,000 (Canadian)";
(b) by adding the words "other than the Letter of Credit" after the word
"Credit" in the first line of paragraph 7(d);
(c) by adding the words "and the Letter of Credit shall mature on the
earlier of thirteen (13) months from its date of issuance or the
Drawdown Termination Date" to the end of paragraph 7(d);
(d) by adding the words "other than the Letter of Credit" between the
word "Credit" and the comma in the third line of paragraph 7(g); and
(e) by adding the following sentence to the end of paragraph 7(g):
"Upon the issuance of the Letter of Credit, Wainoco shall pay an
initial fee (payable in advance of the issue thereof) of one
percent (1%) per annum on the face amount of such Letter of
Credit, from the date of issue of the Letter of Credit to
September 30, 1992, and thereafter Wainoco shall pay a quarterly
fee (payable in advance), commencing October 1, 1992, of one
percent (1%) per annum on the face amount of such Letter of
Credit, based upon the term thereof, provided that, if at any
time the facility contemplated by the Loan Agreement is
classified as a Highly Leveraged Transaction, such fee shall,
for each payment due during a period in which such
classification is in effect, be one and three-quarters percent
(1 3/4%) per annum on the face amount of such Letter of Credit,
based on the term thereof"
4. This Agreement may be executed in counterpart and the number of
counterparts read together shall form this Agreement.
5. The parties hereby ratify and confirm the terms of the Loan Agreement,
subject to the specific amendments contained herein.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day first written above.
WAINOCO OIL CORPORATION
Per: /s/ Julie H. Edwards
BANK OF MONTREAL
Per: /s/ Frank Techar
MORGAN BANK OF CANADA
Per: /s/ Stephen B. King
AMENDING AGREEMENT
THIS AGREEMENT made as of the 18th day of May, 1993
AMONG
WAINOCO OIL CORPORATION, a body corporate having offices in the City
of Houston, in the State of Texas, one of the United States of
America ("Wainoco")
- and -
BANK OF MONTREAL, a Chartered Bank with head offices in the City of
Montreal, in the Province of Quebec and having an office in the City
of Calgary, in the Province of Alberta ("BMO")
- and -
MORGAN BANK OF CANADA, a Chartered Bank with head offices in the City
of Toronto, in the Province of Ontario ("Morgan")
WHEREAS Wainoco, BMO and Morgan entered into an Amended and Restated
Loan Agreement dated October 2, 1991 as amended by a Letter Agreement dated
October 2, 1991, an Amending Agreement dated December 31, 1991, a Letter
Agreement date January 15, 1992, an Amending Agreement dated March 2, 1992, an
Amending Agreement dated April 29, 1992, an Amending Agreement dated May 29,
1992, an Amending Agreement dated June 12, 1992, an Amending Agreement dated
June 30, 1992, an Amending Agreement dated July 31, 1992 and an Amending
Agreement dated August 14, 1992 (collectively, the "Loan Agreement");
AND WHEREAS the parties wish to amend the Loan Agreement as herein
provided;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
sum of one dollar ($1.00) and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein shall, unless otherwise defined, have the
meanings given to them in the Loan Agreement.
2. Section 2 of the Loan Agreement is hereby amended by deleting the third
sentence of Paragraph 2(a) in its entirety and replacing the same with the
following:
"Subject to the provisions of Section 9 of this Agreement, the
Drawdown Termination Date shall be April 29, 1995."
3. Section 9 of the Loan Agreement is hereby amended by adding the following
after Paragraph 9(a) as a new Paragraph 9(a.1):
"(a.1) Notwithstanding anything to the contrary herein expressed or
implied, effective as of May 10, 1993 the Borrowing Base shall be
amended to the amount of Forty-Five Million Canadian Dollars (Cdn.
$45,000,000). In addition to the annual redetermination of the
Borrowing Base provided for in Paragraph 9(a), on or prior to
September 30, 1993, Wainoco shall furnish to the Agent an internally
generated update to the January 1, 1993 report of the Ryder Scott
Company in form and substance satisfactory to the Agent which report
shall be dated as of June 30, 1993 and shall set forth a detail of
all reserve changes (i.e. production run-off, revisions, new wells,
etc.) attributable to the Borrowing Base Lands, and a projection of
the rate of production and net income with respect thereto, as of
such date. Upon receipt of such report and such ancillary
documentation as may be reasonably required by the Banks, the Banks
shall make a determination by October 31, 1993 of the amount of the
Borrowing Base. The determination of the Borrowing Base shall be made
by the Banks in the exercise of their discretion in accordance with
their respective customary production loan standards. Immediately
upon determination of the Borrowing Base by the Banks, the Agent
shall notify Wainoco in writing of such determination."
4. Section 9 of the Loan Agreement is hereby further amended by deleting
Paragraph 9(c) in its entirety.
5. This Agreement may be executed in counterpart and the number of
counterparts read together shall form this Agreement.
6. The parties hereby ratify and confirm the terms of the Loan Agreement,
subject to the specific amendments contained herein.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day first written above.
WAINOCO OIL CORPORATION
Per: /s/ Julie H. Edwards
BANK OF MONTREAL
Per: /s/ Robert L. Roberts
MORGAN BANK OF CANADA
Per: /s/ Stephen B. King
Amended and Restated Loan Agreement
between Wainoco Oil Corporation and Bank of Montreal and Morgan Bank of Canada
Amendment Letter
August 12, 1993
Julie Edwards
Vice President, Secretary, & Treasurer
Wainoco Oil Corporation
Citicorp Center
1200 Smith Street, St. 2100
Houston, TX 77002-4367
Dear Julie:
Reference is hereby made to the Amended and Restated Loan Agreement dated as of
October 2, 1991 between Wainoco Oil Corporation and Bank of Montreal and Morgan
Bank of Canada as amended from time to time (the "Agreement").
We hereby agree to amend section Section 14(d)(iii) ("EBITDA to Interest") in
its entirety and replacing the same with the following:
"III. the ratio of Wainoco's EBITDA to interest changes on Debt shall:
(A) for the Four (4) Fiscal quarters ending June 30, 1993 taken as a
whole, exceed 1 .83:1; and
(B) for the immediately preceding Four (4) fiscal quarters taken as
a whole, exceed 1.85:1 at all times prior to January 1, 1994
other than as described in subsection 14(d)(iii)(A) above ."
Bank of Montreal Morgan Bank of Canada
/s/ Robert L. Roberts /s/ Stephen B. King
Director Vice President
Acknowledged:
/s/ Julie Edwards
Vice President and Treasurer
Wainoco Oil Corporation
WAIVER
TO: WAINOCO OIL CORPORATION ("Wainoco")
FROM: BANK OF MONTREAL in its capacity as agent for itself and Morgan Bank
of Canada (the "Agent")
WHEREAS by the Amended and Restated Loan Agreement dated October 2,
1991 as amended by agreements dated December 31, 1991; March 2, 1992; April 29,
1992; May 29, 1992; June 12, 1992; and May 10, 1993 (collectively, the "Loan
Agreement") Wainoco covenanted and agreed with Bank of Montreal and Morgan Bank
of Canada that, inter alia, the ratio of Wainoco's EBITDA to interest charges
on Debt, each for the immediately preceding four fiscal quarters taken as a
whole, shall exceed 1.85:1 at all times prior to January 1, 1994;
AND WHEREAS the ratio of Wainoco's EBITDA to interest charges on Debt
did not exceed 1.85:1 for the four fiscal quarters immediately preceding
September 30, 1993 taken as a whole;
AND WHEREAS the Agent wishes to waive the failure of Wainoco to
maintain the requisite ratio of Wainoco's EBITDA to interest charges on Debt
for the four fiscal quarters immediately preceding September 30, 1993 taken as
a whole;
The Agent hereby acknowledges that:
1 All terms and expressions used herein shall have the meanings
ascribed thereto in the Loan Agreement unless the context specifies or requires
otherwise.
2. The Agent waives the failure of Wainoco to maintain the ratio of its
EBITDA to interest charges on Debt for the four fiscal quarters immediately
preceding September 30, 1993 taken as a whole in excess of 1.85:1.
3. Nothing herein shall be construed to be a waiver by the Agent of any
other default or breach by Wainoco or in respect of any other fiscal quarter.
DATED this 10th day of November, 1993.
BANK OF MONTREAL in its capacity as
agent for itself and Morgan Bank of
Canada
Per: /s/ Robert Roberts
AMENDING AGREEMENT
THIS AGREEMENT made as of the l0th day of December, 1993
AMONG
WAINOCO OIL CORPORATION, a body corporate having offices in the City
of Houston, in the State of Texas, one of the United States of
America ("Wainoco")
- and -
BANK OF MONTREAL, a Chartered Bank with head offices in the City of
Montreal, in the Province of Quebec and having an office in the City
of Calgary, in the Province of Alberta ("BMO")
- and -
MORGAN BANK OF CANADA, a Chartered Bank with head offices in the City
of Toronto, in the Province of Ontario ("Morgan")
WHEREAS Wainoco, BMO and Morgan entered into an Amended and Restated
Loan Agreement dated October 2, 1991 as amended by a Letter Agreement dated
October 2, 1991, an Amending Agreement dated December 31, 1991, a Letter
Agreement date January 15, 1992, an Amending Agreement dated March 2, 1992, an
Amending Agreement dated April 29, 1992, an Amending Agreement dated May 29,
1992, an Amending Agreement dated June 12, 1992, an Amending Agreement dated
June 30, 1992, an Amending Agreement dated July 31, 1992, an Amending Agreement
dated August 14, 1992, an Amending Agreement dated May 10, 1993 and a Letter
Agreement dated August 12, 1993 (collectively, the "Loan Agreement");
AND WHEREAS the parties wish to amend the Loan Agreement as herein
provided;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
sum of one dollar ($1.00) and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein shall, unless otherwise defined, have the
meanings given to them in the Loan Agreement.
2. Section 1 of the Loan Agreement is hereby amended as follows:
(a) Paragraph 1(u) is deleted in its entirety and replaced by the
following:
"(u) "Debentures" shall mean the Subordinated Debentures and the
Convertible Subordinated Debentures;";
(b) the following is added after Paragraph 1(fff) as a new Paragraph
l(fff.1):
"(fff.1) "Subordinated Debentures" means the 10 3/4% subordinated
debentures issued, authenticated and delivered under the
Indenture dated as of October 1, 1978 between Wainoco and
First City National Bank of Houston;" and
(c) the following is added after Paragraph 1(r) as a new Paragraph 1(r.
l):
"(r.1) "Convertible Subordinated Debentures" means the 7 3/4 %
convertible subordinated debentures issued, authenticated
and delivered or to be issued, authenticated and delivered
under the Indenture dated as of June 1, 1989 between
Wainoco and Texas Commerce Trust Company of New York;".
3. Section 3 of the Loan Agreement is hereby amended by adding the following
at the end of the current Paragraph 3(a)(i):
"Notwithstanding anything to the contrary hereintofore expressed or
implied, however, during any Libor Interest Period in which:
(A) the aggregate Outstandings exceed $22,500,000 and any amounts remain
outstanding under any of the Subordinated Debentures, or
(B) the aggregate Outstandings exceed $27,500,000, and for so long as
such excess exists, each Libor Loan shall bear interest on the
unpaid principal amount thereof until payment in full thereof at a
rate per annum equal to the sum of the rate otherwise applicable
thereto pursuant to the preceding portions of this Paragraph 3(a)(i)
plus one half percent (1/2%) per annum."
4. Section 3 of the Loan Agreement is hereby further amended by adding the
following at the end of the current Paragraph 3(a)(ii):
"Notwithstanding anything to the contrary hereintofore expressed or
implied, however, during any period of time in which:
(A) the aggregate Outstandings exceed $22,500,000 and any amounts remain
outstanding under any of the Subordinated Debentures, or
(B) the aggregate outstandings exceed $27,500,000,
and for so long as such excess exists, each Floating Rate Loan shall bear
interest on the unpaid principal amount thereof until payment in full
thereof at a rate per annum equal to the sum of the rate otherwise
applicable thereto pursuant to the preceding portions of this Paragraph
3(a)(ii) plus one half percent (l/2%) per annum."
5. Section 6 of the Loan Agreement is hereby amended by adding the following
at the end of the current Paragraph 6(b):
"Notwithstanding anything to the contrary hereintofore expressed or
implied, however, the Bankers' Acceptance fee payable to the Banks by
Wainoco for any Bankers' Acceptance issued at a time when:
(A) the aggregate Outstandings exceed $22,500,000 and any amounts remain
outstanding under any of the Subordinated Debentures, or
(B) the aggregate Outstandings exceed 27,500,000,
shall be equal to the fee otherwise applicable thereto pursuant to the
preceding portions of this Paragraph 6(b) plus one half percent (1/2%)
per annum."
6. Section 7 of the Loan Agreement is hereby amended by adding the following
at the end of the current Paragraph 7(g):
"Notwithstanding anything to the contrary hereintofore expressed or
implied, however, the fee payable by Wainoco upon the issuance of any
Commercial Letter of Credit issue of at a time when:
(A) the aggregate Outstandings exceed $22,500,000 and any amounts remain
outstanding under any of the Subordinated Debentures, or
(B) the aggregate Outstandings exceed $27,500,000,
shall be equal to the fee otherwise applicable thereto pursuant to the
preceding portions of this Paragraph 7(g) plus one half percent (1/2%)
per annum."
7. Section 9 of the Loan Agreement is hereby amended by adding the following
after Paragraph 9(a.1) as a new Paragraph 9(a.2):
"(a.2) Notwithstanding anything to the contrary herein expressed
or implied, effective as of December 10, 1993 the
Borrowing Base shall be amended to the amount of Thirty
Seven Million Five Hundred Thousand Canadian Dollars (Cdn.
$37,500,000)."
8. This Agreement may be executed in counterpart and the number of
counterparts read together shall form this Agreement.
9. The parties hereby ratify and confirm the terms of the Loan Agreement,
subject to the specific amendments contained herein.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day first written above.
WAINOCO OIL CORPORATION
Per: /s/ Julie H. Edwards
BANK OF MONTREAL
Per: /s/ Robert Roberts
MORGAN BANK OF CANADA
Per: /s/ Stephen B. King
AMENDMENT NO. 2 TO CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of June 24, 1992 among WAINOCO OIL & GAS COMPANY
(the "Borrower"), WAINOCO OIL CORPORATION ("Wainoco"), the BANKS listed on the
signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit and
Guaranty Agreement dated as of October 4, 1991, as amended by Amendment No. 1
dated as of December 31, 1991 (as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in the
manner set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Agreement. (A) The
defined term "Projected Cash Flow Available for Fixed Charges" is amended by
the substitution of "Section 5.17(c)" for "Section 5.18(c)" and by the addition
of the following after clause (vi):
plus, in the case of Wainoco, the FHI Net Cash Flow for the period of
twelve consecutive fiscal quarters then most recently ended divided by three.
(B) The following defined terms are hereby added to Section 1.01:
"FHI Net Cash Flow" means, for any period, the consolidated net
income of FHI for such period, after provision for taxes, plus to the extent
deducted in determining net income for such period, amounts attributable to
interest expense and depreciation, depletion and amortization.
"Wainoco Subordinated Debentures" means the 10 3/4% Subordinated
Debentures of Wainoco due 1998.
SECTION 3. Amendment of Section 5.07 of the Agreement. Section 5.07
is amended by the addition of the following after clause (vi):
(vii) in the case of Wainoco, not to exceed $46,000,000 under the
Wainoco Convertible Debentures, and (viii) in the case of Wainoco,
not to exceed $17,500,000 under the Wainoco Subordinated Debentures.
SECTION 4. Effectiveness of this Amendment. This Amendment shall
become effective on the date that the Agent shall have received duly executed
counterparts hereof signed by the Borrower and the Required Banks (or, in the
case of any party as to which an executed counterpart shall not have been
received, the Agent shall have received telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
WAINOCO OIL & GAS COMPANY
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Peter Rugg
Title: Vice President
J.P. MORGAN DELAWARE
By: /s/ D.J. Morris
Title: Vice President
BANK OF MONTREAL
By: /s/ Frank J. Techar
Title: Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ Peter Rugg
Title: Vice President
AMENDMENT NO. 3 TO CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of June 30, 1992 among WAINOCO OIL & GAS COMPANY
(the "Borrower"), WAINOCO OIL CORPORATION ("Wainoco"), the BANKS listed on the
signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit and
Guaranty Agreement dated as of October 4, 1991, as amended by Amendment No. 1
dated as of December 31, 1991 and by Amendment No. 2 dated as of June 24, 1992
(as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in the
manner set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Agreement. (A) The
following defined terms in Section 1.01 are redefined as follows:
"Borrowing Base" means (i) on any date prior to the Determination
Date next succeeding the date of delivery of the Second Borrower Engineer's
Report, $20,000,000 less the Net Sales Proceeds of any of the Borrower
Engineered Properties covered by the Second Borrower Engineer's Report sold or
transferred on or after the date of such Engineer's Report, and (ii) on any
date on or after such Determination Date, the amount notified to the Borrower
by the Agent pursuant to Section 2.01(b) as the amount of the Borrowing Base on
the most recent Determination Date falling on or prior to such date less the
Net Sales Proceeds of any of the Borrower Engineered Properties covered by the
then most recent Borrower Engineer's Report sold or transferred on or after the
date of such Engineer's Report (unless such sale or transfer is otherwise taken
into account in the determination of the Borrowing Base for such date). The
Borrower will promptly notify the Agent of the amount of any sale or other
transfer of Borrower Engineered Properties which requires a reduction in the
Borrowing Base pursuant to this Section.
"Maturity Date" means the Quarterly Date falling in December, 1998.
"Quarterly Date" means the last Euro-Dollar Business Day of each
March, June, September and December.
"Termination Date" means the Quarterly Date falling in December,
1993.
(B) The following defined term is hereby added to Section 1.01:
"Second Borrower Engineer's Report" means the report of Ryder Scott
Company dated January 1, 1992 delivered to the Agent pursuant to
Section 5.14(a) of the Agreement.
SECTION 3. Amendment of Section 2.05 of the Agreement. (A) In Section
2.05(a) of the Agreement, the first sentence is amended to read as follows:
(a) Each Domestic Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is
made until it becomes due, at a rate per annum equal to (i) the sum
of 1/4 of 1% plus the Base Rate for such day, if such day falls prior
to the Termination Date; and (ii) the sum of 1/2 of 1% plus the Base
Rate for such day, if such day falls on or after the Termination
Date.
(B) In Section 2.05(b), the defined term "Margin" is redefined as
follows:
"Margin" means (i) 1 1/4% prior to the Termination Date; and (ii) 1
1/2% on and after the Termination Date.
SECTION 4. Amendment of Section 2.06(b) of the Agreement. In Section
2.06(b) of the Agreement, the first sentence is amended to read as follows:
(b) Commitment Fee. During the Revolving Credit Period, the Borrower
shall pay to the Agent for the accounts of the Banks ratably in
proportion to their Commitments a commitment fee at the rate of 3/8
of 1% per annum on the daily average amount by which the aggregate
amount of the Commitments exceeds the aggregate outstanding principal
amount of the Loans.
SECTION 5. Amendment of Section 5.07 of the Agreement. Section 5.07
is amended to read as follows:
SECTION 5.07. Debt. Neither Wainoco nor any Subsidiary will, after
the date hereof, create, incur or assume any Debt other than (i)
under the Financing Documents, (ii) in the case of Wainoco, not to
exceed Cnd.$40,000,000 under the Wainoco Credit Agreement, (iii) in
the case of FHI, not to exceed U.S.$50,000,000 under the Frontier
Debt, (iv) in the case of Wainoco, loans or advances by any Person
(not being a Subsidiary) to it for working capital purposes in an
aggregate amount not exceeding $5,000,000 at any one time, (v) loans
or advances by Wainoco to a Subsidiary or by a Subsidiary to Wainoco,
(vi) in the case of Wainoco, unsecured notes not to exceed
$100,000,000, (vii) in the case of Wainoco, not to exceed $46,000,000
under the Wainoco Convertible Debentures, and (viii) in the case of
Wainoco, not to exceed $17,500,000 under the Wainoco Subordinated
Debentures.
SECTION 6. Reduction of the Commitments. On the effective date of
this Amendment, the Commitments shall be ratably reduced by $7,500,000.
SECTION 7. Participation Fee. On the effective date of this
Amendment, the Borrower shall pay to the Agent for the account of the Banks
ratably in proportion to their respective Commitments on and as of such date
participation fees in an amount of 1/8 of 1% of the aggregate amount of such
Commitments.
SECTION 8. Effectiveness of this Amendment. This Amendment shall
become effective on the date that each of the following shall have been
satisfied (or waived in accordance with Section 10.06 of the Agreement):
(a) receipt by the Agent of duly executed counterparts hereof signed
by the Borrower and the Banks (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent
shall have received telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party);
(b) repayment in full of the amount by which the aggregate
outstanding principal amount of the Loans on the date hereof exceeds
$20,000,000;
(c) payment in full to the Agent of the participation fees described
in Section 7 of this Amendment;
(d) receipt by the Agent of an opinion of Andrews & Kurth, L.L.P.,
counsel for the Borrower and Wainoco, satisfactory in form and scope
to the Agent;
(e) receipt by the Agent of an opinion of Gordon, Arata, McCollam &
Duplantis, special Louisiana counsel for the Borrower, to the effect
that the execution, delivery and performance of this Amendment has no
adverse effect on its opinion dated October 11, 1991 and delivered to
the Banks and the Agent pursuant to Section 3.01(d) of the Agreement;
(f) receipt by the Agent of an opinion of White & Morse, special
Mississippi counsel for the Borrower, to the effect that the
execution, delivery and performance of this Amendment has no adverse
effect on its opinion dated October 11, 1991 and delivered to the
Banks and the Agent pursuant to Section 3.01(e) of the Agreement; and
(g) receipt by the Agent of a certificate of the Treasurer of the
Borrower attesting to the fact that the representation and warranties
of the Borrower and of Wainoco contained in the Financing Documents
are true on and as of such date.
SECTION 9. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 10. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
WAINOCO OIL & GAS COMPANY
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Peter Rugg
Title: Vice President
J.P. MORGAN DELAWARE
By: /s/ D.J. Morris
Title: Vice President
BANK OF MONTREAL
By: /s/ Frank J. Techar
Title: Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ Peter Rugg
Title: Vice President
AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of March 31, 1993 among WAINOCO OIL & GAS COMPANY
(the "Borrower"), WAINOCO OIL CORPORATION ("Wainoco"), the BANKS listed on the
signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit and
Guaranty Agreement dated as of October 4, 1991, as amended by Amendment No. 1
dated as of December 31, 1991, Amendment No. 2 dated as of June 24, 1992 and
Amendment No. 3 dated as of June 30, 1992 (as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in the
manner set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Agreement. (A) The
following defined terms in Section 1.01 are redefined as follows:
"Maturity Date" means the Quarterly Date falling in December, 1999.
"Termination Date" means the Quarterly Date falling in December, 1994.
(B) The following defined terms are hereby added to Section 1.01:
"Consolidated Debt" means, at any date, the Debt of Wainoco and
its Consolidated Subsidiaries, determined on a consolidated basis as
of such date.
"Consolidated Operating Cash Flow" means, for any fiscal period,
consolidated net income of Wainoco and its Consolidated Subsidiaries
for such period plus, to the extent deducted in determining such
consolidated net income for such period, the aggregate amount of (i)
interest expense, (ii) provision for income taxes and (iii) depletion,
depreciation, amortization and other similar non-cash charges.
"Debt Ratio" means, as of the last day of any fiscal quarter of
Wainoco, the ratio of (i) the Consolidated Operating Cash Flow for the
four consecutive fiscal quarters ended at such date to (ii) the
Consolidated Debt at such date.
SECTION 3. Amendment of Section 2.05 of the Agreement. (A) In Section
2.05(a) of the Agreement, the first sentence is amended to read as follows:
(a) Each Domestic Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made
until it becomes due, at a rate per annum equal to (i) the sum of 1/2%
of 1% plus the Base Rate for such day, if such day falls prior to the
Termination Date; and (ii) the sum of 3/4% of 1% plus the Base Rate
for such day, if such day falls on or after the Termination Date;
provided that if the Debt Ratio at the last day of any fiscal quarter
of the Borrower is equal to or greater than 15%, then, for each day
during the second succeeding fiscal quarter of the Borrower, each of
the above percentage amounts shall be reduced by 1/4 of 1% (e.g., if
the Debt Ratio at December 31, 1993 is equal to or greater than 15%,
as reflected in the certificate required to be delivered pursuant to
Section 5.01(c) not later than March 31, 1994, then a 1/4 of 1%
reduction shall apply for the period April 1, 1994 through June 30,
1994).
(B) In Section 2.05(b), the defined term "Margin" is redefined as
follows:
"Margin" means (i) 1 1/2% prior to the Termination Date; and (ii)
1 3/4% on and after the Termination Date; provided that if the Debt
Ratio at the last day of any fiscal quarter of the Borrower is equal
to or greater than 15%, then, for each day during the second
succeeding fiscal quarter of the Borrower, each of the above
percentage amounts shall be reduced by 1/4 of 1% (e.g., if the Debt
Ratio at December 31, 1993 is equal to or greater than 15%, as
reflected in the certificate required to be delivered pursuant to
Section 5.01(c) not later than March 31, 1994, then a 1/4 of 1%
reduction shall apply for the period April 1, 1994 through June 30,
1994).
SECTION 4. Amendment of Section 5.01 of the Agreement. Clause (c) of
Section 5.01 is amended by the addition of the following language immediately
preceding the semicolon at the end thereof:
and (iii) setting forth a calculation of the Debt Ratio as of the date
of such financial statements.
SECTION 5. Effectiveness of this Amendment. This Amendment shall
become effective as of the date first above written upon the satisfaction (or
waiver in accordance with Section 10.06 of the Agreement) of each of the
following:
(a) receipt by the Agent of duly executed counterparts hereof
signed by the Borrower and the Banks (or, in the case of any party as
to which an executed counterpart shall not have been received, the
Agent shall have received telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by the Agent of an opinion of Andrews & Kurth,
L.L.P., counsel for the Borrower and Wainoco, satisfactory in form and
scope to the Agent;
(c) receipt by the Agent of an opinion of Gordon, Arata, McCollam
& Duplantis, L.L.P., special Louisiana counsel for the Borrower, to
the effect that the execution, delivery and performance of this
Amendment has no adverse effect on its opinion dated October 11, 1991
and delivered to the Banks and the Agent pursuant to Section 3.01(d)
of the Agreement;
(d) receipt by the Agent of an opinion of Eaton & Cottrell, P.A.,
special Mississippi counsel for the Borrower, to the effect that the
execution, delivery and performance of this Amendment has no adverse
effect on its opinion dated October 11, 1991 and delivered to the
Banks and the Agent pursuant to Section 3.01(e) of the Agreement; and
(e) receipt by the Agent of a certificate of the Treasurer of the
Borrower attesting to the fact that the representation and warranties
of the Borrower and of Wainoco contained in the Financing Documents
are true on and as of the date first above written and the date of
receipt by the Agent.
SECTION 6. Current Borrowing Base. The parties hereto acknowledge
that the Borrowing Base as of the date hereof shall be $22,000,000, subject to
adoption of another amount pursuant to Section 2.01(b) of the Agreement.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
WAINOCO OIL & GAS COMPANY
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
Title: Vice President,
Secretary & Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Philip W. McNeal
Title: Vice President
J.P. MORGAN DELAWARE
By: /s/ Philip S. Detjens
Title: Vice President
BANK OF MONTREAL
By: Robert Roberts
Title: Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ Philip W. McNeal
Title: Vice President
March 17, 1993
To the Banks parties to the Revolving Credit and
Letter of Credit Agreement dated as of August 10,
1992 among Frontier Oil and Refining Company, said
Banks and Union Bank, as Agent for said Banks
Re: Waiver and Amendment
Gentlemen:
We refer to the Revolving Credit and Letter of Credit Agreement dated as of
August 10, 1992 (the "Credit Agreement") among (1) Frontier Oil and Refining
Company (the "Borrower"), (2) each of Union Bank, Banque Paribas and Den norske
Bank AS (the "Banks") and (3) Union Bank, as agent for the Banks. Unless
otherwise defined herein, the terms defined in the Credit Agreement are used
herein as therein defined.
FOC has requested that the Banks waive the requirements of Section 7.2(a)
of the FOC Guaranty as set forth below and amend Schedule 2 to the FOC Guaranty,
and the Borrower has requested that the Banks amend certain provisions of the
Credit Agreement concerning Inventory Audits.
1. The Banks hereby waive the requirements of Section 7.2(a) of the FOC
Guaranty during the period from the date hereof to July 31, 1993, but only to
the extent that such requirements are violated by Liens either now or hereafter
existing in favor of Petro Engineering and Construction, Inc., Asbestos Free
Insulation Contracting, Inc., Certified Welding, Heatec and certain union
workers, as disclosed in the letter dated February 25, 1993 from Jon D. Galvin
to Richard P. DeGrey, Jr. and the letter dated February 23, 1993 from James R.
Belcher, for Holland & Hart, to Mr. DeGrey, copies of which letters are attached
hereto as Exhibit A. Such waiver is conditioned upon the accuracy of the
information contained in the aforementioned letters, and any material adverse
change or material inaccuracy in such information shall cause such waiver to be
of no further force or effect.
2. Effective as of November 1, 1992, Schedule 2 to the FOC Guaranty is
hereby deleted and replaced by Schedule 2 hereto.
March 17, 1993
Page 2
3. The definition of "Inventory Audit" in Section 1.1 of the Credit
Agreement is hereby amended by deleting the word "monthly" therein.
4. Section 6.2 of the Credit Agreement is hereby amended by deleting
the word "monthly" therein and adding the words "every other month" after the
words "Inventory Audits."
5. FOC and the Borrower hereby represent and warrant for the benefit of
the Banks that (a) the representations and warranties contained in each Credit
Document are correct in all material respects on and as of the date of this
letter of waiver and amendment, before and after giving effect to the same, as
if made on and as of such date and (b) no event has occurred and is continuing
(except as waived in paragraph 1 above), or would result from the effectiveness
of this letter of waiver and amendment, that constitutes a Default or Event of
Default.
6. On and after the effective date of this letter of waiver and
amendment, (a) each reference in the FOC Guaranty to "this Guaranty,"
"hereunder," "hereof" or words of like import referring to the FOC Guaranty, (b)
each reference in the Credit Agreement to "this Agreement," "hereunder," hereof"
or words of like import referring to the Credit Agreement and (c) each reference
in the Credit Documents to "the FOC Guaranty," "the Credit Agreement,"
"thereunder," "thereof" or words of like import referring to the FOC Guaranty or
the Credit Agreement shall mean and be a reference to the FOC Guaranty or the
Credit Agreement, as applicable, as amended by this letter of waiver and
amendment. The FOC Guaranty and the Credit Agreement, both as amended by this
letter of waiver and amendment, and all of the other Credit Documents are and
shall continue to be in full force and effect and are hereby ratified and
confirmed in all respects.
7. The execution, delivery and effectiveness of this letter of waiver
and amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Bank or the Agent under any of the
Credit Documents or constitute a waiver of any provision of any of the Credit
documents .
8. This letter of waiver and amendment may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same letter of waiver and
amendment.
March 17, 1993
Page 3
9. This letter of waiver and amendment shall become effective as of the
date first written above (except as otherwise provided in paragraph 2 above)
when and if counterparts hereof have been executed and delivered by FOC, the
Borrower, the Banks, Wainoco and the other Guarantors.
Very truly yours,
FRONTIER OIL CORPORATION
By: /s/ Jon D. Galvin
Vice President and Chief
Financial Officer
FRONTIER OIL AND REFINING COMPANY
By: /s/ Jon D. Galvin
Vice President and Chief
Financial Officer
Agreed as of the date first written above:
UNION BANK
By: /s/ Richard P. DeGrey, Jr.
Vice President
By: /s/ Philip B. Flynn
Senior Vice President
SECOND AMENDMENT
TO
REVOLVING CREDIT AND LETTER OF CREDIT AGREEMENT
This Amendment, dated as of April 30, 1993, is entered into by (1)
FRONTIER OIL AND REFINING COMPANY, a Delaware corporation (the "Borrower"), (2)
the banks parties to the Credit Agreement referred to below (the "Banks") and
(3) UNION BANK, a California banking corporation, as agent (the "Agent") for
the Banks.
Recitals
A. The Borrower, the Banks and the Agent have entered into a Revolving
Credit and Letter of Credit Agreement dated as of August 10, 1992, as amended
by a letter of waiver and amendment dated March 17, 1993 (said Agreement, as so
amended, herein called the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein have the same respective meanings
when used herein, and the rules of interpretation set forth in Sections 1.2 and
1.3 of the Credit Agreement are incorporated herein by reference.
B. The Borrower, the Banks and the Agent wish to amend the Credit
Agreement to, among other things, extend the Commitment Termination Date to
April 2, 1995 and, accordingly, hereby agree as set forth below.
Section 1. Amendments to Credit Agreement. Subject to satisfaction of
the conditions precedent set forth in Section 2, the Credit Agreement is hereby
amended as follows:
(a) The definition of "Commitment Termination Date" in Section 1.1
of the Credit Agreement is amended in full to read as follows:
"'Commitment Termination Date' means April 2, 1995; provided,
however, that, upon (a) written request by the Borrower not later than May
15, 1994 and (b) notice of such extension by the Agent to the Borrower not
later than July 15, 1994, the Commitment Termination Date may be extended
by the Agent and the Banks, in their sole and absolute discretion, for up
to an additional year; and further provided, however, that the Agent's
failure to notify the Borrower of any such extension by the applicable
date referred to above shall constitute a denial of such extension."
(b) Section 2.4(a) of the Credit Agreement is amended by adding at
the end thereof a new sentence to read as follows:
"Notwithstanding the provisions of the first sentence of this Section
2.4(a), if the Borrower gives the Agent notice of a Borrowing consisting
of Reference Rate Loans not later than 8:30 a.m., Los Angeles time, on
the day of the proposed Borrowing, the Agent and the Banks will use their
best efforts (but shall not be obligated) to make such Reference Rate
Loans available on the day on which such notice is given; provided,
however, that the Agent and the Banks shall no longer be required to use
their best efforts as described in this sentence if the Agent, at its
sole option exercisable at any time, gives the Borrower notice of the
same."
(c) Section 2.12(a) of the Credit Agreement is amended in full to
read as follows:
"(a) The Borrower shall pay to the Agent for the account of the
Banks, from the Closing Date to the Commitment Termination Date, a
letter of credit fee at the rate of one and one-half percent (1.50%)
per annum on the aggregate of the average daily Letter of Credit
Amounts of all Letters of Credit outstanding from time to time. Such
letter of credit fee shall be payable monthly in arrears on the
first Business Day of each calendar month, commencing on June 1,
1993, to the extent accrued during the immediately preceding
calendar month."
(d) Section 6.1(a) of the Credit Agreement is amended by adding the
following new proviso at the end thereof:
"and further provided, however, that at least one Borrowing Base
Certificate delivered during each calendar month for which an Inventory
Audit is not conducted pursuant to Section 6.2 shall include a
certification by the Borrower's chief financial officer or by the manager
of the Cheyenne refinery to the effect that that portion of the quantity
of Inventory set forth in such Borrowing Base Certificate that represents
Inventory located at the Borrower's Cheyenne refinery was determined by
the Borrower's measurement of the physical properties and volumes of such
Inventory, using standard practices and standard tank-gauging wire-line
devices."
Section 2. Conditions to Effectiveness. This Amendment shall become
effective as of the date first set forth above when the Agent has received (a)
an extension fee of $210,000 for the account of the Banks and (b) all of the
following documents, each (unless otherwise indicated) dated the date hereof,
in form and substance satisfactory to the Agent and in the number of originals
requested by the Agent:
(i) this Amendment duly executed by the Borrower and the Banks;
(ii) a consent to this Amendment duly executed by Wainoco and
the Guarantors;
(iii) an amended and restated Agent's Fee Letter, duly executed
by the Borrower;
(iv) the Agent's form of General Environmental Questions for
Non-Real Estate Secured Loans, duly completed and executed by the
Borrower;
(v) copies of the resolutions of the Board of Directors of the
Borrower and each Guarantor approving this Amendment and the
documents delivered pursuant hereto, certified by the Secretary or
an Assistant Secretary of the Borrower or such Guarantor, as the
case may be, to be correct and complete and in full force and effect
as of the date of execution, and as of the effective date, of this
Amendment;
(vi) a certificate of the Secretary or an Assistant Secretary
of the Borrower and each Affiliate as to the incumbency, and setting
forth a specimen signature, of each of the persons who has signed
this Amendment or any document delivered pursuant hereto;
(vii) a certificate of the Borrower, signed on behalf of the
Borrower by its President or a Vice President and its Secretary or
any Assistant Secretary, certifying as to (A) the absence of any
amendments to the charter documents or bylaws of the Borrower on or
after August 18, 1992, (B) the truthfulness in all material respects
of the representations and warranties contained in the Credit
Documents as though made on and as of the effective date of this
Amendment and (C) the absence of any event occurring and continuing,
or resulting from the effectiveness of this Amendment, that
constitutes a Default or an Event of Default;
(viii) recently dated good-standing certificates with respect
to the Borrower, from the Secretaries of State of Colorado, Delaware
and Wyoming; and
(ix) such other approvals, opinions and documents as the Agent
may reasonably request.
Section 3. Representations and Warranties of Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Credit Documents, as amended hereby, to which it is or is to
be a party are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not (i) contravene the
Borrower's charter documents or bylaws, (ii) contravene any Governmental Rule
or contractual restriction binding on or affecting the Borrower or (iii)
result in or require the creation or imposition of any Lien or preferential
arrangement of any nature (other than any created by the Credit Documents)
upon or with respect to any of the properties now owned or hereafter acquired
by the Borrower.
(c) No Governmental Action is required for the due execution, delivery or
performance by the Borrower of this Amendment or any of the Credit Documents,
as amended hereby, to which the Borrower is or is to be a party.
(d) This Amendment and each of the Credit Documents, as amended hereby,
to which the Borrower is a party constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance
with their respective terms.
(e) The Security Agreement, the Account Pledge Agreement and the Note
Pledge Agreement constitute valid and perfected first-priority Liens on the
Collateral covered thereby, enforceable against all third parties in all
jurisdictions, and secure the payment of all obligations of the Borrower under
the Credit Documents, as amended hereby; and the execution, delivery and
performance of this Amendment do not adversely affect the Lien of the Security
Agreement, the Account Pledge Agreement or the Note Pledge Agreement.
(f) The consolidated balance sheet of FOC and its Subsidiaries as of
December 31, 1992 and the related consolidated statements of income, retained
earnings and cash flows of FOC and its Subsidiaries for the fiscal year then
ended, certified by Arthur Andersen & Co., independent public accountants,
fairly present the consolidated financial condition of FOC and its
Subsidiaries as of such date and the consolidated results of the operations of
FOC and its Subsidiaries for the fiscal year ended on such date, all in
accordance with generally accepted accounting principles applied on a
consistent basis. Since December 31, 1992 there has been no material adverse
change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of FOC or any of its Subsidiaries. FOC
and its Subsidiaries have no material contingent liabilities except as
disclosed in such consolidated balance sheet or the notes thereto.
(g) There is no pending or, to the knowledge of the Borrower, threatened
action or proceeding affecting FOC or any its Subsidiaries before any
Governmental Person or arbitrator that may materially and adversely affect the
financial condition or operations of FOC or any of its Subsidiaries or that
purports to affect the legality, validity or enforceability of this Amendment
or any of the Credit Documents, as amended hereby.
Section 4. Reference to and Effect on Credit Documents.
(a) On and after the effective date of this Amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," thereof," "herein" or
any other expression of like import referring to the Credit Agreement, and
each reference in the other Credit Documents to "the Credit Agreement,"
"thereunder," "thereof," "therein" or any other expression of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended by this Amendment.
(b) Except as specifically amended above and except for the amendment and
restatement of the Agent's Fee Letter, the Credit Agreement and the other
Credit Documents shall remain in full force and effect and are hereby ratified
and confirmed. Without limiting the generality of the foregoing, the Security
Agreement, the Account Pledge Agreement and the Note Pledge Agreement, and all
of the Collateral described therein, do and shall continue to secure the
payment of all obligations of the Borrower under the Credit Documents, as
amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Bank or the Agent under any of the Credit Documents or
constitute a waiver of any provision of any of the Credit Documents.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection with the preparation,
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. In addition, the Borrower shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, and the Borrower agrees to save the Agent
and each Bank harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes.
Section 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Section 7. Wainoco Resolutions. Within six months of the date hereof,
the Borrower shall provide to the Agent, in form and substance satisfactory
thereto and in the number of originals requested thereby, copies of ratifying
resolutions of the Board of Directors of Wainoco approving this Amendment and
the consent signed by Wainoco with respect hereto, certified by the Secretary
or an Assistant Secretary of Wainoco to be correct and complete and in full
force and effect.
Section 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE AND PERFORMED IN THE STATE OF CALIFORNIA.
FRONTIER OIL AND REFINING COMPANY
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
UNION BANK, as Agent and as a Bank
By: /s/ Richard P. DeGrey, Jr.
Vice President
By: /s/ Philip B. Flynn
Name: PHILIP B. FLYNN
Title: Senior Vice President
August 31, 1993
Union Bank, as Agent and as a Bank
445 South Figueroa Street
Los Angeles, California 90071
Attention: Energy Capital Services
Banque Paribas
Houston Agency
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Mr. Edward K. Chin
Vice President
Den norske Bank AS
Representative Office
1100 Milam Building, Suite 2770
Houston, Texas 77002
Attention: Mr. Byron L. Cooley
First Vice President
Re: Waiver Under Guaranty of Frontier Oil Corporation
Gentlemen:
We refer to the Guaranty dated as of August 18, 1992 (the "FOC Guaranty")
executed by Frontier Oil Corporation ("FOC") in favor of each of Union Bank,
Banque Paribas and Den norske Bank AS (the "Banks") and Union Bank, as agent
for the Banks. Unless otherwise defined herein, the terms defined in the FOC
Guaranty and the Credit Agreement (as defined in the FOC Guaranty) are used
herein as therein defined.
FOC has requested that the Banks waive the requirements of Section 7.2(a)
of the FOC Guaranty as set forth below.
1. The Banks hereby waive the requirements of Section 7.2(a) of the FOC
Guaranty during the period from July 31, 1993 to December 31, lg93, but only to
the extent that such requirements are violated by Liens either now or hereafter
existing in favor of Petro Engineering and Construction, Inc., Asbestos Free
Insulation Contracting, Inc., Certified Welding, Heatec, Inc. and certain union
workers, as disclosed in the letter dated July 21, 1993 from Jon D. Galvin to
Richard P. DeGrey, Jr. and the letter dated August 5, 1993 from Donald I.
Schultz, P.C., of Holland & Hart, to Mr. DeGrey, copies of which letters have
been delivered to the Banks. The effectiveness of this waiver is conditioned
upon the accuracy of the information contained in the aforementioned letters,
and any material adverse change or material inaccuracy in such information
shall cause this waiver to be of no further force or effect.
August 31, 1993
Page 2
2. FOC hereby represents and warrants for the benefit of the Banks that
(a) the representations and warranties contained in each Credit Document are
correct in all material respects on and as of the date of this letter of
waiver, before and after giving effect to the same, as if made on and as of
such date and (b) no event has occurred and is continuing (except as waived in
paragraph 1 above), or would result from the effectiveness of this letter of
waiver, that constitutes a Default or Event of Default.
3. The execution, delivery and effectiveness of this letter of waiver
and amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Bank or the Agent under any of the
Credit Documents or constitute a waiver of any provision of any of the Credit
Documents.
4. This letter of waiver and amendment may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same letter of waiver.
5. This letter of waiver shall become effective when and if counterparts
hereof have been executed and delivered by the Banks, the Borrower, Wainoco and
the Guarantors other than FOC.
Very truly yours,
FRONTIER OIL CORPORATION
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
August 31, 1993
Page 3
Agreed as of the date first written above:
UNION BANK, as Agent and as a Bank
By: /s/ Richard P. DeGrey, Jr.
Vice President
By: /s/ Walter M. Roth
Name: Walter M. Roth
Title: Vice President
BANQUE PARIBAS
By: /s/ Edward K. Chin
Name: Edward K. Chin
Title: Vice President
By: /s/ Philippe de Gentile
Name: Philippe de Gentile
Title: Deputy General Manager
August 31, 1993
Paqe 4
DEN NORSKE BANK AS
By: /s/ Dagfinn Lunde
Name: Dagfinn Lunde
Title: EVP & GM
By: /s/ Philip F. Kurpiewski
Name: Philip F. Kurpiewski
Title: VP, NY BRANCH
Consented to as of the date first written above:
FRONTIER OIL AND REFINING COMPANY
By: /s/ Jon D. Galvin
Jon D. Galvin
Vice President and Chief Financial Officer
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
Julie H. Edwards
Vice President, Secretary and Treasurer
August 31, 1993 Page 5
FRONTIER HOLDINGS INC.
By: /s/ Jon D. Galvin
Jon D. Galvin
Vice President and Chief Financial Officer
FRONTIER REFINING INC.
By: /s/ Jon D. Galvin
Jon D. Galvin
Vice President and Chief Financial Officer
FRONTIER PIPELINE INC.
By: /s/ Jon D. Galvin
Jon D. Galvin
Vice President
FRONTIER PRODUCTS INC.
By: /s/ Jon D. Galvin
Jon D. Galvin
Vice President
October 15, 1993
Union Bank, as Agent and as a Bank
445 South Figueroa Street
Los Angeles, California 90071
Attention: Energy Capital Services
Banque Paribas
Houston Agency
1200 Smith Street, Suite 3100 Houston,
Texas 77002
Attention: Mr. Edward K. Chin
Vice President
Den norske Bank AS
Representative Office
1100 Milam Building, Suite 2770
Houston, Texas 77002
Attention: Mr. Byron L. Cooley
First Vice President
Re: Waiver Under Guaranty of Frontier Oil Corporation
Gentlemen:
We refer to the Guaranty dated as of August 18, 1992, as amended by the
First Amendment to Guaranty dated as of October 8, 1992 (said Guaranty, as so
amended, herein called the "Guaranty"), executed by Frontier Oil Corporation
("FOC") in favor of each of Union Bank, Banque Paribas and Den norske Bank AS
(the "Banks") and Union Bank, as agent (the "Agent") for the Banks. Unless
otherwise defined herein, the terms defined in the Guaranty and the Credit
Agreement (as defined in the Guaranty) are used herein as therein defined.
FOC has requested that the Banks waive certain requirements contained in
(i) the definition of Liquidity Coverage Ratio in Section 1 of the Guaranty and
(ii) Section 7.1(j) of the Guaranty, as set forth below.
1. With respect to only the months ended August 31, September 30,
October 31 and November 30, 1993, the Banks hereby waive the requirement
contained in the definition of Liquidity Coverage Ratio in Section 1 of the
Guaranty that the Liquidity Coverage Ratio be determined in accordance with
generally accepted accounting principles consistently applied; provided,
however, that said waiver shall be effective only to the extent that (a) a
receivable shown on FOC's balance sheet as due from FHI may be treated as a
current receivable in the amount equal to the lesser of (i) $2,900,000.00 and
(ii) the minimum amount necessary in order for FOC to comply with its covenant
concerning the Liquidity Coverage Ratio contained in Section 7.2(k) of the
Guaranty and (b) there is at all times a receivable due to FHI from Wainoco in
an amount at least as great as said receivable shown on FOC s balance sheet.
October 15, 1993
Page 2
2. With respect to only that financial information that FOC is required
to deliver to the Banks pursuant to Section 7.1(j)(i) of the Guaranty for the
months ended August 31, October 31 and November 30, 1993 and pursuant to
Section 7.1(j)(ii) of the Guaranty for the quarter ended September 30, 1993,
the Banks hereby waive any requirement in Sections 7.1(j)(i) and 7.1(j)(ii) of
the Guaranty that the financial information to be provided by FOC to the Banks
pursuant thereto be, or be certified to have been, prepared in accordance with
generally accepted accounting principles consistently applied; provided,
however, that said waiver shall be effective only to the extent that (a) a
receivable shown on FOC's balance sheet as due from FHI may be treated as a
current receivable in the amount equal to the lesser of (i) $2,900,000.00 and
(ii) the minimum amount necessary in order for FOC to comply with its covenant
concerning the Liquidity Coverage Ratio contained in Section 7.2 of the
Guaranty and (b) there is at all times a receivable due to FHI from Wainoco in
an amount at least as great as said receivable shown on FOC's balance sheet.
3. FOC hereby represents and warrants for the benefit of the Banks that
(a) the representations and warranties contained in each Credit Document are
correct in all material respects on and as of the date of this letter of
waiver, before and after giving effect to the same, as if made on and as of
such date and (b) no event has occurred and is continuing (except as waived in
paragraphs 1 and 2 above), or would result from the effectiveness of this
letter of waiver, that constitutes a Default or an Event of Default.
4. The execution, delivery and effectiveness of this letter of waiver
and amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Bank or the Agent under any of the
Credit Documents or constitute a waiver of any provision of any of the Credit
Documents.
5. This letter of waiver and amendment may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same letter of waiver.
October 15, 1993
Page 3
6. This letter of waiver shall become effective as of the date first
written above when and if counterparts hereof have been executed and delivered
by Union Bank and at least one of the other Banks and by the Borrower, Wainoco
and the Guarantors other than FOC.
Very truly yours,
FRONTIER OIL CORPORATION
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
Agreed as of the date first written above:
UNION BANK, as Agent and as a Bank
By: /s/ Richard P. DeGrey, Jr.
Vice President
By: /s/ Walter Roth
Title: Vice President
October 15, 1993
Page 4
BANQUE PARIBAS
By: /s/ Philippe De Gentile
Title: DGM
By: /s/ Edward K. Chin
Title: Vice Presient
DEN NORSKE BANK AS
By: /s/ Melvin Farstad
Title: Senior Vice President
By: /s/ Philip F. Krupiewski
Title: Vice President, New York Branch
October 15, 1993
Page 5
Consented to as of the date first written above:
FRONTIER OIL AND REFINING COMPANY
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
Vice President, Secretary and Treasurer
FRONTIER HOLDINGS INC.
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
FRONTIER REFINING INC.
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
October 15, 1993
Page 6
FRONTIER PIPELINE INC.
By: /s/ Jon D. Galvin
Vice President
FRONTIER PRODUCTS INC.
By: /s/ Jon D. Galvin
Vice President
THIRD AMENDMENT
TO
REVOLVING CREDIT AND LETTER OF CREDIT AGREEMENT
This Amendment, dated as of December 31, 1993, is entered into by (1)
FRONTIER OIL AND REFINING COMPANY, a Delaware corporation (the "Borrower"), (2)
the banks parties to the Credit Agreement referred to below (the "Banks") and
(3) UNION BANK, a California banking corporation, as agent (the "Agent") for
the Banks.
Recitals
A. The Borrower, the Banks and the Agent have entered into a Revolving
Credit and Letter of Credit Agreement dated as of August 10, 1992, as amended
by a letter of waiver and amendment dated March 17, 1993 and a Second Amendment
to Revolving Credit and Letter of Credit Agreement dated as of April 30, 1993
(said Agreement, as so amended, herein called the "Credit Agreement"). Terms
defined in the Credit Agreement and not otherwise defined herein have the same
respective meanings when used herein, and the rules of interpretation set forth
in Sections 1.2 and 1.3 of the Credit Agreement are incorporated herein by
reference.
B. The Borrower, the Banks and the Agent wish to amend the Credit
Agreement to, among other things, adjust the timing for required Inventory
Audits and for the provision of Borrowing Base Certificates, and they
accordingly hereby agree as set forth below.
Section 1. Amendments to Credit Agreement. Effective as of the date
hereof and subject to satisfaction of the conditions precedent set forth in
Section 2, the Credit Agreement is hereby amended as follows:
(a) The definitions of "Asset-Based Audit" and "Inventory Audit" in
Section 1.1 of the Credit Agreement are amended in full to read as follows:
"'Asset-Based Audit' means an audit of the Borrower's books, records
and accounting procedures conducted by the Agent."
"'Inventory Audit' means an audit of the physical properties and
volumes, using standard practices and standard tank-gauging wire-line
devices or another method acceptable to the Agent, of all or a portion, as
determined by the Agent from time to time, of the Borrower's Inventory,
conducted by an independent consulting firm selected by the Agent."
(b) Section 6.1(a) of the Credit Agreement is amended in full to read as
follows:
"(a) by 2:00 p.m., Los Angeles time, on the sixth day after (but
excluding any weekday that is a federal holiday observed in the State of
Colorado) each weekly date of calculation referred to below, an Accounts
aging schedule in form satisfactory to the Agent and a Borrowing Base
Certificate, both as of Wednesday of each week or, if an Inventory Audit
is conducted during such week, as of the date of such Inventory Audit;
provided, however, that at least one Borrowing Base Certificate delivered
during each calendar month during which an Inventory Audit is not
conducted shall include a certification by the Borrower's chief financial
officer or by the manager of the Cheyenne refinery to the effect that that
portion of the quantity of Inventory set forth in such Borrowing Base
Certificate that represents Inventory located at the Borrower's Cheyenne
refinery was determined by the Borrower's measurement of the physical
properties and volumes of such Inventory, using standard practices and
standard tank-gauging wire-line devices."
(c) Section 6.2 of the Credit Agreement is amended in full to read as
follows:
"Section 6.2 Audits. At any reasonable time and from time to time,
upon reasonable prior notice to the Borrower, the Borrower will permit the
Agent and its consultants, agents and representatives to examine and make
copies of and abstracts from the records and books of account of, and
visit the properties and have access to the assets of, the Borrower and to
discuss the affairs, finances and accounts of the Borrower with any of its
officers, directors and employees and with its independent certified
public accountants, including for the purpose of conducting Inventory
Audits (which shall be conducted at least once each calendar quarter, as
of the last day of such quarter) and Asset-Based Audits (which shall be
conducted at least once each calendar quarter)."
(d) The parenthetical in Section 9.4(a) of the Credit Agreement is
amended in full to read as follows:
"(including for Asset-Based Audits, Inventory Audits (provided that the
Borrower shall not be required to pay for more than six Inventory Audits
conducted during any single calendar year) and the reports referred in
Sections 4.1(a)(ix) and (x))."
Section 2. Conditions to Effectiveness. This Amendment shall become
effective as of the date first set forth above when the Agent has received all
of the following documents, each (unless otherwise indicated) dated the date
hereof, in form and substance satisfactory to the Agent and in the number of
originals requested by the Agent:
(a) this Amendment duly executed by the Borrower and the Banks;
(b) a consent to this Amendment duly executed by Wainoco and the
Guarantors;
(c) copies of the resolutions of the Board of Directors of the
Borrower approving this Amendment and any documents delivered by the Borrower
pursuant hereto, certified by the Secretary or an Assistant Secretary of the
Borrower to be correct and complete and in full force and effect as of the date
of execution, and as of the effective date, of this Amendment;
(d) a certificate or the Secretary or an Assistant Secretary of the
Borrower as to the incumbency, and setting forth a specimen signature, of each
of the persons who has signed this Amendment or any document delivered by the
Borrower pursuant hereto;
(e) a certificate of the Borrower, signed on behalf of the Borrower
by its President or a Vice President and its Secretary or any Assistant
Secretary, certifying as to (A) the absence of any amendments to the charter
documents or bylaws of the Borrower on or after August 18, l992, (B) the
truthfulness in all material respects of the representations and warranties
contained in the Credit Documents as though made on and as of the effective
date of this Amendment and (C) the absence of any event occurring and
continuing, or resulting from the effectiveness of this Amendment, that
constitutes a Default or an Event of Default; and
(f) such other approvals, opinions and documents as the Agent may
reasonably request.
Section 3. Representations and Warranties of Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Credit Documents, as amended hereby, to which it is or is to
be a party are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not (i) contravene the
Borrower's charter documents or bylaws, (ii) contravene any Governmental Rule
or contractual restriction binding on or affecting the Borrower or (iii) result
in or require the creation or imposition of any Lien or preferential
arrangement of any nature (other than any created by the Credit Documents) upon
or with respect to any of the properties now owned or hereafter acquired by the
Borrower.
(c) No Governmental Action is required for the due execution,
delivery or performance by the Borrower of this Amendment or any of the Credit
Documents, as amended hereby, to which the Borrower is or is to be a party.
(d) This Amendment and each of the Credit Documents, as amended
hereby, to which the Borrower is a party constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
(e) The Security Agreement, the Account Pledge Agreement and the Note
Pledge Agreement constitute valid and perfected first-priority Liens on the
Collateral covered thereby, enforceable against all third parties in all
jurisdictions, and secure the payment of all obligations of the Borrower under
the Credit Documents, as amended hereby; and the execution, delivery and
performance of this Amendment do not adversely affect the Lien of the Security
Agreement, the Account Pledge Agreement or the Note Pledge Agreement.
(f) The consolidated balance sheet of FOC and its Subsidiaries as of
December 31, 1992 and the related consolidated statements of income, retained
earnings and cash flows of FOC and its Subsidiaries for the fiscal year then
ended, certified by Arthur Andersen & Co., independent public accountants, and
the report as of October 31, 1993 referred to in Section 7.1(j)(i) of the FOC
Guaranty, certified by the chief financial officer or chief accounting officer
of FOC, fairly present the consolidated financial condition of FOC and its
Subsidiaries as of such dates and the consolidated results of the operations of
FOC and its Subsidiaries for the fiscal periods ended on such dates, all in
accordance with generally accepted accounting principles applied on a
consistent basis. Since October 31, 1993 there has been no material adverse
change in the business, condition (financial or otherwise) operations,
performance, properties or prospects of FOC or any of its Subsidiaries. FOC and
its Subsidiaries have no material contingent liabilities except as disclosed in
such financial statements or the notes thereto.
(g) There is no pending or, to the knowledge of the Borrower,
threatened action or proceeding affecting FOC or any its Subsidiaries before
any Governmental Person or arbitrator that may materially and adversely affect
the financial condition or operations of FOC or any of its Subsidiaries or that
purports to affect the legality, validity or enforceability of this Amendment
or any of the Credit Documents, as amended hereby.
Section 4. Reference to and Effect on Credit Documents.
(a) On and after the effective date of this Amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or
any other expression of like import referring to the Credit Agreement, and each
reference in the other Credit Documents to "the Credit Agreement,"
"thereunder,' "thereof," "therein" or any other expression of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended by this Amendment.
(b) Except as specifically amended above and except for an amendment
to the FOC Guaranty entered into simultaneously herewith, the Credit Agreement
and the other Credit Documents shall remain in full force and effect and are
hereby ratified and confirmed. Without limiting the generality of the
foregoing, the Security Agreement, the Account Pledge Agreement and the Note
Pledge Agreement, and all of the Collateral described therein, do and shall
continue to secure the payment of all obligations of the Borrower under the
Credit Documents, as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Bank or the Agent under any of the Credit Documents or
constitute a waiver of any provision of any of the Credit Documents.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection with the preparation,
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. In addition, the Borrower shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this Amendment and the other instruments and documents to be
delivered hereunder, and the Borrower agrees to save the Agent and each Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
Section 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Section 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THE STATE OF CALIFORNIA.
FRONTIER OIL AND REFINING COMPANY
By: /s/ Jon D. Galvin
Vice President and Chief Financial Officer
UNION BANK, as Agent and as a Bank
By: /s/ Richard P. DeGrey,
Vice President
By: /s/ Walter M. Roth
Title: Vice President
BANQUE PARIBAS
By: /s/ Edward K. Chin
Title: Vice President
By: /s/ Philippe De Gentile
Title: DGM
DEN NORSKE BANK AS
By: /s/ Melvin Farstad
Title: SVP, NY Branch
By: /s/ Philip F. Kurpiewski
Title: VP, NY Branch
CULLEN BANK
Member: Cullen/Frost Bankers. A Family of Texas Banks
Senior Vice President
September 10, 1993
Julie Edwards
Vice President, Secretary, and Treasurer
Wainoco Oil & Gas Company
1200 Smith St., Ste., 2100
Houston, Texas 77002
RE: $1,000,000 of Discretionary Advances to be evidenced by Demand Note from
Wainoco Oil & Gas Company ("Borrower") to Cullen Center Bank and Trust
("Bank") dated September 10, 1993 ("Note")
Dear Julie:
The above described Note has been executed and delivered by you in
conjunction with the Cash Management System implemented for the Borrower by the
Bank. We understand that while the Borrower does not expect its accounts at the
Bank to be overdrawn, it believes it prudent to have discussed that
possibility. The Bank expects that the Borrower's accounts at the Bank will be
handled in an appropriate collected cash availability basis; however, in the
Bank's sole discretion, it will consider advancing on the Note to cover
overdrafts as hereinafter provided.
Upon request of the Borrower, the Bank will consider advances on the Note
only if the following conditions are met:
1 - Bank continues to provide at least the following services for the
Borrower: lockbox and controlled disbursement;
2 - The balance on the Note shall not exceed $1,000,000;
3 - The Note Account will have a zero balance for at least ten (10)
consecutive days during each calendar month and any advance on the
Note will be repaid the following business day;
4 - No default shall have occurred in any obligation of the Borrower to
any person nor shall there have occurred any event or condition the
effect of which is to cause or
JULIE EDWARDS
LETTER DATED September 10, 1993
PAGE 2 OF 3
(with the giving of notice of lapse of time or both) to permit the
holder or holders of any obligation of the Borrower to cause such
obligation to become due prior to its stated maturity. Any request for
an advance hereunder shall be a representation by the Borrower that
this condition has been met;
5 - The Bank must have been provided with quarterly consolidated financial
statements of the Borrower and Guarantor satisfactory in form and
substance to the Bank, within 45 days of the end of each calendar
quarter, signed by an officer of the Borrower. These statements will
include a balance sheet and an income statement in form similar to the
statements previously provided to the Bank;
6 - The Bank must have been provided with a copy of the consolidated
unqualified audit of the Borrower and Guarantor in form and substance
satisfactory to the Bank prepared by auditors satisfactory to the Bank
within 120 days of the end of the most recent fiscal year.
Notwithstanding the foregoing conditions, it is understood that any
advance under the note shall be at the sole discretion of the Bank. This letter
is not a commitment letter and no duties or obligations are imposed upon the
Bank as a consequence hereof. It is further understood that the Note is a
demand note and, accordingly, any sums, when and if advanced thereunder, may be
demanded at any time in the Bank's sole discretion.
THIS WRITTEN AGREEMENT AND THE DEMAND NOTE EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If the foregoing meets with your understanding of our agreement, please
execute in the appropriate spaces provided below.
Sincerely,
/s/ Scott N. Tellkamp
Senior Vice President
JULIE EDWARDS
LETTER DATED September 10, 1993
PAGE 3 OF 3
AGREED AND ACKNOWLEDGED ON OCTOBER 18, 1993:
Wainoco Oil & Gas Company - ("Borrower")
By: /s/ Julie Edwards
Title: Vice President-Secretary & Treasurer
Wainoco Oil Corp. ("Guarantor")
By: /s/ Julie Edwards
Title: Vice President-Secretary & Treasurer
NOTICE TO OBLIGOR
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
Wainoco Oil & Gas Company Cullen Center Bank & Trust
By: Julie Edwards By: /s/ Scott N. Tellkamp
Tithe: Vice President-Secretary Title: Senior Vice President
& Treasurer
Wainoco Oil Corp.
By: /s/ Julie Edwards
Title: Vice President-Secretary
& Treasurer
EXHIBIT 13.1 TO 10K - PORTIONS OF 1993 ANNUAL REPORT
FINANCIAL REVIEW
Wainoco returned to profitability during 1993 with net income of $2.5
million. Operating income was $22.2 million for the current year, $6.1 million
greater than in 1992. Operating income for 1993 was the highest in the Company's
history. Refining contributed $18.8 million and oil and gas operations
contributed $6.4 million to 1993 operating income. Refining operating income
increased $4.4 million over 1992 and oil and gas operating income increased $2.1
million over 1992.
Net income in 1993 improved over the $1.0 million and $18.3 million loss
levels of 1992 and 1991. This improvement in 1993 included higher refining
operating margins, increased refined product sales and improved Canadian gas
prices. The 1992 improvement included strong first full year refining results
and the elimination of oil and gas property writedowns of $13.0 million in 1991.
Additionally, selling and general expenses were reduced by $1.5 million or 11%
in 1993.
Net interest costs increased from $10.2 million in 1991 to $17.5 million in
1992 to $20.2 million in 1993. The increases reflect the impact of increased
interest expense from additional debt incurred relating to the 1992-1993
Refinery capital improvement program and the Frontier Refinery acquisition in
October 1991.
Oil and Gas Operations
The overall environment for oil and gas operations was mixed in 1993 as the
average gas price increased from $1.12 to $1.28 and the average oil price
declined from $17.46 to $15.90. The Company's drilling expenditures remained low
during 1993 and 1992 in order to redeploy capital to the Refinery's capital
improvement program.
Oil and gas revenues declined 4% in 1993 and 8% in 1992. Gas revenues
increased 11% in 1993 following an 8% drop in 1992 as the average 1993 price
received increased 14%. However, this was more than offset by falling oil
revenues of 20% in 1993 and 7% in 1992 in response to declines in both prices
received and volumes produced.
Natural gas production remained level in Canada in 1993 after a small
increase in 1992. United States natural gas production declined 16% in 1992 and
15% in 1993 primarily as a result of reservoir declines and the sale or
abandonment of uneconomic wells. As a result of strong demand, the average price
for natural gas in Canada rose 21%, to C$1.48 per mcf from C$1.22 per mcf, but
the Canadian/United States dollar exchange rate fell from an average of $.8281
in 1992 to $.7755 in 1993, resulting in only a 15% price increase in United
States dollars. The average price of natural gas in the United States improved
17%. The increase in the average Canadian gas price associated with Canada's
larger gas production enhanced the Canadian operating results more than the
United States results.
Oil production declined 12% in 1993 and marginally in 1992 due to the sales
of marginal properties and natural reservoir declines and additionally, in 1993,
delays in bringing on newly developed production from reworked wells. Average
oil prices have continued to decline in response to the worldwide overproduction
and the weak economic condition of the industrial nations.
Other income included proceeds of $5.2 million in 1991 from the settlement
of all previously contested excise tax issues.
Oil and gas operating costs decreased marginally in 1993 after a 12%
decrease in 1992. The 1992 decrease was achieved through cost controls being
stressed in an atmosphere of weak prices, and remained relatively flat in 1993
as a result of the sale or abandonment of uneconomic wells and continued
emphasis on cost control.
Oil and gas selling and general expenses decreased $646,000 in 1993 or 13%
after declining $1.4 million or 22% in 1992. This was a result of reductions in
staffing in the United States and a decrease in legal and professional fees.
Refining Operations
Refining operating income was $18.8 million and $14.3 million during 1993
and 1992. Average crude charge increased by 9% to 32,490 bpd during 1993
following a 3% decrease in 1992. The percentage of sour crude oil processed
increased to 80% in 1993 from 71% in 1992. The higher crude charge and increased
sour crude capacities are a result of the capital improvement program which
commenced in 1992 and was completed in 1993.
The refined product spread increased 14% to $5.51 per barrel in 1993 due to
improved profitability from diesel and asphalt products. The diesel product
spread was substantially higher in 1993 than in 1992 and 1991. This increase
includes the impact of the high price received in the fourth quarter of 1993 for
low sulfur diesel. Supply disruptions with the introduction of low sulfur diesel
allowed for higher spreads than are normally expected to occur in the future.
Asphalt and other product spreads were higher in 1993 reflecting the lower cost
of crude oil and higher demand for asphalt. The gasoline product spread was
higher in 1992 than in 1993 or 1991, reflecting the strong market for gasoline
during the summer months of 1992. However, the general decline in the price of
crude oil depressed the average selling prices of products during 1993 and 1992.
Reducing the increase in the refined product spread was the decrease in the
sweet/sour spread to $4.48 per barrel in 1993 from $5.53 per barrel in 1992 and
$5.90 per barrel in 1991. The decrease is attributable to increased competition
for Wyoming general sour crude. During 1994, the Company expects that the
sweet/sour spread may continue to decline as Canadian and other types of sour
crudes will be processed which have a higher price than Wyoming general sour
crude.
Refining operating expenses increased to $3.55 per sales barrel, a 12%
increase from 1992, reflecting higher transportation costs due to increased
asphalt sales and the higher cost of disposing of petroleum coke.
Refining selling and general expenses decreased $917,000 in 1993, primarily
the result of the partial collection of an accounts receivable previously
reserved.
Other income included proceeds from insurance settlements of $1 million in
1993 and $700,000 in 1992 which are nonrecurring.
The capital improvement program completed in 1993 enabled the production of
low sulfur diesel, increased sour crude run capacities and improved the overall
operating reliability of the refinery. Although significant progress was made to
improve reliability, management continues to identify and correct reliability
maintenance problems.
Maintenance problems may arise in the future, resulting in downtime of
certain process units and reduced yields and may negatively impact
profitability. Turnaround work, which enhances reliability, was performed in the
spring of 1993. During the spring of 1994, Frontier has scheduled maintenance
turnaround work on two of its major operating units. After completion of the
1994 turnaround, all refinery operating units will have completed repair,
maintenance and inspection work since the Company's acquisition of Frontier.
Liquidity and Capital Commitments
Internal and External Funding
Net cash provided by operating activities was $32.8 million, $23.3 million
and $17.5 million for 1993, 1992 and 1991, respectively. Cash from financing
activities in 1993, 1992 and 1991 was provided by borrowings from the Company's
bank lines of credit of $27.4 million, $11.9 million and $65.1 million,
respectively. Additionally, net proceeds of $20.8 million from the sale of
common stock in July, 1993 and net proceeds of $96.5 million from the sale of
Senior Notes in August 1992 were received. The net proceeds from the sale of
common stock in 1993 were used to retire $5 million of Subordinated Debentures
and pay down the Company's bank lines, and the net proceeds from the sale of
Senior Notes in 1992 were used to refinance $44.8 million of refinery
indebtedness and to pay down Wainoco's bank line.
Net cash used in investing activities during 1993, 1992 and 1991 was used
primarily for additions to property and equipment, and in 1991 included the
purchase of the Frontier Refinery for $20.1 million net of cash acquired.
Liquidity and Future Planning
The Company is highly leveraged at year-end as reflected by the debt to total
capitalization ratio of 73%, down from 81% in 1992. The Company's leverage will
result in the following: (i) a portion of the Company's cash flow from
operations will be dedicated to the repayment of the Company's debt; (ii) the
Company will be more vulnerable to downward swings in the oil and gas prices and
the refining industry or to interruptions at the Refinery; and (iii) if, and to
the extent, the Company requires additional financing for working capital,
capital expenditures, debt refinancing or other purposes, the Company's leverage
may impair its ability to obtain additional financing. At December 31, 1993, the
Company had $31.6 million available under its oil and gas lines of credit and
$15.0 million available under the Frontier line of credit.
Capital expenditures of approximately $23.2 million are budgeted for 1994.
These expenditures are allocated $8.4 million for Refining and $14.8 million for
exploration and development expenditures. Refining's projected capital
expenditures for 1994 of $8.4 million are down substantially from the $58.4
million incurred during the prior two years. This is the result of a program
completed in 1993 to upgrade the refinery for compliance primarily with new
diesel fuel specifications of the Clean Air Act Amendments of 1990 (Act)
(approximately $34.9 million) and other modernization and upgrade projects. The
Company believes sustaining capital expenditure requirements at Frontier will be
$5-10 million annually. In addition to Refinery expenditures budgeted in 1994,
capital expenditures of up to $1 million are anticipated over the next two years
associated with conventional gasoline formulation requirements of the Act. To
improve refinery controls on emissions designated as hazardous by the Act,
approximately $4 million, after 1994, may be required over the next four years.
Because other refineries will be required to make similar expenditures, the
Company does not expect such expenditures to materially adversely impact its
competitive position.
It is anticipated that existing working capital and cash generated by
operating activities will be sufficient to meet 1994 capital needs and the $5
million of additional future anticipated costs for compliance with the Act.
The functional currency for the Company's Canadian operations is the Canadian
dollar which has declined over the last two years. Accordingly, the Company's
Canadian net assets of C$101.2 million at December 31, 1993 are exposed to a
certain level of economic risk stemming from fluctuations in the Canadian/U.S.
dollar exchange rate. The translation adjustments, $3.2 million and $8.1 million
during 1993 and 1992, arising from consolidating its Canadian operations are
included in the Company's consolidated statements of shareholders' equity.
Wainoco's credit agreements and Senior Notes currently restrict it from the
payment of dividends. Additionally, under certain conditions, Frontier is
restricted from the transfer of cash in the form of loans or advances to the
parent. Wainoco does not believe these restrictions will limit its current
operating plans.
Impact of Changing Prices
The Company's revenues and cash flows, as well as estimates of future cash
flows from oil and gas reserves, are very sensitive to changes in energy prices.
Major shifts in the cost of crude and the price of refined products can result
in large changes in operating margin from refining operations. Energy prices
also determine the carrying value of the Refinery's inventory. Since energy
prices are also a determining factor in the carrying value of oil and gas
assets, any reductions in the prices of crude oil and natural gas could require
noncash write-downs of those assets.
Environmental
Numerous local, state and federal laws, rules and regulations relating to the
environment are applicable to the Company's operations and activities. As a
result, the Company falls under the jurisdiction of numerous state and federal
agencies for administration and is exposed to the possibility of judicial or
administrative actions for remediation and/or penalties brought by those
agencies. Frontier is party to two consent decrees requiring the investigation
and, in certain instances, mitigation of environmental impacts resulting from
past operational activities. The Company has been and will be responsible for
costs related to compliance with or remediations resulting from environmental
regulations. There are currently no identified environmental remediation
projects of which the costs can be reasonably estimated. However, the
continuation of the present investigative process, other more extensive
investigations over time or changes in regulatory requirements could result in
future liabilities.
<TABLE>
<CAPTION>
Selected Quarterly Financial and Operating Data
(Unaudited, dollars in thousands except per share and average prices)
1993
-----------------------------------------------
Fourth Third Second First
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 97,006 $ 95,211 $ 90,704 $ 83,635
Operating Income (Loss) 12,803 4,892 3,265 1,250
Net Income (Loss) 7,898 134 (1,633) (3,895)
Earnings (Loss) Per Share .29 .01 (.07) (.18)
Earnings before Interest, Taxes and Depreciation,
Depletion and Amortization (EBITDA)* 19,000 10,345 8,987 7,116
Net Cash Provided By Operating Activities 22,708 5,136 2,082 2,874
Oil and Gas Operations
Production - Oil (mbbls) 250 258 233 238
- Gas (bcf) 4.4 4.7 4.4 4.9
Average sales price - Oil (per bbl) $ 13.93 $ 15.31 $ 17.56 $ 16.99
- Gas (per mcf) 1.44 1.24 1.25 1.19
Refining Operations
Total charges (bpd) 37,546 35,636 33,378 35,201
Sour crude charge rate (%) 88 73 81 78
Gasoline sales (bpd) 20,780 21,255 19,012 18,256
Distillate sales (bpd) 12,809 11,061 11,249 12,159
Total product sales (bpd) 40,824 42,400 37,890 36,154
</TABLE>
<TABLE>
<CAPTION>
1992
-----------------------------------------------
Fourth Third Second First
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ 93,469 $ 98,623 $ 104,308 $ 80,442
Operating Income (Loss) 2,302 5,618 9,746 (1,587)
Net Income (Loss) (2,418) 1,365 5,574 (5,499)
Earnings (Loss) Per Share (.11) .07 .25 (.25)
Earnings before Interest, Taxes and Depreciation,
Depletion and Amortization (EBITDA)* 8,482 11,228 15,276 4,524
Net Cash Provided By Operating Activities 9,090 4,849 6,214 3,183
Oil and Gas Operations
Production - Oil (mbbls) 260 273 289 289
- Gas (bcf) 5.3 4.8 4.0 4.8
Average sales price - Oil (per bbl) $ 18.18 $ 18.86 $ 17.49 $ 15.45
- Gas (per mcf) 1.21 1.02 1.17 1.09
Refining Operations
Total charges (bpd) 33,000 30,884 35,357 32,219
Sour crude charge rate (%) 73 77 68 64
Gasoline sales (bpd) 19,316 19,355 20,282 19,046
Distillate sales (bpd) 10,673 10,068 12,391 12,210
Total product sales (bpd) 36,156 37,344 40,433 35,394
</TABLE>
<TABLE>
<CAPTION>
Five Year Financial Data (In thousands except per share)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 366,556 $ 376,842 $ 130,067 $ 48,224 $ 38,920
Operating Income (Loss) 22,210 16,079 (8,713) (11,821) 5,051
Income (Loss) Before Taxes 1,989 (1,393) (18,909) (18,975) 410
Provision (Benefit) For Income Taxes (515) (415) (618) (402) (1,390)
Net Income (Loss) 2,504 (978) (18,291) (18,573) 1,800
Earnings (Loss) Per Share .10 (.04) (.90) (.94) .09
EBITDA* 45,448 39,510 27,308 27,391 20,897
Net Cash Provided By Operating Activities 32,800 23,336 17,513 17,691 14,728
Working Capital (Deficit) (1,905) 3,344 (9,156) (1,091) 13,968
Total Assets 296,811 291,417 286,604 167,510 169,796
Long-term Debt 176,900 189,273 154,417 81,301 69,253
Shareholders' Equity 66,040 44,956 53,987 61,774 80,136
Capital Expenditures 40,651 41,761 47,561 48,563 28,656
Dividends Declared 0 0 0 0 0
</TABLE>
*EBITDA is provided supplementally because it is a commonly used measure of
performance in the energy industry. EBITDA is not presented in accordance with
generally accepted accounting principles (GAAP) and should not be used in lieu
of GAAP presentations of results of operations and cash flows.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1993, 1992, 1991
(In thousands except per share)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Refined products $ 324,504 $ 333,203 $ 78,019
Oil and gas sales 39,137 40,677 44,045
Other 2,915 2,962 8,003
---------- ---------- ----------
366,556 376,842 130,067
Costs and Expenses
Refining operating costs 296,255 310,701 76,822
Oil and gas operating costs 13,444 13,771 15,656
Selling and general expenses 11,409 12,860 10,281
Depreciation, depletion and amortization -
Normal 23,238 23,431 23,021
Additional 0 0 13,000
---------- ---------- ----------
344,346 360,763 138,780
Operating Income (Loss) 22,210 16,079 (8,713)
Interest expense, net 20,221 17,472 10,196
Income (Loss) Before Income Taxes 1,989 (1,393) (18,909)
Provision (benefit) for income taxes (515) (415) (618)
---------- ---------- ----------
Net Income (Loss) $ 2,504 $ (978) $ (18,291)
========== ========== ==========
Income (Loss) Per Share $ .10 $ (.04) $ (.90)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
As of December 31, 1993 and 1992
(In thousands except shares)
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current Assets -
Cash, including cash equivalents of $2,078 and $1,853
at December 31, 1993 and 1992 $ 3,770 $ 3,710
Trade receivables 16,281 16,040
Joint operator and other receivables 2,790 2,523
Inventory of crude oil, products and other 21,086 29,698
Other current assets 2,331 1,178
---------- ----------
Total Current Assets 46,258 53,149
---------- ----------
Property, Plant and Equipment, at cost -
Oil and gas properties, on a full-cost basis 448,649 443,430
Refinery and pipeline 124,705 98,139
Furniture, fixtures and other 5,820 5,384
---------- ----------
579,174 546,953
Less - Accumulated depreciation,
depletion and amortization 334,905 315,539
---------- ----------
244,269 231,414
Other Assets 6,284 6,854
---------- ----------
Total Assets $ 296,811 $ 291,417
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities -
Accounts payable $ 30,514 $ 31,701
Oil and gas proceeds payable 4,095 4,075
Current maturities of long-term debt 0 2,499
Accrued interest 5,681 5,406
Accrued turnaround cost 3,741 2,688
Other accrued liabilities 4,132 3,436
---------- ----------
Total Current Liabilities 48,163 49,805
---------- ----------
Long-Term Debt 176,900 189,273
Deferred Revenue and Other 3,410 5,085
Deferred Income Taxes 2,298 2,298
Commitments and Contingencies
Shareholders' Equity -
Preferred stock, $100 par value, 500,000 shares authorized,
no shares issued 0 0
Common stock, no par, 50,000,000 shares authorized,
22,122,177 shares and 22,122,177 shares issued
in 1993 and 1992, respectively 57,153 56,653
Paid-in capital 80,855 60,513
Retained earnings (deficit) (66,297) (68,801)
Commitments to issue common stock, 175,275 shares 883 0
Cumulative translation adjustment (6,233) (2,993)
Treasury stock, 60,000 shares (270) (270)
Deferred employee compensation (51) (146)
---------- ----------
Total Shareholders' Equity 66,040 44,956
Total Liabilities and Shareholders' Equity $ 296,811 $ 291,417
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1993, 1992 and 1991
(In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,504 $ (978) $ (18,291)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation, depletion and amortization 23,238 23,431 36,021
Deferred income tax provision 0 0 (119)
Deferred revenue and other (460) 1,306 (4,635)
Other 598 826 352
---------- ---------- ----------
25,880 24,585 13,328
Changes in components of working capital from
operations, net of the acquisition of Frontier -
(Increase) decrease in receivables (668) 3,186 2,428
(Increase) decrease in inventory 8,659 404 (2,835)
(Increase) decrease in other current assets (1,137) (371) (322)
Increase (decrease) in accounts payable (684) (5,868) 2,827
Increase (decrease) in accrued liabilities 750 1,400 2,087
---------- ---------- ----------
Net cash provided by operating activities 32,800 23,336 17,513
INVESTING ACTIVITIES
Additions to property, plant and equipment (42,381) (42,365) (48,976)
Acquisition of Frontier, net of cash acquired 0 0 (20,145)
Sales of oil and gas properties 2,262 1,231 5,710
Other 1,136 2,319 331
---------- ---------- ----------
Net cash used in investing activities (38,983) (38,815) (63,080)
FINANCING ACTIVITIES
Long-term borrowings -
Senior Notes 0 100,000 0
Bank debt 27,400 11,900 65,058
Payments of debt -
Bank debt (37,400) (52,200) (9,058)
Debentures (4,999) 0 (282)
Mortgage notes and other debt 75 (41,845) (5,526)
Common stock offering and commitments 21,725 0 0
Other (284) (5,491) 172
---------- ---------- ----------
Net cash provided by financing activities 6,517 12,364 50,364
Effect of exchange rate changes on cash (274) (233) (9)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 60 (3,348) 4,788
Cash and cash equivalents, beginning of period 3,710 7,058 2,270
---------- ---------- ----------
Cash and cash equivalents, end of period $ 3,770 $ 3,710 $ 7,058
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except shares)
Common Stock
Number of Retained Commitment Cumulative Deferred
Shares Paid-In Earnings To Issue Translation Treasury Employee
Issued Amount Capital (Deficit) Common Stock Adjustment Stock Compensation
----------- -------- --------- --------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1990 19,911,950 $ 56,431 $ 50,743 $ (49,532) $ 0 $ 4,824 $(270) $(422)
Shares issued -
Stock option plan 14,990 2 46 0 0 0 0 84
Acquisition 2,195,237 220 9,724 0 0 0 0 0
Deferred compensation
amortization 0 0 0 0 0 0 0 96
Translation adjustment 0 0 0 0 0 332 0 0
Net loss 0 0 0 (18,291) 0 0 0 0
---------- ------- ------- -------- ----- ------- ----- ------
DECEMBER 31, 1991 22,122,177 56,653 60,513 (67,823) 0 5,156 (270) (242)
Deferred compensation
amortization 0 0 0 0 0 0 0 96
Translation adjustment 0 0 0 0 0 (8,149) 0 0
Net loss 0 0 0 (978) 0 0 0 0
---------- ------- ------- -------- ----- ------- ----- ------
DECEMBER 31, 1992 22,122,177 56,653 60,513 (68,801) 0 (2,993) (270) (146)
Shares issued in
equity offering 5,000,000 500 20,342 0 0 0 0 0
Commitment to issue shares 0 0 0 0 883 0 0 0
Deferred compensation
amortization 0 0 0 0 0 0 0 95
Translation adjustment 0 0 0 0 0 (3,240) 0 0
Net income 0 0 0 2,504 0 0 0 0
---------- ------- ------- -------- ----- -------- ----- ------
DECEMBER 31, 1993 27,122,177 $ 57,153 $ 80,855 $ (66,297) $ 883 $ (6,233) $(270) $ (51)
========== ======= ======= ======== ===== ======== ===== ======
The accompanying notes are an integral part of these financial statements.
</TABLE>
[TEXT]
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Wainoco Oil
Corporation (the Parent), a Wyoming corporation, and its wholly-owned
subsidiaries, including Wainoco Oil & Gas Company and Frontier Holdings Inc.
(Frontier), collectively referred to as Wainoco or the Company. Significant
intercompany transactions are eliminated in consolidation.
Currency Translation
The Canadian dollar financial statements of the Parent's Canadian division
have been translated to United States dollars. Gains and losses on currency
transactions are included in the consolidated statements of operations
currently, and translation adjustments are included in the consolidated
statements of shareholders' equity.
Inventories
Inventories of crude oil, other unfinished oils and all finished products are
recorded at the lower of cost on a first-in, first-out (FIFO) basis or market.
Refined product exchange transactions are considered asset exchanges with
deliveries offset against receipts. The net exchange balance is included in
inventory. Inventories of materials and supplies are recorded at cost.
Property, Plant and Equipment
Refining Operations. Refinery plant and equipment is depreciated based on
the straight-line method over estimated useful lives of three to twenty years.
Maintenance and repairs are expensed as incurred except for major scheduled
repair and maintenance (turnaround) of the refinery operating units. The costs
for planned turnarounds are ratably accrued over the period from the prior
turnaround to the next scheduled turnaround. Major improvements are capitalized,
and the assets replaced are retired.
Oil and Gas Operations. Wainoco follows the accounting policy (commonly
referred to as full-cost accounting) of capitalizing costs incurred in the
acquisition, exploration and development of oil and gas reserves. The estimated
cost of dismantlement, restoration and abandonment, net of salvage value, along
with other future development costs are added to the costs being amortized and,
when subsequently incurred, are capitalized as part of the full-cost pool.
Proceeds from sales of oil and gas properties are credited to the full-cost
pool unless the sale is significant, in which case a gain or loss on the sale
would be recognized.
Wainoco computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the composite
unit-of-production method based on future gross revenue attributable to proved
reserves.
Capitalized oil and gas property costs in the United States exceeded the
limitation on such costs and additional provisions for depreciation, depletion
and amortization were made in the second and fourth quarters of 1991. The
limitation is based, after consideration of income tax effects, on the present
value of future net income from estimated production of proved oil and gas
reserves discounted at 10% and the net book value of investments in unproved and
unevaluated properties.
Hedging
The Company, at times, engages in futures transactions in its refining
operations and oil and gas operations for the purpose of hedging its inventory
position and product prices. Changes in the market value of futures contracts
for the purpose of hedging are included in the measurement of the related
transaction.
Interest
Interest is reported net of interest capitalized and interest income.
Interest income of $93,000, $221,000 and $355,000 was recorded in the years
ended December 31, 1993, 1992 and 1991, respectively.
Wainoco follows the policy of capitalizing interest on debt incurred to fund
the construction or acquisition of an asset as part of the historical cost of
the asset. During 1993 and 1992 the Company capitalized interest of $728,000 and
$1.0 million, respectively.
Wainoco has an interest rate swap with one of its lending banks for the
purpose of managing its interest cost and exposure to interest rate movements.
The agreement effectively changes the Company's interest rate exposure on $15
million of its floating rate debt to a fixed 8.2% over a five-year period
expiring in August, 1996.
Nonrecurring Transactions
During 1991 the Company obtained a final settlement of all previously
contested excise tax issues, resulting in nonrecurring income of $5.2 million.
During 1993 and 1992, the Company received payments of insurance proceeds, as
reimbursement for losses incurred, which resulted in nonrecurring income of $1.0
million and $700,000, respectively. All such amounts have been classified as
other income in the consolidated statements of operations.
Environmental Expenditures
Wainoco expenses or capitalizes environmental expenditures based upon their
future economic benefit. Costs which improve a property as compared with the
condition of the property when originally constructed or acquired and costs
which prevent future environmental contamination are capitalized. Costs related
to environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are recorded when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.
Cash Flow Reporting
Wainoco considers highly liquid debt instruments with a maturity, when
purchased, of three months or less to be cash equivalents. Cash payments for
interest during 1993, 1992 and 1991 were $19.7 million, $12.6 million and $9.5
million, respectively, and cash payments for income taxes during 1993, 1992 and
1991 were $124,000, $173,000 and $195,000, respectively. Reference is made to
Property Acquisitions in Note 9 for discussion of the Frontier purchase in
October 1991, which included noncash financing activities.
2 Inventory
<TABLE>
<CAPTION>
SCHEDULE OF MAJOR COMPONENTS OF INVENTORY (In thousands)
December 31, 1993 1992
---------- ----------
<S> <C> <C>
Crude oil $ 2,803 $ 3,858
Unfinished products 4,487 6,647
Finished products 7,435 14,340
Chemicals and in-transit inventory 1,589 1,001
Repairs and maintenance supplies and other 4,772 3,852
---------- ----------
$ 21,086 $ 29,698
========== ==========
</TABLE>
3 Short-Term Debt
The maximum and average amounts of short-term borrowings outstanding were
$28.3 million and $12.2 million in 1992 and $21.1 million and $3.9 million in
1991, respectively. The average interest rate paid on these balances was 12.3%
in 1992 and 10.9% in 1991. All short-term debt was paid off in August 1992 with
proceeds from the issuance of the Senior Notes.
4 Long-Term Debt
<TABLE>
<CAPTION>
SCHEDULE OF LONG-TERM DEBT (In thousands)
December 31, 1993 1992
---------- ----------
<S> <C> <C>
Credit facilities
Canadian oil and gas $ 0 $ 4,000
United States oil and gas 18,700 19,000
Refining 0 5,700
Senior Notes 100,000 100,000
Convertible Subordinated Debentures 46,000 46,000
Subordinated Debentures 12,200 17,072
---------- ----------
176,900 191,772
Less - Current maturities 0 2,499
---------- ----------
$ 176,900 $ 189,273
========== ==========
</TABLE>
Oil and Gas Credit Facilities
Wainoco has two long-term credit facilities; one each for its Canadian and
United States oil and gas operations. Interest rates are based, at the Company's
option, on 1) the bank's prime rate, or 2) LIBOR or banker s acceptances, at
their prevailing rates, plus from three-quarters of 1% to one and three-quarters
percent for the Canadian facility and one and one-half percent for the United
States facility.
The banks review the oil and gas properties at least annually (generally in
April based on the beginning of the year reserves) and make a determination of
the credit to be made available (the borrowing base). If the banks determine
that the unpaid balance on the line is in excess of the borrowing base, then the
Company must either 1) provide additional security to increase the borrowing
base by an amount at least equal to such excess, 2) repay any such excess, or 3)
convert the outstanding balance to a term loan.
Canadian. The revolving line of credit of C$37.5 million (the United
States dollar equivalent of approximately $28.3 million at December 31, 1993) is
secured by substantially all of the Canadian oil and gas properties. The
agreement provides for a commitment fee of one-half of 1%.
The facility converts to a five-year term loan on April 29, 1995 with
payments commencing on May 1, 1995. The credit agreement can be extended
annually at the option of the lenders. The loan covenants include net worth and
current ratio requirements.
United States. The revolving line of credit of $22 million is secured by
substantially all of the United States oil and gas properties. The agreement
provides for commitment and facility fees aggregating five-eighths of 1%.
The facility converts to a five-year term loan on December 31, 1994 with
payments commencing on March 31, 1995. The loan covenants require a minimum cash
flow coverage of interest.
Refining Credit Facility
Frontier has a capital facility entered into in August 1992 with a group of
three banks. This credit facility, which expires April 2, 1995, is a
collateral-based facility with total capacity of up to $50 million, of which
maximum cash borrowings are $15 million. Any unutilized capacity after cash
borrowings is available for letters-of-credit. At December 31, 1993, there were
$7.6 million in standby letters-of-credit outstanding.
The facility provides working capital financing for operations, generally
the financing of crude and product supply. It is generally secured by Frontier's
current assets. The agreement provides for a commitment fee of one-half of 1%.
Interest rates are based, at the Company's option, on the agent bank s prime
rate plus one and three-quarters percent or the reserve-adjusted LIBOR, plus
three percent. Standby letters-of-credit issued bear a fee of one and one-half
percent annually, plus standard issuance and renewal fees. The facility
agreement includes certain financial covenant requirements relating to
Frontier's working capital, tangible net worth and fixed charge coverage.
Senior Notes
On August 18, 1992, Wainoco sold $100 million of unsecured 12% Senior Notes
(Senior Notes) due 2002 through a public offering. Proceeds from the sale of the
Senior Notes were used to refinance Frontier debt, including mortgage notes and
short-term borrowings, and pay down the Company's borrowings under its credit
facilities. The notes are redeemable, at the option of the Company, at a premium
of 103.43% after July 31, 1997, declining to 100% in 1999. Interest is payable
semiannually.
Convertible Subordinated Debentures
The $46 million of 7 3/4% Convertible Subordinated Debentures (Convertible
Subordinated Debentures) are due in 2014. The debentures are convertible into
the Company's common stock at $8.75 per share. Interest is payable semiannually.
The debentures are redeemable at a premium of 104.65% declining to 100% in 1999.
Sinking fund payments of 5% of the principal amount commence in 2000, and are
calculated to retire 70% of the principal amount prior to maturity. Based on the
effective yield at the time of issuance, the debentures are not considered
common stock equivalents.
Subordinated Debentures
The $12.2 million of 10 3/4% Subordinated Debentures (Subordinated
Debentures), which represent a discount to the $12.5 million face value, are due
in 1998, and are redeemable at 100% of their principal amount at the option of
the Company. Interest is payable semiannually, and sinking fund payments of $2.5
million from 1995 through 1997 and $5 million in 1998 are due annually.
Restrictions on Loans, Transfer of Funds and Payment of Dividends
Under its credit agreements, Wainoco is required to maintain a minimum
consolidated shareholders' equity (as defined) equal to $40 million at December
31, 1993. Additionally, the Frontier credit facility restricts Frontier as to
the distribution of capital assets and the transfer of cash in the form of loans
or advances when there are any outstanding borrowings under the facility or when
a default exists or would occur.
Five-Year Maturities
The estimated five-year maturities of long-term debt are $2.2 million in
1995, 1996 and 1997 and $8.7 million in 1998. These amounts assume that the
balance outstanding on the United States credit facility at December 31, 1993 is
converted to a term loan on March 31, 1995, and is amortized at its minimum
level. Without the inclusion of the revolving facility, the estimated five-year
maturities of long-term debt are $2.5 million for 1995 through 1997 and $5
million in 1998.
5 Income Taxes
The Parent and its subsidiaries file a consolidated United States federal
income tax return. The Parent also files a separate Canadian income tax return.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes". The cumulative effect of
adopting SFAS No. 109 had no impact on the provision (benefit) for income taxes.
The Parent has net operating loss carryforwards for Canadian income tax
purposes of $6.8 million available to reduce future Canadian federal taxable
income which expire, if not otherwise rescheduled, by 1995 and $5.4 million
which expire as follows: $800,000 in 1999 and $4.6 million in 2000. The Parent
also has exploration and development deductions of $85.6 million and earned
depletion of $5.6 million which are available indefinitely to reduce future
Canadian taxable income.
The Company has net operating loss carryforwards for United States tax
reporting purposes of $114.8 million available to reduce future federal taxable
income. The net operating loss carryforwards will expire as follows: $2.5
million in 1995, $28.6 million in 1996, $22.7 million in 1997, $4.7 million in
1998, $1.7 million in 2000, $7.5 million in 2001, $3.0 million in 2003, $15.5
million in 2004, $3.8 million in 2005, $11.9 million in 2006, $9.3 million in
2007 and $3.6 million in 2008. The Company also has tax depletion carryforwards
of $8.7 million which are indefinitely available to reduce future United States
income taxes payable and $1.3 million in investment tax credit carryforwards
available to reduce future United States income taxes payable. The investment
tax credit carryforwards expire in various amounts through 2000.
The following is the pretax income (loss) and the provision (benefit) for
income taxes for the three years ended December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Pretax Income (Loss) (In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Canada $ 5,552 $ 2,113 $ 2,178
United States (3,563) (3,506) (21,087)
---------- ---------- ----------
$ 1,989 $ (1,393) $ (18,909)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Provision (Benefit) for Income Taxes (In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Canada - Current $ (515) $ (415) $ (499)
United States - Deferred 0 0 (119)
---------- ---------- ----------
$ (515) $ (415) $ (618)
========== ========== ==========
</TABLE>
The following is a reconciliation of the provision (benefit) for income
taxes computed at the statutory Canadian and United States income tax rates on
pretax income (loss) and the provision (benefit) for income taxes as reported
for the three years ended December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Reconciliation of Tax Provision (In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Provision (benefit) based on statutory rates $ 1,241 $ (221) $ (6,199)
Increase (decrease) resulting from -
Unutilized net operating loss (1,241) 221 6,199
Canada
Provincial tax credits and rebates (621) (590) (558)
Large corporation tax and other 106 175 59
---------- ---------- ----------
(515) (415) (499)
United States 0 0 (119)
---------- ---------- ----------
Provision (benefit) as reported $ (515) $ (415) $ (618)
========== ========== ==========
</TABLE>
The following are the significant components, by type of temporary
differences or carryforwards, of deferred tax liabilities and tax assets,
computed at the federal statutory rates, as of December 31, 1993 and January 1,
1993, date of adoption of SFAS No. 109.
<TABLE>
<CAPTION>
Components of Deferred Taxes (In thousands)
December 31, 1993 January 1, 1993
----------------------- -----------------------
United United
Canada States Canada States
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax liabilities
Property, plant and equipment,
due to differences in DD&A $ 9,975 $ 27,406 $ 13,080 $ 24,771
Installment sale 0 5,435 0 5,280
Other 0 1,657 0 1,610
---------- ---------- ---------- ----------
Deferred tax liabilities 9,975 34,498 13,080 31,661
Deferred tax assets
Tax loss carryforwards 5,469 40,199 3,461 37,808
Depletion carryforwards 2,513 3,045 2,872 2,958
Tax credit carryforwards 0 2,389 0 2,389
Foreign exploration and development expenditures 16,205 0 16,808 0
Other 0 1,609 0 2,033
---------- ---------- ---------- ----------
24,187 47,242 23,141 45,188
Less - valuation allowance 14,212 15,042 10,061 15,825
---------- ---------- ---------- ----------
Net deferred tax assets 9,975 32,200 13,080 29,363
---------- ---------- ---------- ----------
Net deferred tax liabilities $ 0 $ 2,298 $ 0 $ 2,298
========== ========== ========== ==========
</TABLE>
Realization of deferred tax assets is dependent on the Company's ability to
generate taxable income within the tax loss carryforward periods. As a result of
the Company's history of operating losses, a valuation allowance has been
provided for deferred tax assets that are not offset by scheduled future
reversals of deferred tax liabilities.
6 Common Stock
Earnings Per Share
In 1993, the primary and fully diluted earnings per share were computed
based on the average number of shares outstanding and assumed the exercise of
stock option and other equivalent shares. In 1992 and 1991, the primary and
fully diluted earnings per share were computed based on the average number of
shares outstanding and did not assume the exercise of stock option shares, as
losses were incurred. The primary and fully diluted weighted average shares
outstanding were 24,454,262, 22,062,177 and 20,365,800 in 1993, 1992 and 1991,
respectively. The primary and fully diluted earnings per share for the year 1993
is five cents more than the sum of the 1993 quarters due to the issuance of five
million shares of common stock in July, which had a more significant impact on
the higher earnings of the third and fourth quarters than on the year taken as a
whole.
Stock Option Plans
Wainoco has two stock option plans which authorize the granting of
restricted stock and options to purchase shares. The plans as of December 31,
1993 have a total of 3,474,000 shares of common stock of which 1,550,838 shares
were granted and exercised, 1,895,367 shares were granted and are outstanding
and 27,795 shares are available to be granted. As of December 31, 1992, the
plans had 315,095 shares available to be granted. A summary of the plans'
activity is set forth in the Stock Option Activity table. Options under both
plans are granted at not less than fair market value on the date of grant. No
entries are made in the accounts until the options are exercised, at which time
the proceeds are credited to common stock and paid-in capital.
<TABLE>
<CAPTION>
STOCK OPTION ACTIVITY
Option Shares Price Range
--------------- ---------------
<S> <C> <C>
OUTSTANDING
December 31, 1990 1,291,297 4.75 to 8.53
Granted 432,700 5.00 to 6.25
Exercised (32,500) 4.75 to 5.75
Lapsed (134,050) 5.00 to 8.40
-------------- --------------
December 31, 1991 1,557,447 4.75 to 8.56
Granted 330,243 3.50 to 3.88
Lapsed (279,623) 5.00 to 7.75
-------------- --------------
December 31, 1992 1,608,067 3.50 to 8.50
Granted 428,600 4.13 to 5.00
Exchanged (118,000) 6.88 to 6.88
Lapsed (23,300) 3.50 to 6.71
-------------- --------------
December 31, 1993 1,895,367 3.37 to 7.75
-------------- --------------
EXERCISABLE
December 31, 1991 976,633 4.75 to 8.56
December 31, 1992 1,160,215 3.50 to 8.50
December 31, 1993 1,441,114 3.37 to 7.75
-------------- --------------
</TABLE>
Restricted Stock Grants
The Company has outstanding 63,900 restricted shares of common stock. The
value of these shares and related deferred compensation are recorded in equity.
The deferred compensation, based on the market value of the shares issued, is
amortized ratably over a five-year vesting period.
Common Stock Offering
The Company sold five million shares of common stock in July 1993 through a
public offering. The net proceeds of $20.8 million were used to pay down
borrowings under its revolving credit facilities and to retire $5 million
principal amount of its Subordinated Debentures which were applied to its 1993
and 1994 sinking fund requirements.
Commitment to Issue Common Stock
The Company's Canadian oil and gas division entered into a drilling program
with a third party and received $883,000 in exchange for a commitment to issue
175,275 shares of its common stock and distribute Canadian tax deductions
attributable to certain of the Company's exploration and development activities
in Canada. The shares were issued in the first quarter of 1994.
7 Segment Information
Wainoco is engaged in two business segments, the exploration, development
and production of oil and gas reserves (oil and gas operations), and crude oil
refining and wholesale marketing of refined petroleum products (refining
operation). Geographically, the oil and gas operations are located in the United
States and Canada, and the refining operation is located in the United States.
Income taxes, interest and certain amounts included in other revenues, selling
and general expenses, and depreciation, depletion and amortization are not
allocated to the operating segments.
The following schedule presents certain operating income (loss) items and
capital expenditures for each of the three years ended December 31, 1993, and
identifiable assets as of December 31, 1993, 1992 and 1991, by segment by
country.
<TABLE>
<CAPTION>
SEGMENT INFORMATION (In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Refining (since acquisition, October 1991) $ 326,078 $ 334,785 $ 78,432
Oil and Gas
Canada 22,301 20,722 23,982
United States 18,177 21,293 27,630
Unallocated 0 42 23
---------- ---------- ----------
$ 366,556 $ 376,842 $ 130,067
========== ========== ==========
Depreciation, Depletion and Amortization
Refining (since acquisition, October 1991) $ 6,262 $ 4,038 $ 898
Oil and Gas
Canada 8,793 8,999 9,506
United States 7,629 10,086 25,480
Unallocated 554 308 137
---------- ---------- ----------
$ 23,238 $ 23,431 $ 36,021
========== ========== ==========
Operating Income (Loss)
Refining (since acquisition, October 1991) $ 18,776 $ 14,344 $ (624)
Oil and Gas
Canada 6,115 4,343 5,134
United States 320 (15) (10,376)
Unallocated Expenses (3,001) (2,593) (2,847)
---------- ---------- ----------
$ 22,210 $ 16,079 $ (8,713)
========== ========== ==========
Capital Expenditures
Refining (since acquisition, October 1991) $ 26,932 $ 31,493 $ 3,479
Oil and Gas
Canada 6,828 5,045 9,967
United States and Other 6,891 5,223 34,115
---------- ---------- ----------
$ 40,651 $ 41,761 $ 47,561
========== ========== ==========
Identifiable Assets
Refining $ 156,265 $ 140,574 $ 116,283
Oil and Gas
Canada 76,294 83,270 97,241
United States and Other 60,207 61,798 71,066
Unallocated 4,045 5,775 2,014
---------- ---------- ----------
$ 296,811 $ 291,417 $ 286,604
========== ========== ==========
</TABLE>
8 Commitments and Contingencies
Lease Commitments
Wainoco has noncapitalized building, equipment and vehicle lease agreements
which expire from 1994 through 2000 having minimum annual payments as of
December 31, 1993 of $1.9 million for 1994, $2.0 million for 1995, $1.6 million
for 1996, $1.1 million for 1997, $955,000 for 1998, $370,000 for 1999 and
$128,000 for 2000. Operating lease rental expense (exclusive of oil and gas
lease rentals) was $1.2 million, $1.2 million and $719,000 for the three years
ended December 31, 1993, 1992 and 1991, respectively.
Environmental
Wainoco accrues for environmental costs as indicated in Note 1. Numerous
local, state and federal laws, rules and regulations relating to the environment
are applicable to the Company's operations and activities. As a result, the
Company falls under the jurisdiction of numerous state and federal agencies for
administration and is exposed to the possibility of judicial or administrative
actions for remediation and/or penalties brought by those agencies. Frontier is
party to two consent decrees requiring the investigation and, in certain
instances, mitigation of environmental impacts resulting from past operational
activities. The Company has been and will be responsible for costs related to
compliance with or remediations resulting from environmental regulations. There
are currently no identified environmental remediation projects of which the
costs can be reasonably estimated. However, the continuation of the present
investigative process, other more extensive investigations over time or changes
in regulatory requirements could result in future liabilities.
Litigation
The Company is involved in various lawsuits incident to its business. In
management's opinion, the adverse determination of such lawsuits would not have
a material adverse effect on the Company taken as a whole.
Contribution Plans
Wainoco sponsors defined contribution plans for Canadian division
employees, United States employees covered by a collective bargaining agreement
and United States employees not covered by such an agreement. All employees may
participate by contributing a portion of their annual earnings to the plans. The
Company makes basic and/or matching contributions on behalf of participating
employees. The cost of the plans for the three years ended December 31, 1993,
1992 and 1991 was $1.7 million, $1.5 million and $671,000, respectively.
Pension Plan
The following is the plan's funded status and net pension costs. The
actuarial present value of accumulated benefit obligations at December 31, 1993,
1992 and 1991 was discounted at 6.5%, 6.5% and 7.25%, respectively. Plan assets
consisted of stocks and bonds with an expected rate of return of 9% for each
period.
Effective January 1, 1993, Wainoco's pension plan is non-contributory, open
to all its United States employees not covered by a collective bargaining
agreement and over 25 years of age with six months of service. The plan has a
retirement age of 65. Benefits from the plan for service on and after January 1,
1993 will only be paid to the extent these benefits exceed the benefits from the
Wainoco contribution plan.
<TABLE>
<CAPTION>
Pension Plan Information (In thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Funded Status
Actuarial present value of accumulated
benefit obligations -
Vested $ 1,298 $ 1,253 $ 1,127
Nonvested 25 16 17
---------- ---------- ----------
$ 1,323 $ 1,269 $ 1,144
---------- ---------- ----------
Projected benefit obligation $ 1,323 $ 1,852 $ 1,672
Plan assets at estimated fair value 1,290 1,179 1,048
---------- ---------- ----------
Plan assets less than projected benefit obligation 33 673 624
Unrecognized net gain (loss) arising from the
difference in actual experience and that assumed 0 (583) (528)
---------- ---------- ----------
Accrued retirement plan liability $ 33 $ 90 $ 96
========== ========== ==========
Net Pension Costs
Service cost, benefits earned during the period $ 0 $ 147 $ 118
Interest cost on projected benefit obligation 85 120 100
Actual return on plan assets (154) (177) (79)
Net amortization and deferral 54 133 36
---------- ---------- ----------
Net pension costs $ (15) $ 223 $ 175
========== ========== ==========
</TABLE>
Concentration of Credit Risk
The Company has three operations, each of which has concentrations of
credit risk with respect to sales within the same or related industry and within
limited geographic areas. The Refining operation sells its products exclusively
at wholesale, principally to independent retailers, jobbers and major oil
companies located primarily in the Denver, western Nebraska and eastern Wyoming
regions, with 13% of its customers accounting for approximately 80% of total
refined product sales in the last three years. Canadian oil and gas operations
sell primarily under long-term contracts to gas aggregators located in Alberta
and British Columbia, accounting for 82%, 75% and 79% of total Canadian sales in
1993, 1992 and 1991, respectively. United States oil and gas operations sell
primarily to oil marketers and gas pipelines in the midcontinent, Los Angeles
Basin and Gulf Coast regions. Wainoco extends credit to its customers based on
ongoing credit evaluations. An allowance for doubtful accounts is provided based
on the current evaluation of each customer's credit risk, past experience and
other factors. During 1993, the Company made sales to CITGO Petroleum
Corporation of $47.6 million, which accounted for 13% of consolidated revenues.
9 Property Acquisitions and Disposition
In August, 1991, Wainoco Oil & Gas Company completed its acquisition of the
majority of Texaco Exploration and Production, Inc.'s interests in the Conroe
field, located near Conroe, Texas, for $16.8 million. The purchase was funded by
bank borrowings.
In October, 1991, Wainoco completed the acquisition of Frontier for a
purchase price consisting of $25 million in cash and $9.9 million in Company
common stock (2,195,237 shares). Additionally, Frontier delivered promissory
notes aggregating $16.5 million to the sellers. The cash portion of the purchase
price was funded by bank borrowings.
The unaudited pro forma revenues, net loss and net loss per share giving
effect to the Frontier and Conroe acquisitions for the year ended December 31,
1991 were $388.9 million, $12.1 million and $.55, respectively.
In September, 1991, Wainoco Oil & Gas Company finalized the sale of its
remaining natural gas interests in the Appalachian Basin Athens field to an
unaffiliated party for $4 million.
10 Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to do so.
Long-Term Debt
The Company's Senior Notes and debentures are estimated based on quotations
obtained from broker-dealers who make markets in these and similar securities.
The bank credit facilities are based on floating interest rates and, as such,
the carrying amount is a reasonable estimate of fair value. At December 31, 1993
and 1992, the carrying amounts of long-term debt instruments were $176.9 million
and $191.8 million, respectively, and the estimated fair values were $178.9
million and $180.1 million.
Interest Rate Swap Agreement
The fair value of the Company's interest rate swap (used for hedging
purposes) is the estimated amount that the bank would receive or pay to settle
the swap agreement at the reporting date, taking into account current interest
rates and the current credit-worthiness of the swap counterparty. At December
31, 1993 and 1992, the carrying amount was zero and the estimated net fair value
of the liability was $1.9 million and $1.2 million, respectively.
Report of Independent Public Accountants
To the Shareholders of Wainoco Oil Corporation:
We have audited the accompanying consolidated balance sheets of Wainoco Oil
Corporation (a Wyoming corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wainoco Oil Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
Arthur Andersen & Co.
/s/ Arthur Andersen & Co.
Houston, Texas
February 11, 1994
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
Oil and Gas Producing Activities
The results of operations from oil and gas producing activities are similar
to the segment information disclosure in Note 7 to the financial statements, but
differ as to the level of detail, classification of depreciation on furniture
and fixtures and the inclusion of income taxes. The following schedule excludes
interest expense, net. The income tax expenses were determined by applying
statutory rates to pretax income with adjustments for tax credits (including
carryforwards and Alberta Royalty Tax Credits) and permanent differences.
<TABLE>
<CAPTION>
Results of Operations from Oil and Gas Producing Activities (In thousands)
United
Canada States Total
---------- ---------- ----------
<S> <C> <C> <C>
1993 Revenues from operations $ 22,301 $ 18,177 $ 40,478
Production costs 5,326 7,089 12,415
Production taxes 0 1,029 1,029
Technical support and other 2,111 2,276 4,387
Provision for DD&A
Normal 8,759 7,463 16,222
Additional 0 0 0
---------- ---------- ----------
Operating income (loss) 6,105 320 6,425
Income tax expense (benefit) (515) 0 (515)
---------- ---------- ----------
Income (loss) from producing activities $ 6,620 $ 320 $ 6,940
========== ========== ==========
Normal DD&A per dollar of oil and gas sales $ .41 $ .42 $ .41
========== ========== ==========
1992 Revenues from operations $ 20,722 $ 21,293 $ 42,015
Production costs 5,117 7,352 12,469
Production taxes 0 1,302 1,302
Technical support and other 2,302 2,857 5,159
Provision for DD&A
Normal 8,960 9,797 18,757
Additional 0 0 0
---------- ---------- ----------
Operating income (loss) 4,343 (15) 4,328
Income tax expense (benefit) (415) 0 (415)
---------- ---------- ----------
Income (loss) from producing activities $ 4,758 $ (15) $ 4,743
========== ========== ==========
Normal DD&A per dollar of oil and gas sales $ .45 $ .47 $ .46
========== ========== ==========
1991 Revenues from operations $ 23,982 $ 27,630 $ 51,612
Production costs 6,254 8,024 14,278
Production taxes 0 1,378 1,378
Technical support and other 3,131 3,394 6,525
Provision for DD&A
Normal 9,463 12,210 21,673
Additional 0 13,000 13,000
---------- ---------- ----------
Operating income (loss) 5,134 (10,376) (5,242)
Income tax expense (benefit) (655) 0 (655)
---------- ---------- ----------
Income (loss) from producing activities $ 5,789 $ (10,376) $ (4,587)
========== ========== ==========
Normal DD&A per dollar of oil and gas sales $ .43 $ .56 $ .49
========== ========== ==========
</TABLE>
The table on the following page summarizes Wainoco's proved oil and gas
reserves. Oil includes condensate and natural gas liquids, and is stated in
thousands of barrels. Natural gas is stated in millions of cubic feet. For the
years ended December 31, 1993, 1992, 1991 and 1990, Ryder Scott Company
Petroleum Engineers prepared reserve studies comprising 93%, 93%, 91% and 89%,
respectively, of the Company's total discounted property value. The Company
prepared reserve studies on the remaining properties. BOE is defined as barrels
of oil equivalent and is based on British Thermal Units at a ratio of six mmcf
of natural gas to one bbl of oil.
<TABLE>
<CAPTION>
Changes in Proved Oil and Gas Reserve Quantities
United
Canada States Total
---------------------------- ---------------------------- ----------------------------
Oil Gas BOE Oil Gas BOE Oil Gas BOE
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEVELOPED AND UNDEVELOPED
December 31, 1990 2,042 183,808 32,677 5,221 36,376 11,284 7,263 220,184 43,961
Revision to previous estimates (74) (9,765) (1,702) (1,841) (4,189) (2,539) (1,915) (13,954) (4,241)
Extensions, discoveries and
other additions 67 6,993 1,233 293 1,273 505 360 8,266 1,738
Purchases of reserves-in-place 15 4,303 732 1,522 23,787 5,487 1,537 28,090 6,219
Production (285) (15,486) (2,866) (835) (3,515) (1,421) (1,120) (19,001) (4,287)
Sales of reserves-in-place (58) (1,244) (265) (35) (7,869) (1,347) (93) (9,113) (1,612)
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1991 1,707 168,609 29,809 4,325 45,863 11,969 6,032 214,472 41,778
Revisions to previous estimates 336 (5,163) (525) 351 (121) 331 687 (5,284) (194)
Extensions, discoveries and
other additions 24 2,207 392 691 2,056 1,034 715 4,263 1,426
Purchases of reserves-in-place 8 1,311 227 0 0 0 8 1,311 227
Production (267) (15,995) (2,933) (844) (2,954) (1,336) (1,111) (18,949) (4,269)
Sales of reserves-in-place (16) 0 (16) (23) (1,333) (245) (39) (1,333) (261)
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1992 1,792 150,969 26,954 4,500 43,511 11,753 6,292 194,480 38,707
Revisions to previous estimates (172) (18,026) (3,176) (974) 1,332 (752) (1,146) (16,694) (3,928)
Extensions, discoveries and
other additions 171 4,262 881 545 3,622 1,149 716 7,884 2,030
Purchases of reserves-in-place 1 607 102 8 218 44 9 825 146
Production (232) (15,938) (2,888) (747) (2,504) (1,164) (979) (18,442) (4,052)
Sales of reserves-in-place (36) (3,164) (563) (193) (914) (345) (229) (4,078) (908)
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1993 1,524 118,710 21,310 3,139 45,265 10,685 4,663 163,975 31,995
======== ======== ======== ======== ======== ======== ======== ======== ========
DEVELOPED
December 31, 1990 1,869 165,986 29,533 3,872 33,175 9,401 5,741 199,161 38,934
December 31, 1991 1,527 151,326 26,748 4,188 42,896 11,337 5,715 194,222 38,085
December 31, 1992 1,726 137,163 24,587 4,486 42,083 11,500 6,212 179,246 36,087
December 31, 1993 1,524 115,628 20,795 3,124 43,837 10,430 4,648 159,465 31,225
Developed as a Percentage
of Total
December 31, 1990 92% 90% 90% 74% 91% 83% 79% 90% 89 %
December 31, 1991 89 90 90 97 94 95 95 91 91
December 31, 1992 96 91 91 100 97 98 99 92 93
December 31, 1993 100 97 98 100 97 98 100 97 98
</TABLE>
The following tables set forth the capitalized costs and related
accumulated depreciation, depletion and amortization and capitalized costs
incurred for oil and gas activities.
<TABLE>
<CAPTION>
Capitalized Costs and Related Accumulated DD&A (In thousands)
United States
Canada and Other Total
-------------------- -------------------- --------------------
1993 1992 1993 1992 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capitalized Costs
Unproved properties $ 5,307 $ 4,681 $ 4,152 $ 6,922 $ 9,459 $ 11,603
Proved properties 144,028 144,693 295,169 287,134 439,189 431,827
--------- --------- --------- --------- --------- ---------
$ 149,327 $ 149,374 $ 299,321 $ 294,056 $ 448,648 $ 443,430
Accumulated DD&A $ 77,376 $ 71,663 $ 244,382 $ 236,919 $ 321,758 $ 308,582
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Capitalized Costs Incurred for Oil and Gas Activities (In Thousands)
Unproved Proved
Property Property Exploration Development Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1993 Canada $ 1,399 $ 429 $ 3,138 $ 1,841 $ 6,807
United States 555 69 4,294 1,221 6,139
Other 425 0 0 0 425
---------- ---------- ---------- ---------- ----------
$ 2,379 $ 498 $ 7,432 $ 3,062 $ 13,371
========== ========== ========== ========== ==========
1992 Canada $ 692 $ 38 $ 3,104 $ 1,176 $ 5,010
United States 1,031 0 3,308 841 5,180
---------- ---------- ---------- ---------- ----------
$ 1,723 $ 38 $ 6,412 $ 2,017 $ 10,190
========== ========== ========== ========== ==========
1991 Canada $ 880 $ 2,331 $ 4,458 $ 2,239 $ 9,908
United States 4,614 16,463 11,020 1,318 33,415
---------- ---------- ---------- ---------- ----------
$ 5,494 $ 18,794 $ 15,478 $ 3,557 $ 43,323
========== ========== ========== ========== ==========
</TABLE>
The following tables set forth the standardized measure of discounted
future net cash flows relating to proved oil and gas reserves and the changes in
standardized measure of discounted future net cash flows from proved reserve
quantities. This information is based on the respective prices in effect as of
year-end. Future income taxes are estimated by applying statutory rates to the
excess of future pretax cash flows over the tax basis (including carryforwards)
in the properties involved. Future changes in tax rates are considered only if
legislated by year-end. Tax credits (including carryforwards) and statutory
depletion in excess of cost basis are considered in determining future income
taxes.
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (In
Thousands)
United
Canada States Total
-------------------- -------------------- --------------------
1993 1992 1993 1992 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Future cash inflows $ 189,701 $ 193,309 $ 135,049 $ 161,597 $ 324,750 $ 354,906
Future production costs 45,678 54,377 48,469 67,440 94,147 121,817
Future development costs 4,111 8,262 6,699 7,167 10,810 15,429
--------- --------- --------- --------- --------- ---------
Future net inflows before
income taxes 139,912 130,670 79,881 86,990 219,793 217,660
Future income taxes 11,574 8,168 902 747 12,476 8,915
--------- --------- --------- --------- --------- ---------
Future net cash flows 128,338 122,502 78,979 86,243 207,317 208,745
10% discount factor 45,524 49,351 23,187 32,455 68,711 81,806
--------- --------- --------- --------- --------- ---------
Discounted future net cash flows $ 82,814 $ 73,151 $ 55,792 $ 53,788 $ 138,606 $ 126,939
========= ========= ========= ========= ========= =========
Discounted future net cash
flows before income taxes $ 88,577 $ 76,816 $ 56,441 $ 54,278 $ 145,018 $ 131,094
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Changes in Standardized Measure of Discounted Future Net Cash Flows (In Thousands)
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Sales, net of production costs $ (25,693) $ (26,906) $ (28,389)
Net change in sales price and production costs 19,675 1,538 (37,626)
Extensions, discoveries and other additions,
net of future production and development costs 15,089 9,034 7,137
Changes in estimated future development costs 2,457 5,967 5,854
Development costs incurred during the period that
reduced future development costs 166 250 661
Revisions of quantity estimates (16,095) 120 (19,296)
Accretion of discount 13,109 14,255 18,957
Net change in income taxes (2,257) 2,082 10,244
Purchases of reserves-in-place 670 176 21,835
Sales of reserves-in-place (1,080) (1,255) (8,666)
Changes in production rates (timing) and other 5,626 (14,639) (7,478)
--------- --------- ---------
Net increase (decrease) from beginning of year $ 11,667 $ (9,378) $ (36,767)
========= ========= =========
</TABLE>
CORPORATE INFORMATION
Common Stock
Wainoco's common stock is listed on the New York Stock Exchange and the
Alberta Stock Exchange under the symbol WOL. The quarterly high and low sales
prices as reported on the New York Stock Exchange, rounded to the nearest one-
eighth, are shown in the following table:
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1993
Fourth Quarter 5 1/2 3 1/2
Third Quarter 5 1/2 3 7/8
Second Quarter 5 7/8 4 1/4
First Quarter 5 1/4 3 5/8
1992
Fourth Quarter 4 3 1/8
Third Quarter 4 3/8 3 1/4
Second Quarter 4 1/4 3 1/8
First Quarter 5 1/4 3 1/8
</TABLE>
Wainoco has not paid dividends since 1982 and intends to continue following
a policy of retaining funds to provide for the expansion of its oil and gas
reserves. The number of holders of record for Wainoco Oil Corporation common
stock as of February 1, 1993 was 2,942.
Availability of Form 10-K
The Company's annual report on Form 10-K, which is filed with the
Securities and Exchange Commission is available upon request and may be obtained
by writing:
Michal King
Corporate Communications
Wainoco Oil Corporation
1200 Smith Street
Suite 2100
Houston, Texas 77002-4367
Auditors
Arthur Andersen & Co.
Houston, Texas
Counsel
Gardere & Wynne, L.L.P.
Houston, Texas
Burnet, Duckworth & Palmer
Calgary, Alberta
Registrars and Transfer Agents
Common Stock
Harris Trust and Savings Bank
Chicago, Illinois
12% Senior Notes
Bank One, Texas, N.A.
Houston, Texas
10 3/4% Subordinated Debentures
7 3/4% Convertible Subordinated Debentures
Texas Commerce Bank
Houston, Texas
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included or incorporated by reference in this Form 10-K, into
Wainoco Oil Corporation's previously filed Registration Statement File No. 33-
15598.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Houston, Texas
February 22, 1994
