<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
REGISTRATION NO. 333-30613
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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POGO PRODUCING COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 74-1659398
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
5 GREENWAY PLAZA, SUITE 2700 GERALD A. MORTON
HOUSTON, TEXAS 77046 VICE PRESIDENT -- LAW
(713) 297-5000 AND CORPORATE SECRETARY
(Address, including zip code, and telephone number, 5 GREENWAY PLAZA, SUITE 2700
including area code, of registrant's principal HOUSTON, TEXAS 77046
executive offices) (713) 297-5000
(Name, Address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
Copy to:
Stephen A. Massad
BAKER & BOTTS, L.L.P.
3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002
(713) 229-1234
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
POGO PRODUCING COMPANY
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
Form S-4 Item Number and Heading Location in Prospectus
-------------------------------- ----------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Front cover page
2. Inside Front and Outside Bank Cover Pages of Prospectus . . . . Inside front cover page;
"Available Information"; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information . . . . . . . . . . . . . . . . . . . . . . . . . . "Prospectus Summary"
4. Terms of the Transaction . . . . . . . . . . . . . . . . . . . "Prospectus Summary"; "The
Exchange Offer"; "Description of
the Notes"; "Exchange Offer;
Registration Rights"; "Certain
Federal Income Tax Consequences"
5. Pro Forma Financial Information . . . . . . . . . . . . . . . . Not applicable
6. Material Contacts with the Company Being Acquired . . . . . . . Not applicable
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters . . . . . . . . . . . . . . . Not applicable
8. Interests of Named Experts and Counsel . . . . . . . . . . . . "Legal Matters"
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . . . . . Not applicable
10. Information with Respect to S-3 Registrants . . . . . . . . . . "Incorporation of Certain
Documents by Reference";
"Prospectus Summary";
"Management's Discussion and
Analysis of Financial Condition
and Results of Operations";
"Business and Properties";
"Management and Board of
Directors"
11. Incorporation of Certain Information by Reference . . . . . . . "Incorporation of Certain
Documents by Reference"
12. Information with Respect to S-2 or S-3 Registrants . . . . . . Not applicable
13. Incorporation of Certain Information by Reference . . . . . . . Not applicable
14. Information with Respect to Registrants Other Than S-2 or S-3
Registrants . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
15. Information with Respect to S-3 Companies . . . . . . . . . . Not applicable
16. Information with Respect to S-2 or S-3 Companies . . . . . . . Not applicable
17. Information with Respect to Companies Other Than S-2 or S-3
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
18. Information if Proxies, Consents or Authorizations are to be
Solicited . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
19. Information if Proxies, Consents or Authorization are not to be
Solicited or in an Exchange Offer . . . . . . . . . . . . . . . "Incorporation of Certain
Documents by Reference",
"Management and Board of
Directors"
</TABLE>
(ii)
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated
August 28, 1997
PROSPECTUS
POGO PRODUCING COMPANY
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
($100,000,000 IN PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
_______________
Pogo Producing Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 8 3/4% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus constitutes a part (the
"Registration Statement"), for each $1,000 principal amount of its outstanding 8
3/4% Senior Subordinated Notes due 2007, Series A (the "Old Notes"), of which
$100,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Old Notes except for certain transfer restrictions and registration rights
relating to the Old Notes. The Exchange Notes will evidence the same debt as
the Old Notes and will be issued under and be entitled to the benefits of the
indenture under which the Old Notes were issued (the "Indenture"). The Exchange
Notes and the Old Notes are collectively referred to herein as the "Notes."
The Notes are general unsecured senior subordinated obligations of the
Company that are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture relating to the Notes) of the
Company including indebtedness under the Credit Agreement (as defined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"), pari passu in right of payment
with all future senior subordinated indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company.
The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be , 1997, unless the
Exchange Offer is extended. See "The Exchange Offer -- Expiration Date;
Extensions; Amendment." Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date (as defined in "The
Exchange Offer -- Expiration Date; Extensions; Amendments"), unless previously
accepted for exchange. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain conditions which may be waived by the Company and to
the terms and provisions of the registration rights agreement relating to the
Old Notes. Old Notes may be tendered only in denominations of $1,000 principal
amount and integral multiples thereof. The Company has agreed to pay the
expenses of the Exchange Offer. See "The Exchange Offer."
(cover continued on next page)
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_______________
The date of this Prospectus is , 1997.
<PAGE> 5
The Exchange Notes will bear interest at the rate of 8 3/4% per annum,
payable semi-annually on May 15 and November 15 of each year, commencing
November 15, 1997. Holders of Exchange Notes of record on November 1, 1997
will receive interest on November 15, 1997 from the date of issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Old Notes
from the date of issuance of the Old Notes, May 22, 1997, to the date of
exchange thereof. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes. The Notes are general unsecured
senior subordinated obligations of the Company that are subordinated in right of
payment to all existing and future Senior Indebtedness of the Company including
indebtedness under the Credit Agreement, pari passu in right of payment with all
future senior subordinated indebtedness of the Company and senior in right of
payment to all existing and future subordinated indebtedness of the Company. The
net proceeds of the sale of the Old Notes by the Company was used to repay
outstanding Senior Indebtedness of the Company. On June 30, 1997, the Company
had approximately $37 million of outstanding Senior Indebtedness, no
indebtedness that ranked pari passu with the Old Notes and $201.2 million
principal amount of indebtedness that ranked subordinated to the Old Notes.
The initial placement of the Old Notes by the Company on May 16, 1997
was consummated on May 22, 1997 by the sale and issuance of the Old Notes to
Merrill Lynch & Co. and Goldman, Sachs & Co. (together, the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon Section 4(2) of the Securities Act. The Old Notes were thereupon
offered and sold by the Initial Purchasers only to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) and to a limited
number of institutional "accredited investors" (as defined in Rule
501(a)(1),(2),(3) or (7) under the Securities Act), each of whom agreed to
comply with certain transfer restrictions and other conditions. Accordingly, the
Old Notes may not be offered, resold or otherwise transferred unless registered
under the Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of the Company under the
registration rights agreement entered into with the Initial Purchasers in
connection with the offering of the Old Notes (the "Registration Rights
Agreement"). See "Exchange Offer; Registration Rights."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Holders who
tender Old Notes in the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter
or similar no-action letters. See "The Exchange Offer -- General." Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will
make this Prospectus and any amendment or supplement to this Prospectus
available to any broker-dealer for use in connection with any such resale for a
period of up to 180 days after consummation of the Exchange Offer. See "Plan
of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the Exchange Notes or as to the ability of
or price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
The Initial Purchasers have informed the Company that they currently
2
<PAGE> 6
intend to make a market for the Exchange Notes. However, they are not so
obligated, and any such market making may be discontinued at any time without
notice. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of or the
trading market for the Exchange Notes.
Unless otherwise indicated, capitalized terms used herein that have
not been defined prior to their use are defined in "Description of the Notes --
Certain Definitions."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
--------------------------
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS
SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS AND PROPERTIES," IN ADDITION
TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE
"FORWARD-LOOKING STATEMENTS" AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS,
UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER "RISK FACTORS," BEGINNING
ON PAGE 14 OF THIS PROSPECTUS, AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," BEGINNING ON PAGE 30 OF THIS
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH
FACTORS.
3
<PAGE> 7
CERTAIN DEFINITIONS
As used in this Prospectus, "Mcf" means thousand cubic feet, "MMcf"
means million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel,
"MBbls" means thousand barrels and "MMBbls" means million barrels. "BOE" means
barrel of oil equivalent, "Mcfe" means thousand cubic feet equivalent, "MMcfe"
means million cubic feet equivalent and "Bcfe" means billion cubic feet
equivalent. Natural gas equivalents and crude oil equivalents are determined
using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate
or natural gas liquids. References to "$" and "dollar" shall, in each instance,
refer to United States dollars. All estimates of reserves contained herein are
set forth on a "net" basis, unless otherwise noted, whereas information
regarding production, acreage and numbers of well are set forth on a gross
basis, unless otherwise noted.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents
(File No. 1-7792) (collectively, the "Reports"):
(a) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (the "Annual Report");
(b) The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997; and
(c) All other documents filed by the Company pursuant to
Section 13(a), 13(c) 14 or 15(d) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act") subsequent to the date hereof
and prior to the termination of the offering made hereby.
Any statement contained herein or in a document or Report, all or a
portion of which is incorporated by or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus, including the Reports and documents incorporated or deemed to be
incorporated herein by reference, as the same may be amended, supplemented or
otherwise modified from time to time. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document, copies of which are available from the Company as
described below, each such statement being qualified in all respects by such
reference.
This Prospectus incorporates Reports and documents by reference which
are not presented herein or delivered herewith. The Company will furnish
without charge to each person to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any and
all of the Reports and documents referred to above which are incorporated in
this Prospectus by reference, other than exhibits to such Reports and documents
(unless such exhibits are specifically incorporated by reference into such
Reports or documents). Such requests for Reports and documents should be
directed to Pogo Producing Company, 5 Greenway Plaza, Suite 2700, Houston,
Texas 77046-0504, Attention: Corporate Secretary, telephone number (713)
297-5017. In order to ensure timely delivery of such documents prior to the
Expiration Date, any request should be made by , 1997.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus or incorporated by
reference herein. Prospective investors should consider carefully the
information set forth in this Prospectus under the heading "Risk Factors". This
Prospectus contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors".
THE COMPANY
Pogo Producing Company (the "Company") is an independent oil and gas
exploration and production company, based in Houston, Texas. Incorporated in
1970, the Company has, in recent years, established a record of increasing its
proven hydrocarbon reserves, principally through the exploration, exploitation
and development of its properties and the selective acquisition of additional
interests in producing properties in which the Company already has an interest.
As a reflection of this historical success, in 1992, 1993, 1994, 1995 and 1996,
the Company replaced 143%, 204%, 153%, 305%, and 187%, respectively, of that
year's total production of proven hydrocarbon reserves. Through a portfolio of
domestic and international properties, the Company concentrates its efforts on a
mix of both offshore and onshore opportunities which provide a balanced exposure
to oil and natural gas production. In recent years, the Company has concentrated
its efforts in selected areas where it believes that its expertise, competitive
acreage position, or ability to quickly take advantage of new opportunities
offer the possibility of relatively high rates of return. Domestically, the
Company has an extensive Gulf of Mexico reserve and acreage position and is also
active in the Permian Basin of southeast New Mexico and west Texas and in other
selected areas of Texas and Louisiana. Internationally, the Company, through its
subsidiary Thaipo Limited ("Thaipo"), is the operator of the Block B8/32
concession license in the Gulf of Thailand (the "Thailand Concession").
As of December 31, 1996, the Company had estimated net worldwide
proven reserves of 360.9 Bcf of natural gas and 49.6 MMBbls of crude oil, or
approximately 658.6 Bcfe, of which 64% were classified proved developed.
Natural gas accounted for 55% of total net proved reserves at December 31,
1996, and 57% of 1996 production. Based on December 31, 1996, prices of $3.65
per Mcf for natural gas production and $24.14 per Bbl for oil and condensate
production, the discounted future net cash flow before income taxes
attributable to the Company's net proved reserves as of December 31, 1996, was
$954.5 million. The Company has maintained its successful drilling record over
the last five years, having participated in drilling 426 gross wells, of which
386 were completed as producers. During this period, net proved reserves, as
estimated by Ryder Scott Petroleum Engineers ("Ryder Scott") more than doubled,
increasing 109% from December 31, 1991 to December 31, 1996.
STRENGTHS
The Company believes it is well positioned to continue to build upon
its historical success by capitalizing on its strengths, including the
following:
o Diversified Portfolio of Core Properties. The Company benefits from a
portfolio of existing properties which provide geographic
diversification while being of sufficient size and potential to enable
the Company to concentrate its resources and regional expertise. As of
January 1, 1997, seven distinct operating areas in four geographic
regions accounted for approximately 90% of the Company's estimated
proved natural gas reserves and approximately 93% of its proved oil,
condensate and natural gas liquids reserves, and were the principal
areas where the Company achieved the historical reserve replacement
record discussed above. The nature of the Company's existing
properties permit it to maintain a focused exploration and development
program by utilizing the substantial geological and operating
expertise it has gained over years of participation in these areas, as
well as providing a base from which to evaluate new opportunities with
similar characteristics. The Company utilized its offshore expertise
gained primarily in the Gulf of Mexico to develop its Thailand
Concession, which currently represents a substantial portion of the
Company's total reserves and a growing portion of its total
production. Since the Thailand Concession was granted in August 1991,
the Company has discovered 273 Bcfe of proven reserves (as of December
31, 1996) on this acreage net to its interest. Production from the
Tantawan Field, located on a portion of the Thailand Concession
commenced in February, 1997. Production from the Tantawan Field
averaged 84.2 MMcf of natural gas per day and 5,162 Bbls of crude oil
and condensate per day (39 MMcf per day and 2,392 Bbls per day net
to the Company's working interest) during the second quarter of 1997.
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<PAGE> 9
o Significant Further Potential. The Company believes that its existing
properties continue to hold significant further potential for the
discovery of additional reserves. In addition to capital expenditures
for platforms, equipment, workovers, recompletions and certain land
and lease acquisition costs, the Company has budgeted approximately
$111 million to participate in drilling approximately 148 gross
exploration and development wells during 1997 on its existing
properties.
o Balanced Risk Profile; Prudent Exposure to Higher Return
Opportunities. The Company seeks to manage its risk exposure by
maintaining a prudent level of participation in its projects. The
Company seeks to operate certain of its properties, particularly where
it believes that its working interest percentage, expertise or ability
to control the timing or cost of a project provides a competitive
advantage to it and its partners. The Company is currently the operator
on all or a portion of 30 of the 97 offshore blocks in which it holds
an interest. The Company is also the operator of a majority of its
domestic onshore wells; and, through its subsidiary Thaipo, is the
operator of its Thailand Concession. In instances where the Company is
not the operator, it seeks to have a meaningful working interest in its
projects so that it can influence decisions regarding their development
and operations. Generally, the Company seeks a higher level of
participation in projects which it views as having a potentially high
rate of return and which have lower anticipated exploration and
development costs, such as its operations in southeastern New Mexico
and West Texas, while it seeks a lower level of participation where
drilling or development costs may be disproportionately high, such as
wells in intermediate water depths (400 to 1,200 feet) in the Gulf of
Mexico or wells that are unusually deep or are considered highly risky.
o Technical Expertise. The Company has an experienced staff of engineers
and geoscientists that comprises over 40% of the Company's total
full-time personnel. The experience of its personnel, augmented by
data from over 426 gross wells drilled over the past five years, more
than 3,500,000 acres of 3-D seismic data and 500,000 miles of 2-D
seismic data, create a knowledge base which the Company utilizes in
establishing its drilling priorities and associated capital budget.
o Strong Financial Position. The Company endeavors to maintain both a
low financial risk profile and sufficient capital resources to augment
internally generated cash flow where necessary to satisfy its capital
budget requirements.
BUSINESS STRATEGY
The Company's business strategy is to maximize profitability and
shareholder value by (i) increasing hydrocarbon production levels, leading to
increased revenues, cash flow and earnings, (ii) replacing and expanding its
proven hydrocarbon reserves base, (iii) maintaining appropriate levels of debt
and interest, and controlling overhead and operating costs and (iv) expanding
exploration and production activities into new and promising geographic areas
consistent with Company expertise.
To implement its business strategy, the Company currently is
principally focused in the following four geographic areas:
DOMESTIC
Gulf of Mexico. As of December 31, 1996, approximately 38% of the
Company's total net proved oil and gas equivalent reserves and approximately
66% of the Company's domestic net proved oil and gas equivalent reserves are
located in the Gulf of Mexico, where the Company has been exploring for oil and
gas for over 27 years. Most of these proved reserves are concentrated in four
significant producing areas, including eight fields in the Eugene Island area
located off the Louisiana coast. This concentration allows the Company to
closely manage costs and to develop detailed geologic and other information
relating to its properties. The Company believes that the Gulf of Mexico will
continue to provide the Company with substantial opportunities to expand its
hydrocarbon reserves and increase its deliverability by utilizing its extensive
inventory of 3-D seismic data (covering the equivalent of 550 federal Gulf of
Mexico lease blocks) to locate low risk exploration and development projects,
and by using advanced drilling technology, including horizontal drilling, to
accelerate development of these projects. As operator of its newly constructed
East Cameron Block 334 "E" platform, the Company recently used advanced
drilling and completion technology to drill and complete two deep, high
pressure wells that added significant new reserves in 1996 and which commenced
production in April, 1997. As of April 17, 1997, production from this new field
was approximately 145 MMcf of natural gas per day and
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<PAGE> 10
approximately 5,000 Bbls of crude oil and condensate per day (approximately
84.5 MMcf per day and approximately 2,900 Bbls per day net to the Company's
working interest).
Permian Basin. As of December 31, 1996, approximately 12% of the
Company's total net proved oil and gas equivalent reserves, and approximately
21% of the Company's domestic net proved oil and gas equivalent reserves are
located in the Permian Basin where the Company has been exploring for oil and
gas for over 19 years. According to the most recent annual figures published by
the State of New Mexico, the Company is recognized as the ninth largest
producer of crude oil in the state. The Company believes that it continues to
be one of the most active companies drilling for oil and gas in the
southeastern New Mexico portion of the Permian Basin, where it has interests in
over 75,000 gross acres. The Company's primary drilling objective in this
region is the Brushy Canyon (Delaware) formation, which produces oil at depths
of approximately 6,000 to 9,000 feet. Commencing in late 1989 and continuing
through March 31, 1997, the Company and its partners have drilled 315 wells in
the Permian Basin, West and Northwest Texas areas, 97% of which were completed
as productive. The Company has achieved rapid cost recovery with respect to its
Permian Basin wells drilled to date because of relatively low capital costs and
high initial rates of production. Due to its historic drilling success, its
current undeveloped acreage position and its significant budgetary commitment
to additional drilling, the Company expects its Permian Basin operations to
continue to be a source of significant oil production.
Onshore Gulf Coast Region. The Company has maintained an active
presence in the Onshore Gulf Coast region for over 19 years. Recently, the
Company has committed considerable resources to increasing its presence in
promising areas where it believes its technological expertise, acreage position
and comparatively low operating costs provide a competitive advantage.
Commencing in 1995, the Company has participated in seven proprietary 3-D
seismic surveys in the Onshore Gulf Coast region. Over sixteen prospects
developed from these surveys are currently budgeted for exploration or
appraisal drilling during 1997. During 1996, the Company participated in the
drilling of seven new wells in the Lopeno Field located in South Texas. The
Company and its partners currently plan to drill an additional seven wells in
this field during 1997. Successful development drilling in the Lopeno Field and
elsewhere in the Gulf Coast Region enabled the Company to double its proven
reserves in this region during 1996 from approximately 25 Bcfe as of December
31, 1995 to approximately 50 Bcfe as of December 31, 1996.
INTERNATIONAL
Gulf of Thailand. In August 1991, the Company and its joint venture
partners were awarded a license to explore for oil and gas on the Thailand
Concession. Through March 31, 1997, the Company and its joint venture partners,
Thai Romo Limited and Sophon Thai Gulf Limited, have participated in drilling 51
exploratory and development wells on the Thailand Concession and acquired 3-D
seismic surveys covering approximately 452,000 acres of the Thailand Concession.
Significant oil and gas reserves have been discovered on several areas on the
Thailand Concession and accounted, at December 31, 1996, for approximately 41%
of the Company's total net proved oil and gas equivalent reserves.
The first area of the Thailand Concession to be developed is
approximately 68,000 acres in size and has been named the Tantawan Field.
Production from the Tantawan Field commenced in early February, 1997, and
averaged 84.2 MMcf of natural gas per day and 5,162 Bbls of crude oil and
condensate per day (39 MMcf per day and 2,392 Bbls per day net to the Company's
working interest) during the second quarter of 1997. Exploration and
development efforts are also being conducted on portions of the Thailand
Concession outside the Tantawan Field. In June 1997, the government of Thailand
notified the Company that it had designated approximately 101,000 acres
comprising the Benchamas and Pakakrong Fields as a production area. Preliminary
planning for the development of these fields has already commenced. In
addition, in July 1997, Thaipo and its joint venture partners formally
requested that the government of Thailand designate the Maliwan area as a
production area. The government is currently considering the request. Thaipo
and its joint venture partners have also identified other potentially promising
areas on the Thailand Concession. Since acquiring their interest in the
Thailand Concession, Thaipo and its joint venture partners have acquired 3-D
seismic surveys covering approximately 452,000 acres of the Thailand Concession
and currently plan to acquire an additional 235,000 acres of 3-D seismic data
over other prospective portions of the Thailand Concession during 1997 while
continuing to develop the Tantawan Field and to carry out an active exploration
drilling program.
While continuing the development of the Thailand Concession, the
Company intends to pursue a strategy of evaluating potentially high return
prospects in other areas of the world with a relatively stable political and
financial climate, such as certain European and ASEAN ("Association of Southeast
Asian Nations") countries.
7
<PAGE> 11
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were issued by the Company on May 22, 1997 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only
to certain qualified buyers. The net proceeds received by the Company in
connection with the sale of the Old Notes were used to repay a portion of the
Company's then outstanding Senior Indebtedness. See "Private Placement" and
"Capitalization."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $100,000,000
principal amount of Exchange Notes for up to $100,000,000 principal amount of
Old Notes. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Old Notes except that the
Exchange Notes have been registered under the Securities Act and will not
contain certain transfer restrictions and hence are not entitled to the
benefits of the Registration Rights Agreement relating to the contingent
increases in the interest rate provided for pursuant thereto. The Exchange
Notes will evidence the same debt as the Old Notes and will be issued under and
be entitled to the benefits of the Indenture governing the Old Notes. See
"Description of the Notes."
The Exchange Offer . . . . . . . . . . . . Each $1,000 principal amount of
Exchange Notes will be issued in
exchange for each $1,000
principal amount of outstanding
Old Notes. As of the date
hereof, $100,000,000 principal
amount of Old Notes are issued
and outstanding. The Company
will issue the Exchange Notes to
tendering holders of Old Notes
on or promptly after the
Expiration Date.
Resale . . . . . . . . . . . . . . . . . . The Company believes that the
Exchange Notes issued pursuant
to the Exchange Offer generally
will be freely transferable by
the holders thereof without
registration or any prospectus
delivery requirement under the
Securities Act, except for
certain Restricted Holders who
may be required to deliver
copies of this Prospectus in
connection with any resale of
the Exchange Notes issued in
exchange for such Old Notes.
See "The Exchange Offer --
General" and "Plan of
Distribution."
Expiration Date . . . . . . . . . . . . . . 5:00 p.m., New York City time, on
1997, unless the Exchange Offer
is extended, in which case the
term "Expiration Date" means the
latest date to which the
Exchange Offer is extended. See
"The Exchange Offer--Expiration
Date; Extensions; Amendments."
Interest on the Notes . . . . . . . . . . . The Exchange Notes will bear
interest payable semi-annually
on May 15 and November 15 of
each year, commencing November
15, 1997. Holders of Exchange
Notes of record on November 1,
1997, will receive interest on
November 15, 1997 from the date
of issuance of the Exchange
Notes, plus an amount equal to
the accrued interest on the Old
Notes from the date of issuance
of the Old Notes, May 22, 1997,
to the date of exchange thereof.
Consequently, assuming the
Exchange Offer is consummated
prior to the record date in
respect of the November 15,
1997, interest payment for the
Old Notes, holders who exchange
their Old Notes for Exchange
Notes will receive the same
interest payment on November 15,
1997, that they would have
received had they not accepted
the Exchange Offer. Interest on
the Old Notes accepted for
exchange will cease to accrue
upon issuance of the Exchange
Notes. See "The Exchange Offer
-- Interest on the Exchange
Notes."
Procedures for Tendering Old Notes . . . . Each holder of Old Notes wishing
to accept the Exchange Offer
must complete, sign and date the
Letter of Transmittal, or a
facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
or an Agent's Message (as
defined in "The Exchange
8
<PAGE> 12
Offer -- Procedures for
Tendering") together
with the Old Notes to be
exchanged and any other
required documentation
to the Exchange Agent at the
address set forth herein and
therein or effect a tender of
Old Notes pursuant to the
procedures for book-entry
transfer as provided for herein.
See "The Exchange Offer --
Procedures for Tendering."
Special Procedures for Beneficial
Holders . . . . . . . . . . . . . . . . . . Any beneficial holder whose Old
Notes are registered in the name
of a broker, dealer, commercial
bank, trust company or other
nominee and who wishes to tender
in the Exchange Offer should
contact such registered holder
promptly and instruct such
registered holder to tender on
the beneficial holder's behalf.
If such beneficial holder wishes
to tender directly, such
beneficial holder must, prior to
completing and executing the
Letter of Transmittal and
delivering the Old Notes, either
make appropriate arrangements to
register ownership of the Old
Notes in such holder's name or
obtain a properly completed bond
power from the registered
holder. The transfer of record
ownership may take considerable
time. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery Procedures . . . . . . Holders of Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes and a properly
completed Letter of Transmittal
or any other documents required
by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date, or who cannot
complete the procedure for
book-entry transfer on a timely
basis and deliver an Agent's
Message, may tender their Old
Notes according to the
guaranteed delivery procedures
set forth in "The Exchange Offer
-- Guaranteed Delivery
Procedures."
Withdrawal Rights . . . . . . . . . . . . . Tenders of Old Notes may be
withdrawn at any time prior to
5:00 p.m., New York City time,
on the Expiration Date, unless
previously accepted for
exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
Termination of the Exchange Offer . . . . . The Company may terminate the
Exchange Offer if it determines
that the Exchange Offer violates
any applicable law or
interpretation of the staff of
the SEC. Holders of Old Notes
will have certain rights against
the Company under the
Registration Rights Agreement
should the Company fail to
consummate the Exchange Offer.
See "The Exchange Offer --
Termination" and "Description of
the Notes -- Registration
Rights; Liquidated Damages."
Acceptance of Old Notes and
Delivery of Exchange Notes . . . . . . . . Subject to certain conditions
(as summarized above in
"Termination of the Exchange
Offer" and described more fully
in "The Exchange Offer --
Termination"), the Company will
accept for exchange any and all
Old Notes which are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York
City time, on the Expiration
Date. The Exchange Notes issued
pursuant to the Exchange Offer
will be delivered promptly
following the Expiration Date.
See "The Exchange Offer --
General."
Exchange Agent . . . . . . . . . . . . . . State Street Bank & Trust
Company is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange
Offer. The mailing address of
the Exchange Agent is:
State Street Bank & Trust
Company, Corporate Trust
Department, P.O. Box 778,
Boston, Massachusetts
02102-0078. Hand deliveries and
deliveries by overnight courier
should be addressed to State
Street Bank & Trust
9
<PAGE> 13
Company, Corporate Trust
Department, 4th Floor, Two
International Place, Boston
Massachusetts 02110. For
information with respect to the
Exchange Offer, the telephone
number for the Exchange Agent is
(617) 664-5314 and the facsimile
number for the Exchange Agent is
(617) 664-5739. See "The Exchange
Offer -- Exchange Agent."
Use of Proceeds . . . . . . . . . . . . . . There will be no cash proceeds
payable to the Company from the
issuance of the Exchange Notes
pursuant to the Exchange Offer.
See "Use of Proceeds." For a
discussion of the use of the net
proceeds received by the Company
from the sale of the Old Notes,
see "Private Placement."
SUMMARY TERMS OF THE NOTES
Defined terms used in this Summary Terms of the Notes which are not
defined herein are defined in "Description of the Notes -- Certain Definitions."
Notes Outstanding . . . . . . . . . . . . . . $100,000,000 aggregate principal
amount of 8 3/4% Senior
Subordinated Notes due 2007.
Maturity Date . . . . . . . . . . . . . . . . May 15, 2007.
Interest Payment Dates . . . . . . . . . . . May 15 and November 15 of each
year, commencing November 15,
1997.
Optional Redemption . . . . . . . . . . . . . The Notes are redeemable at the
option of the Company, in whole
or in part, at any time on or
after May 15, 2002, at the
redemption prices set forth
herein, together with accrued
and unpaid interest, if any, to
the date of redemption. See
"Description of the Notes --
Redemption; Optional Redemption."
Change of Control . . . . . . . . . . . . . . Upon the occurrence of a Change
of Control, each Holder may
require the Company to purchase
all or a portion of such
Holder's Notes at a purchase
price equal to 101% of the
principal amount thereof,
together with accrued and unpaid
interest, if any, to the date of
purchase. There can be no
assurance that the Company will
be able to repurchase the Notes
if a Change of Control should
occur. See "Description of the
Notes -- Certain Covenants;
Change of Control."
Ranking . . . . . . . . . . . . . . . . . . . The Notes are general unsecured
senior subordinated obligations
of the Company that are
subordinated in right of payment
to all existing and future Senior
Indebtedness of the Company, pari
passu with all future senior
subordinated indebtedness of the
Company and senior in right of
payment to all existing and
future subordinated indebtedness
of the Company. On June 30,
1997, the Company had
approximately $37 million of
outstanding Senior Indebtedness,
no indebtedness that ranked pari
passu with the Old Notes and
$201.2 million principal amount
of indebtedness that ranked
subordinated to the Old Notes.
Subject to certain limitations
set forth in the Indenture, the
Company and its Subsidiaries
may incur additional
indebtedness. See
"Capitalization," "Description
of the Notes" and "Management's
Discussion and Analysis of
Financial Condition and Results
of Operations -- Liquidity and
Capital Resources."
10
<PAGE> 14
Certain Covenants . . . . . . . . . . . . . . The Indenture contains certain
covenants, including, without
limitation, covenants with
respect to the following
matters: (i) limitation on
indebtedness; (ii) limitation
on restricted payments; (iii)
limitation on issuances and sales
of Restricted Subsidiary
capital stock; (iv) limitation
on transactions with
affiliates; (v) limitation on
liens; (vi) limitation on
disposition of proceeds of asset
sales; (vii) limitation on
non-guarantor Restricted
Subsidiaries; (viii) limitation
on dividends and other payment
restrictions affecting Restricted
Subsidiaries; (ix) limitation on
other senior subordinated
indebtedness; and (x) limitation
on merger, consolidation and sale
of assets. See "Description of
the Notes -- Certain Covenants."
Possible Subsidiary Guarantees. . . . . . . . In the event that certain of the
Company's existing or future
Restricted Subsidiaries issue or
guarantee certain indebtedness,
they will be required by the
terms of the Indenture to jointly
and severally guarantee the Notes
on a senior subordinated basis
(the "Subsidiary Guarantees"). At
the date hereof, no Subsidiary of
the Company has issued or is
required to issue a Subsidiary
Guarantee and the Company does
not intend to cause any
Subsidiary to take any action
that would require it to issue
any Subsidiary Guarantee. Any
Subsidiary Guarantees that may be
issued will be limited to the
extent of any payment that would
not constitute a fraudulent
transfer or conveyance under
federal or state law. See "Risk
Factors -- Fraudulent Conveyance
Considerations Relating to Future
Subsidiary Guarantees" and
"Description of the Notes --
Possible Subsidiary Guarantees of
the Notes."
Use of Proceeds . . . . . . . . . . . . . . . The net proceeds to the Company
from the offering of the Old
Notes were used to repay a
portion of the Company's
outstanding Senior Indebtedness.
See "Capitalization."
Exchange Offer;
Registration Rights . . . . . . . . . . . . . Pursuant to the Registration
Rights Agreement relating to
the Old Notes, the Company
agreed to use its reasonable
best efforts to (1) file with the
Securities and Exchange
Commission (the "Commission") a
registration statement (the
"Exchange Offer Registration
Statement") with respect to an
offer to exchange the Old Notes
(the "Exchange Offer") for notes
of the Company having
substantially identical terms as
the Old Notes (the "New Notes")
(except that the New Notes will
not contain terms with respect to
transfer restrictions or interest
rate increases) not later than
July 6, 1997, (2) cause the
Exchange Offer Registration
Statement to become effective not
later than September 4, 1997 and
(3) cause the Exchange Offer to
be consummated not later than
November 18, 1997. The
Registration Statement of which
this Prospectus forms a part
constitutes such Exchange Offer
Registration Statement. In
certain circumstances, the
Company will file a shelf
registration statement (a "Shelf
Registration Statement") with
respect to the Old Notes in lieu
of effecting the Exchange Offer.
Absence of a Public
Market for the Exchange Notes . . . . . . . . The Exchange Notes will be a new
issue of securities for which
there is currently no market.
Although the Initial Purchasers
have informed the Company that
they each currently intend to
make a market in the Exchange
Notes, they are not obligated to
do so, and any such market making
may be discontinued at any time
without notice. Accordingly,
there can be no assurance as to
the development or liquidity of
any market for the Exchange
Notes.
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain
factors that should be considered by prospective investors in evaluating an
investment in the Notes.
11
<PAGE> 15
SUMMARY FINANCIAL DATA
The Summary Financial Data presented below as of, and for each of the
years in the five-year period ended, December 31, 1996, are derived from the
consolidated financial statements of the Company and its subsidiaries, which are
incorporated by reference herein and which have been audited by independent
public accountants. The financial data as of, and for the six month periods
ended, June 30, 1996 and 1997, are derived from the Company's unaudited
financial statements which, in the opinion of management, include all
adjustments (which consist only of normal recurring adjustments) necessary for
the fair presentation of the financial position and results of operations of the
Company for such interim periods. This data should be read in conjunction with
the consolidated financial statements and related notes thereto incorporated by
reference herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein and in the
Reports.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(Expressed in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues .......................... $ 140,830 $ 139,554 $ 173,608 $ 157,559 $ 203,977 $ 99,595 $ 138,054
Operating income ........................ 47,141 50,533 52,203 23,428 61,108 27,211 40,772
Net interest expense(a) ................. 18,645 10,505 9,365 9,333 8,959 4,354 7,201
Net income .............................. 18,495 25,061 27,067 9,230 32,760 14,381 21,922
EARNINGS PER SHARE:
Primary ......................... $ 0.66 $ 0.76 $ 0.81 $ 0.28 $ 0.96 $ 0.42 $ 0.64
Fully diluted ................... $ 0.66 $ 0.76 $ 0.81 $ 0.28 $ 0.94 $ 0.42 $ 0.62
OTHER FINANCIAL DATA:
Cash flows from operating activities .... $ 67,711 $ 83,144 $ 99,273 $ 96,333 $ 92,898 $ 44,360 $ 73,807
Cash flows from investing activities .... (35,211) (59,640) (117,901) (108,224) (171,932) (63,989) (141,134)
Cash flows from financial activities .... (32,705) (21,828) 14,837 13,450 77,584 33,960 87,981
Capital and exploration expenditures
(excluding interest capitalized) ... 41,300 74,600 120,800 110,400 206,200 55,800 113,200
SELECTED RATIOS:
Ratio of earnings to fixed
charges(b) ............................ 2.5x 4.5x 5.1x 2.1x 4.6x 4.3x 4.1x
Long-term obligations/Total
proved reserves(BOE)(c) ............... $ 2.52 $ 1.95 $ 2.01 $ 1.63 $ 2.24 n/a n/a
PRO FORMA NET INCOME AND
SELECTED RATIOS:
Proforma net income ..................... -- -- -- -- $ 30,958 -- $ 21,736
Pro forma ratio of earnings to
fixed charges ......................... -- -- -- -- 3.3x -- 3.9x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................................................................. $585,022
Long-term obligations, including current portion.......................................................... 338,205
Shareholders' equity...................................................................................... 128,613
</TABLE>
- ----------
(a) Net interest expense represents interest charges net of interest
capitalized of $391,000 in 1992, $451,000 in 1993, $739,000 in 1994,
$1,834,000 in 1995, $4,244,000 in 1996, $1,830,000 in the six months
ended June 30, 1996, and $2,630,000 in the six months ended June 30,
1997.
(b) Pre-tax earnings plus total interest charges, including amortization of
debt issue expenses, divided by total interest charges, including
amortization of debt issue expenses. Pro forma after giving effect to
the sale of the Old Notes by the Company and the use of proceeds
therefrom the ratios of earnings to fixed charges for the year ended
December 31, 1996, and the six months ended June 30, 1997, would have
been 3.3x and 3.9x respectively based on pro forma net income for the
year ended December 31, 1996 and the six months ended June 30, 1997 of
$30,958,000 and $21,736,000, respectively.
(c) Long-term obligations include long-term debt and the non-current
portion of the Eugene Island 330 Production Payment obligation until
such obligation was satisfied in 1993. This ratio cannot be calculated
for the interim periods because reserve data is only available as of
year end.
12
<PAGE> 16
SUMMARY RESERVE AND OPERATING DATA
The Summary Reserve and Operating Data presented below under the
captions "Production (Sales) Data" as of, and for each of the years in the
five-year period ended, December 31, 1996, and for the six month periods ended
June 30, 1996 and 1997, is unaudited and should be read in conjunction with the
consolidated financial statements and related notes thereto which are
incorporated by reference herein and "Business and Properties -- Exploration and
Production Data; Production and Sales" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The reserve information
presented under the caption "Reserve Data" as of, and for each of the years in
the five-year period ended, December 31, 1996 has been derived from the summary
reserve report prepared by Ryder Scott and attached as an exhibit to the Annual
Report on Form 10-K filed with the Commission for each of the years presented
and should be read in conjunction with the notes to Company's consolidated
financial statements which are incorporated by reference herein and "Business
and Properties -- Exploration and Production Data; Reserves" included elsewhere
herein. The data included in the Reports are incorporated in this Prospectus by
reference.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
Production (Sales) Data:
Net daily average and weighted
average price:
Natural gas:
Mcf per day................... 105,200 91,700 144,800 121,000 107,700 108,900 173,500
Price per Mcf................. $1.75 $1.98 $1.88 $1.63 $2.40 $2.36 $2.34
Crude oil and condensate:
Bbls per day.................. 8,699 9,851 11,100 11,786 11,968 12,247 15,187
Price per Bbl................. $20.17 $17.81 $16.08 $17.80 $22.12 $21.14 $20.14
Natural gas liquids ("NGL"):
Bbls per day.................. 1,181 1,678 2,222 1,998 2,173 2,228 2,935
Price per Bbl................. $13.50 $11.90 $11.33 $11.10 $14.92 $13.31 $12.92
Reserve Data (a):
Estimated proved reserves
Crude oil, condensate and
natural gas liquids (MBbls)..... 22,556 28,268 33,862 45,182 49,602 -- --
Natural gas (MMcf).............. 207,068 232,866 242,890 328,061 360,944 -- --
Natural gas equivalents
(MMcfe)....................... 342,404 402,474 446,062 599,153 658,566 -- --
Estimated future net revenues
before income taxes, discounted
at 10%(b)(c).................... $405,101 $403,840 $382,980 $532,475 $954,545 -- --
Estimated future net revenues
after income taxes, discounted
at 10%(b)...................... $307,657 $300,260 $290,069 $377,145 $686,040 -- --
</TABLE>
- ----------
(a) Proved reserves were estimated in accordance with Commission
guidelines using oil and gas prices and production and development
costs as of December 31 of each such year.
(b) These values were estimated in accordance with Commission guidelines.
See "Business and Properties -- Exploration and Production Data;
Reserves."
(c) Based on assumed Company-wide flat prices of $20.00 per barrel for oil
and condensate and $2.00 per Mcf for gas, the Company's reservoir
engineers estimate that the present value of future net revenues
before income taxes, discounted at 10%, of the Company's proved
reserves would have been approximately $553 million at December 31,
1996. This calculation represents an internal Company estimate, is
presented for information purposes and has not been calculated
entirely in accordance with Commission guidelines.
13
<PAGE> 17
RISK FACTORS
In addition to the other information included elsewhere in this
Prospectus, the following risk factors should be carefully considered in
evaluating an investment in the Exchange Notes offered hereby. This Prospectus
contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act, which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
this section.
VOLATILITY OF OIL AND GAS MARKETS
The Company's profitability and cash flow are highly dependent upon
the prices of oil and natural gas, which historically have been seasonal,
cyclical and volatile. In general, prices of oil and gas are dependent upon
numerous factors beyond the control of the Company, including various weather,
economic, political and regulatory conditions. During 1996, the average prices
that the Company received for its crude oil, condensate and natural gas
production were substantially higher than they have been in recent years. In
the first half of 1997, the average prices that the Company received for its
production were less than those the Company received in 1996. See "Selected
Reserve and Operating Data." In the past, when natural gas prices in the United
States were lower than they are currently, the Company at times elected to
curtail certain quantities of its production. Should natural gas prices fall
further in the future, the Company may again elect to curtail certain quantities
of its natural gas production. Any significant decline in oil or gas prices
could have a material adverse effect on the Company's operations and financial
condition and could, under certain circumstances, result in a reduction in funds
available under the Company's Credit Agreement.
Because it is impossible to predict future oil and gas price movements
with any certainty, the Company from time to time enters into contracts on a
portion of its production to hedge against the volatility in oil and gas
prices. Such hedging transactions, historically, have never exceeded 50% of
the Company's total oil and gas production on an energy equivalent basis for
any given period. While intended to limit the negative effect of further price
declines, such transactions could effectively limit the Company's participation
in price increases for the covered period, which increases could be
significant. Furthermore, no assurance can be given that such transactions will
reduce risk or mitigate the effect of any substantial declines in oil and gas
prices. As of August 1, 1997, the Company was not a party to any natural gas
futures contracts or crude oil swap agreements. See "Business and Properties --
Miscellaneous; Competition and Market Conditions" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations."
UNCERTAINTIES INHERENT IN ESTIMATES OF RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties in estimating the quantity of proved
reserves and in projecting the future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized as
a subjective process of estimating underground accumulations of oil and gas
that cannot be measured in an exact way, and estimates of other engineers might
differ materially from those of Ryder Scott, the Company's reserve engineers.
The accuracy of any reserve estimate is a function of the quality of available
data and of engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate may
justify revision of such estimate, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered. In addition, estimates of the Company's
future net revenues from proved reserves and the present value thereof are
based on certain assumptions regarding future oil and gas prices, production
levels and operating and development costs that may not prove to be correct.
Any significant variance in these assumptions could materially affect the
estimates of reserves and future net revenues therefrom set forth in the
Reports. See "Business and Properties -- Exploration and Production Data;
Reserves."
OPERATING AND UNINSURED RISKS
The Company must continually acquire or explore for and develop new
oil and natural gas reserves to replace those produced and sold. Without
successful drilling, acquisition or exploration operations, the Company's
hydrocarbon reserves and revenues would decline. Although the Company has
historically maintained its reserves base primarily through successful
exploration and development operations, there can be no assurance that future
efforts will be similarly successful. The Company's operations are also subject
to risks inherent in the exploration for and production of oil and natural gas,
such as blowouts, cratering, explosions, uncontrollable flows of oil, natural
gas or well fluids, fires, pollution and other environmental risks. Offshore
oil and gas operations are subject to the additional hazards of marine and
helicopter operations, such as capsizing, collision and adverse weather and sea
conditions. These hazards
14
<PAGE> 18
could result in substantial losses to the Company due to injury or loss of
life, severe damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. The Company carries
insurance which it believes is in accordance with customary industry practices,
but is not fully insured against all risks incident to its business.
Drilling activities are subject to numerous risks, including the risk
that no commercially productive hydrocarbon reserves will be encountered. The
cost of drilling, completing and operating wells and of installing production
facilities and pipelines is often uncertain. The Company's drilling operations
may be curtailed, delayed or canceled as a result of numerous factors,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery or availability of
equipment or fabrication yards. The availability of a ready market for the
Company's natural gas production depends on a number of factors, including the
demand for and supply of natural gas, the proximity of natural gas reserves to
pipelines, the available capacity of such pipelines and government regulations.
The marketing of offshore oil and gas production is subject to the availability
of pipelines and other transportation, processing and refining facilities, as
well as the existence of adequate markets. As a result, even if hydrocarbons
are discovered in commercial quantities, a substantial period of time may
elapse before commercial production commences. If pipeline facilities in an
area are insufficient, the Company may have to await the construction or
expansion of pipeline capacity before production from that area can be
marketed. The marketing of domestic onshore oil and gas production is also
subject to the availability of pipelines, crude oil hauling and other
transportation, processing and refining facilities as well as the existence of
adequate markets. See "Business and Properties -- Miscellaneous; Operating and
Uninsured Risks", "Business and Properties -- Miscellaneous; Sales" and "--
Additional Risks Related to the Company's Operations in the Kingdom of
Thailand."
AVAILABILITY OF EQUIPMENT AND PERSONNEL
The recent increase in drilling activity throughout the world has
increased the demand for drilling rigs, drilling vessels, supply boats and
personnel experienced in the oil and gas industry in general, and the offshore
oil and gas industry in particular. The Company has recently experienced
difficulty and delays in consistently obtaining certain services and equipment
from vendors, obtaining drilling rigs and other equipment at favorable rates,
and scheduling equipment fabrication at factories and fabrication yards. In
addition, the Company has noted that the costs of such services, equipment and
personnel have recently risen significantly. No assurance can be given that
such services, equipment and personnel will be available in a timely manner, or
that the cost thereof will not increase significantly. See "Business and
Properties -- Miscellaneous; Operating and Uninsured Risks" and "Management's
Analysis and Discussion of Financial Condition and Results of Operations --
Results of Operations."
DEPENDENCE ON OTHER OPERATORS
A significant percentage of the Company's oil and gas properties are
not operated by the Company. As a result, the Company has limited control over
the manner in which operations are conducted on such non-operated properties,
including the safety and environmental standards used in connection therewith.
Pursuant to the operating agreements governing operations on the properties in
which the Company has an interest, the Company maintains significant influence
or control over the nature and timing of exploration and development activities
on the majority of its properties. Such agreements do not, however, allow the
Company such influence or control with respect to a portion of its properties;
in such cases, the operators of such properties generally have control with
respect to the nature and timing of exploration or development activities. In
such instances, the operators of such properties could refuse to initiate
exploration or development projects, in which case the Company would be
required to propose such activities and may be required to proceed with such
activities without receiving any funding from the operator, or the operators
may initiate exploration or development projects on a slower schedule than that
preferred by the Company. Any of these events could have a significant effect
on the Company's anticipated exploration and development activities.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial expenditures
for the acquisition, development, production, exploration and abandonment of
its oil and natural gas reserves. The Company intends to finance such capital
and exploration expenditures primarily with funds provided by operations and
borrowings under the Credit Agreement. The Company increased its capital and
exploration expenditures from $98,560,000 in 1995 (excluding purchased reserves
and interest capitalized) to $206,267,000 in 1996 (excluding purchased reserves
and interest capitalized). The Company has currently budgeted $210,000,000 for
capital and exploration expenditures in 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
15
<PAGE> 19
COMPETITION
The oil and natural gas industry is highly competitive. The Company
competes in the acquisition, development, production and marketing of oil and
natural gas with major oil companies, other independent oil and natural gas
concerns and individual producers and operators. Many of these competitors have
substantially greater financial and other resources than the Company.
Furthermore, the oil and natural gas industry competes with other industries in
supplying the energy and fuel needs of industrial, commercial and other
consumers. See "Business and Properties -- Miscellaneous; Competition and
Market Conditions."
SUBORDINATION OF NOTES
The Notes are senior subordinated obligations of the Company and, as
such, are subordinated to all of the Company's existing and future Senior
Indebtedness, including indebtedness under the Credit Agreement. The Company
expects to incur additional Senior Indebtedness from time to time in the future
under the Credit Agreement or otherwise, and the Indenture relating to the Notes
will limit, but not prohibit, the incurrence of any other Indebtedness by the
Company or its Subsidiaries, including Senior Indebtedness. As of June 30, 1997,
the Company had approximately $37 million principal amount of outstanding Senior
Indebtedness. Upon any distribution of assets, liquidation, dissolution,
reorganization or any similar proceeding by or relating to the Company, the
holders of Senior Indebtedness of the Company would be entitled to receive
payment in full before the holders of the Notes would be entitled to receive any
payment. The terms and conditions of the subordination provisions pertinent to
the Notes are described in more detail in "Description of the Notes --
Subordination."
Further, the Notes are effectively subordinated to claims of holders
of any preferred stock and claims of creditors (other than the Company) of the
Company's Subsidiaries that are not Subsidiary Guarantors, including trade
creditors, secured creditors, taxing authorities, creditors holding guarantees,
and tort claimants. In the event of a liquidation, reorganization, or similar
proceeding relating to a Subsidiary that is not a Subsidiary Guarantor, these
persons generally will have priority as to the assets of such Subsidiary over
the claims and equity interest of the Company and, thereby indirectly, holders
of Indebtedness of the Company, including the Notes. No Subsidiary of the
Company is, as of the date of this Prospectus, a Subsidiary Guarantor. However,
under certain circumstances, the Company's payment obligations under the Notes
may in the future be required to be severally guaranteed by existing or future
Subsidiaries of the Company. See "Description of the Notes -- Possible
Subsidiary Guarantees of the Notes."
Debt Service
At June 30, 1997, Possible Subsidiaries of the Company (principally
Thaipo) had total combined assets of $202,796,000 (exclusive of net receivables
from the Company) and liabilities of $12,865,000 (exclusive of net payables to
the Company and assets and liabilities associated with transactions treated as
operating leases in the consolidated financial statements of the Company). Among
other obligations, Thaipo has guaranteed its pro rata portion of obligations
under an eleven and a half year bareboat charter of a Floating Production,
Storage and Offloading system (a "FPSO") used for development of the Tantawan
production area. The portion of the obligations under the bareboat charter
guaranteed by Thaipo is currently estimated at $11,122,000 per year for the
first ten years. The documents governing such obligations state that the Company
has no liability for such obligations. In addition, other liabilities may be
incurred by the Company's subsidiaries in the future.
The Indenture imposes limits on the ability of the Company and its
Subsidiaries to incur additional indebtedness and liens and to enter into
agreements that would restrict the ability of such Subsidiaries to make
distributions, loans or other payments to the Company. The Indenture also
imposes limits on the ability of the Company to transfer assets to Restricted
Subsidiaries or acquire Restricted Subsidiaries. However, these limitations are
subject to various qualifications. Subject to certain limitations, the Company
and its Subsidiaries may incur secured indebtedness. For additional details of
these provisions and the applicable qualifications, see "Description of the
Notes -- Subordination" and "-- Certain Covenants."
Leverage
As of June 30, 1997, the Company's long-term debt (including the current
portion) was $338,205,000 and shareholders' equity was $128,613,000, and thus
the Company may continue to be considered highly leveraged. The Company
believes that its cash flow from operations, together with the proceeds from the
sale of the Old Notes, the funds available under the Credit Agreement and its
other sources of liquidity, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments. However,
16
<PAGE> 20
the Company's ability to meet its debt service obligations will be dependent
upon its future performance, which, in turn, will be subject to general economic
conditions and to financial, business and other factors affecting the operations
of the Company, many of which are beyond its control.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, holders of the Notes will have
the right to require the Company, subject to certain conditions, to repurchase
all or any part of such holders' Notes at a price equal to 101% of the
principal thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the Notes -- Certain Covenants -- Change of
Control." Existing Senior Indebtedness under the Credit Agreement includes, and
future Indebtedness may include, change of control provisions pursuant to which
the Company would be required to repurchase, or the lender could demand the
repayment of, upon a change of control (as defined thereunder), the
Indebtedness due thereunder. Upon such an occurrence, the Company would be
required to redeem or repay such Senior Indebtedness before repurchasing the
Notes and then outstanding indebtedness pari passu with the Notes that contain
similar change of control provisions. No assurance can be given that the
Company would have sufficient funds available or could obtain the financing
required to repurchase Notes and such other outstanding Indebtedness that is
pari passu with, or senior to, the Notes tendered by holders thereof following
a Change of Control. If a Change of Control occurred and the Company had
inadequate funds or financing available to pay for Notes and such other
Indebtedness that is pari passu with, or senior to, the Notes that are tendered
for repurchase, an Event of Default would be triggered under the indenture and
under such other outstanding Indebtedness, each of which could have a material
adverse consequence for the Company and the holders of the Notes. In addition,
the 2004 Notes and the 2006 Notes (each as defined in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations"), which are contractually subordinated to the Notes, contain change
of control provisions that are similar to the Change of Control provisions
contained in the Notes. Consequently, an event triggering a Change of Control
repurchase obligation under the Notes may also trigger a change of control
repurchase obligation under such subordinated indebtedness, if the then current
market price of the Company's common stock is less than 105% of the respective
conversion prices of such notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Moreover, the definition of Change of Control includes a phrase
relating to the sale or other disposition of the Company's properties and assets
"substantially as an entirety." Although there is a developing body of case law
interpreting phrases such as "substantially as an entirety," there is no precise
established definition of such phrases under applicable law. Accordingly, the
ability of a holder of the Notes to require the Company to repurchase such
Notes as a result of a sale or other disposition of less than all of the
properties and assets of the Company on a consolidated basis to another person
or related group of persons may be uncertain. See "Description of the Notes --
Certain Covenants -- Change of Control.''
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO FUTURE SUBSIDIARY GUARANTEES
In the event that certain of the Company's existing or future
restricted subsidiaries issue or guarantee certain indebtedness, they will be
required by the terms of the Indenture to jointly and severally guarantee the
Notes on a senior subordinated basis. At the date hereof, no Subsidiary of the
Company has issued or is required to issue a Subsidiary Guarantee and the
Company does not intend to cause any Subsidiary to take any action that would
require it to issue any Subsidiary Guarantee. Various applicable fraudulent
conveyance laws have been enacted for the protection of creditors and may be
utilized by a court of competent jurisdiction to subordinate or avoid any
Subsidiary Guarantee issued by a Subsidiary Guarantor. It is also possible that
under certain circumstances a court could hold that the direct obligations of a
Subsidiary Guarantor could be superior to the obligations under the Subsidiary
Guarantee.
To the extent that a court were to find that at the time a Subsidiary
Guarantor entered into a Subsidiary Guarantee either (x) the Subsidiary
Guarantee was incurred by Subsidiary Guarantor with the intent to hinder, delay
or defraud any present or future creditor or that a Subsidiary Guarantor
contemplated insolvency with a design to favor one or more creditors to the
exclusion in whole or in part of others or (y) the Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for issuing the
Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee, the
Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of the
issuance of the Subsidiary Guarantee, (ii) was engaged or about to engage in a
business or transaction for which the remaining assets of the Subsidiary
Guarantor constituted unreasonably small capital or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could avoid or subordinate the Subsidiary Guarantee in
favor of the Subsidiary Guarantor's other debts or liabilities. Among other
things, a legal challenge of a Subsidiary Guarantee issued by a Subsidiary
Guarantor on fraudulent conveyance grounds may focus on the benefits,
17
<PAGE> 21
if any, realized by the Subsidiary Guarantor as a result of the issuance by the
Company of the Notes. To the extent a Subsidiary Guarantee is avoided as a
result of fraudulent conveyance or held unenforceable for any other reason, the
Holders of the Notes would cease to have any claim in respect of such
Subsidiary Guarantor and would be creditors solely of the Company.
GOVERNMENT REGULATION AND ENVIRONMENTAL RISKS
The Company's business is subject to certain laws and regulations
relating to taxation, exploration for and development and production of oil and
gas, and environmental and safety matters in both the United States and the
foreign countries in which the Company or any of its subsidiaries operates or
owns property. Various laws and regulations often require permits for drilling
wells and also cover spacing of wells, the prevention of waste of oil and gas
including maintenance of certain gas/oil ratios, rates of production and other
matters. The effect of these statutes and regulations, as well as other
regulations that could be promulgated by the jurisdictions in which the Company
has production, could be to limit the number of wells that could be drilled on
the Company's properties and to limit the allowable production from the
successful wells completed on the Company's properties, thereby limiting the
Company's revenues.
The discharge of oil, natural gas or other pollutants into the air,
soil or water may give rise to liabilities to the government and third parties
and may require the Company to incur costs to remedy the discharge. Oil or
natural gas may be discharged in many ways, including from a well or drilling
equipment at a drill site, leakage from storage tanks, pipelines or other
gathering and transportation facilities and discharges resulting from damage to
oil or natural gas wells resulting from accidents during normal operations, as
well as blowouts, cratering and explosions. Discharged oil and gas may migrate
through soil to water supplies or adjoining properties, giving rise to
additional liabilities. A variety of laws and regulations govern the
environmental aspects of oil and gas production, transportation and processing
and may, in addition to other laws, impose liability in the event of discharges
(whether or not accidental), for failure to notify the proper authorities of a
discharge and other failures to comply with those laws. Environmental laws may
also affect the costs of the Company's acquisitions of oil and gas properties.
The Company does not believe that its environmental risks are materially
different from those of comparable companies in the oil and gas industry.
Nevertheless, no assurance can be given that environmental laws will not, in
the future, result in a curtailment of production or a material increase in the
costs of production, development or exploration or otherwise adversely affect
the Company's operations and financial condition. Pollution and similar
environmental risks generally are not fully insurable. See "-- Operating and
Uninsured Risks."
RISKS OF FOREIGN OPERATIONS
Ownership of property interests and production operations in Thailand,
and in any other areas outside the United States in which the Company may
choose to do business, are subject to the various risks inherent in foreign
operations. These risks may include, among other things, currency restrictions
and exchange rate fluctuations, loss of revenue, property and equipment as a
result of hazards such as expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and governmental royalties,
renegotiation of contracts with governmental entities and quasi-governmental
agencies, changes in laws and policies governing operations of foreign-based
companies and other uncertainties arising out of foreign government sovereignty
over the Company's international operations. The Company's international
operations may also be adversely affected by laws and policies of the United
States affecting foreign trade, taxation and investment. In addition, in the
event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of the courts of the United
States. See "Business and Properties -- Miscellaneous; Risks of Foreign
Operations" and "-- International Operations."
ADDITIONAL RISKS RELATED TO THE COMPANY'S OPERATIONS IN THE KINGDOM OF THAILAND
The Company's operations in the Kingdom of Thailand are subject to
additional risks. Among other things, the Company and its joint venture partners
were required, as of August 1, 1997, to relinquish the remaining exploration
acreage in the Thailand Concession if an extension of the exploration term is
not granted. If an extension of the exploration term were not granted, the
Company would be able to retain only those areas which have been designated by
the Thai government as production areas, which currently includes only the
Tantawan Field and the Benchamas and Pakakrong Fields. Although an application
has been made to designate the Maliwan area of the Concession as a production
area and to extend the exploratory term on a portion of the existing exploratory
acreage for a period of three years, the Company has not yet received official
responses from the Thai government indicating how much, if any, exploration
acreage may be retained (and if any exploratory acreage may be retained, for how
long), or whether the
18
<PAGE> 22
Maliwan Field has been designated a production area as had been requested by
the Company and its joint venture partners. See "Business and Properties --
International Operations; Significant International Operating Areas During
1996; Contractual Terms Governing the Thailand Concession and Related
Production." In addition, the marketing and sale of hydrocarbons produced from
the Thailand Concession is subject to numerous risks and uncertainties. For
example, all oil and natural gas produced from the Thailand Concession is
currently expected to be sold to The Petroleum Authority of Thailand ("PTT"),
which maintains a monopoly over oil and gas transmission and distribution in
Thailand. The Thailand Concession is traversed by two major natural gas
pipelines that are owned and operated by PTT. One of these pipelines is
currently running at or near capacity and the other pipeline may also become
full as a result of production from the Tantawan Field, the Benchamas Field and
other fields in the Gulf of Thailand. There can be no assurance that, even if
the Company is successful in its exploration efforts, it will be able to
successfully, economically and profitably transport, process, refine and market
the oil and gas it produces. PTT has constructed a lateral pipeline from its
main pipeline to the Tantawan production area and has agreed to take the gas
produced therefrom pursuant to a Gas Sales Agreement (the "GSA"). In the event
that the required reserves or production rates of natural gas at a specified
quality level under the GSA are not delivered, then the Company and its joint
venture partners in the Tantawan production area will be obligated to
contribute to PTT's capital costs incurred in the construction of the lateral
pipeline. Also, under the GSA, the Tantawan joint venturers' liability for
failure to deliver the minimum contracted daily rate is limited to PTT's right
to take from subsequent deliveries an amount equal to the quantity of natural
gas not delivered at 75% of the contracted price. Cash flows resulting from
operations in Thailand are subject to Thai governmental royalties, other
governmental charges and income taxes. Moreover, in early July 1997, the
government of the Kingdom of Thailand announced that the value of the Baht (the
Thai currency) would be set against the dollar and other currencies under a
"managed float" arrangement. Since that time, the value of the Baht has
declined. As of August 22, 1997, the prevailing currency exchange rate was
approximately 34 Baht to the dollar. The Company cannot predict what the Baht
to dollar exchange rate may be in the future. It is anticipated that this
exchange rate will remain volatile. Since all gas sales under the GSA are
expected to be recognized in Baht, fluctuations in the exchange rate between
Baht and dollars could have an adverse effect on the anticipated profits of
the Company's operations in Thailand. See"Business and Properties --
International Operations" and "-- Miscellaneous Sales."
ABSENCE OF TRADING MARKET; TRANSFER RESTRICTIONS
The Exchange Notes will be new securities for which currently there is
no trading market. The Company does not currently intend to apply for listing
of the Exchange Notes on any securities exchange or stock market. Although the
Initial Purchasers have informed the Company that they currently intend to make
a market in the Exchange Notes, the Initial Purchasers are not obligated to do
so, and any such market making may be discontinued at any time without notice.
The liquidity of any market for the Exchange Notes will depend upon the number
of Holders of such Exchange Notes, the interest of securities dealers in making
a market in such securities and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. Historically, the market for noninvestment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Notes. There can be no assurance that the
market, if any, for the Exchange Notes will not be subject to similar
disruptions. Any such disruptions may have an adverse effect on the Holders of
the Exchange Notes.
19
<PAGE> 23
PRIVATE PLACEMENT
The initial placement of the Old Notes on May 16, 1997 was consummated
on May 22, 1997, by the issuance and sale to the Initial Purchasers of
$100,000,000 principal amount of the Old Notes at a price of 97.27% of the
principal amount thereof in a private transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Initial
Purchasers thereupon offered and resold the Old Notes only to qualified
institutional buyers and a limited number of institutional accredited investors
at an initial price to such purchasers of 99.77% of the principal amount
thereof. The $97,270,000 proceeds received by the Company in connection
with the sale of the Old Notes were used to repay a portion of the Company's
outstanding Senior Indebtedness.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes as contemplated in this Prospectus, the Company will receive in exchange
a like principal amount of Old Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Old Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the consolidated debt and
capitalization of the Company and its subsidiaries at June 30, 1997. This
table should be read in conjunction with the Consolidated Financial Statements
and related notes thereto included in the Company's Annual Report and
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Long-term debt, including current portion
Credit Agreement indebtedness . . . . . . . . . . . . . . . . . . . . . . . $ 27,000
Uncommitted credit lines with banks . . . . . . . . . . . . . . . . . . . . 10,000
8 3/4% Senior Subordinated Notes, due 2007. . . . . . . . . . . . . . . . . 100,000
5 1/2% Convertible subordinated notes, due 2004 . . . . . . . . . . . . . . 86,205
5 1/2% Convertible subordinated notes, due 2006 . . . . . . . . . . . . . . 115,000
----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 338,205
----------
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares
authorized; no shares issued and outstanding . . . . . . . . . . . . . . --
Common stock, $1 par value; 100,000,000 shares authorized;
33,395,901 shares issued and 33,380,326 shares outstanding . . . . . . . 33,396
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,806
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . (45,085)
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . (180)
Treasury stock, at cost; 15,575 shares . . . . . . . . . . . . . . . . . . . (324)
----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 128,613
----------
Total capitalization (including current
maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 466,818
==========
</TABLE>
- ----------
21
<PAGE> 25
SELECTED FINANCIAL DATA
The Selected Financial Data presented below as of, and for the years
in the five-year period ended, December 31, 1996, are derived from the
consolidated financial statements of the Company and its subsidiaries, which
are incorporated by reference herein and which have been audited by independent
public accountants. The financial data as of, and for the six month periods
ended, June 30, 1996 and 1997, are derived from the Company's unaudited
financial statements which, in the opinion of management, include all
adjustments (which consists only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations of the
Company for such interim periods. This data should be read in conjunction with
the consolidated financial statements and related notes thereto incorporated by
reference herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein and in the
Reports.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(EXPRESSED IN THOUSANDS, EXCEPT RATIOS AND UNIT AMOUNTS)
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Crude oil and condensate . $ 64,224 $64,042 $65,141 $ 76,557 $ 96,908 $47,110 $ 55,368
Natural gas . . . . . . . . 67,366 66,173 99,093 72,032 94,589 46,855 73,394
Natural gas liquids . . . . 5,833 7,288 9,189 8,097 11,867 5,398 6,860
Other, net . . . . . . . . 1,705 (950) 133 773 778 397 973
------- ------- ------- ------ ------- ------ -------
Oil and gas revenues . . . 139,128 136,553 173,556 157,459 204,142 99,760 136,595
Interest on tax refunds . . -- 2,322 -- -- -- -- --
Gains (losses) on sales . . 1,702 679 52 100 (165) (165) 1,459
------- ------- ------- ------ ------- ------ -------
Total . . . . . . . . . 140,830 139,554 173,608 157,559 203,977 99,595 138,054
------- ------- ------- ------ ------- ------ -------
Operating Costs and Expenses:
Lease operating . . . . . . 25,842 26,633 29,768 35,071 37,628 18,080 28,488
General and administrative 13,129 14,550 15,984 16,400 18,028 9,804 10,957
Exploration . . . . . . . . 3,102 2,455 5,257 7,468 16,777 7,876 5,953
Dry hole and impairment . . 9,314 4,690 7,088 6,703 8,579 5,118 5,007
Depreciation, depletion and
amortization . . . . . 42,302 40,693 63,308 68,489 61,857 31,506 46,877
------- ------- ------- ------ ------- ------ -------
Total . . . . . . . . . 93,689 89,021 121,405 134,131 142,869 72,384 97,282
------- ------- ------- ------ ------- ------ -------
Operating Income 47,141 50,533 52,203 23,428 61,108 27,211 40,772
Interest Charges . . . . . . (19,036) (10,956) (10,104) (11,167) (13,203) (6,184) (9,831)
Interest Income . . . . . . . 191 14 53 26 232 139 129
Interest Capitalized . . . . 391 451 739 1,834 4,244 1,830 2,630
------- ------- ------- ------ ------- ------ -------
Income Before Taxes and 28,687 40,042 42,891 14,121 52,381 22,996 33,700
Extraordinary Items . . .
Income Tax Expense . . . . . (10,192) (14,981) (15,517) (4,891) (18,800) (7,794) (11,708)
------- ------- ------- ------ ------- ------ -------
Income Before Extraordinary
Items . . . . . . . . . . . . 18,495 25,061 27,374 9,230 33,581 15,202 21,992
Extraordinary Losses on Early
Extinguishments of Debt,
Net of Taxes . . . . . . . -- -- (307) -- (821) (821) --
------- ------- ------- ------ ------- ------ -------
Net Income . . . . . . $ 18,495 $25,061 $27,067 $9,230 $32,760 $14,381 $ 21,992
======== ======= ======= ======= ======== ======= ========
EARNINGS PER SHARE:
Primary . . . . . . . . . . $ 0.66 $ 0.76 $ 0.81 $ 0.28 $ 0.96 $ 0.42 $ 0.64
Fully diluted . . . . . . . $ 0.66 $ 0.76 $ 0.81 $ 0.28 $ 0.94 $ 0.42 $ 0.62
OTHER FINANCIAL DATA:
Cash Flows From Operating
activities . . . . . . . . . $ 67,711 $83,144 $ 99,273 $ 96,333 $ 92,898 $44,360 $ 73,807
Cash Flows From Investing
activities . . . . . . . . (35,211) (59,640) (117,901) (108,224) (171,932) (63,989) (141,134)
Cash Flows From Financial
activities . . . . . . . . (32,705) (21,828) 14,837 13,450 77,584 33,960 87,981
Capital and exploration
expenditures (excluding
interest capitalized) . . . 41,300 74,600 120,800 110,400 206,200 54,000 113,200
SELECTED RATIOS:
Ratio of earnings to fixed
charges(a) . . . . . . . . . 2.5x 4.5x 5.1x 2.1x 4.6x 4.3x 4.1x
Long-term obligations/Total
proved reserves (BOE)(b) . . $2.52 $1.95 $2.01 $1.63 $2.24 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 586,022
Long-term obligations, including current portion . . . . . . . . . . . . . . . . 338,205
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,613
</TABLE>
- ----------
(a) Pre-tax earnings plus total interest charges, including amortization of
debt issue expenses, divided by total interest charges, including
amortization of debt issue expenses. Pro forma after giving effect to
the sale of the Old Notes by the Company and the use of proceeds
therefrom the ratios of earnings to fixed charges for the year ended
December 31, 1996, and the six months ended June 30, 1997, would have
been 3.3x and 3.9x respectively based on pro forma net income for the
year ended December 31, 1996 and the six months ended June 30, 1997 of
$30,958,000 and $21,736,000, respectively.
(b) Long-term obligations include long-term debt and the non-current
portion of the Eugene Island 330 Production Payment obligation until
such obligation was satisfied in 1993. This ratio cannot be calculated
for interim periods because reserve data is only available as of year
end.
22
<PAGE> 26
SELECTED RESERVE AND OPERATING DATA
The Selected Reserve and Operating Data presented below under the
captions "Production (Sales) Data" as of, and for each of the years in the
five-year period ended, December 31, 1996, and for the six month periods
ended June 30, 1996 and 1997, is unaudited and should be read in conjunction
with the consolidated financial statements and related notes thereto which are
incorporated by reference herein and "Business and Properties -- Exploration and
Production Data; Production and Sales" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations". The reserve information
presented under the caption "Reserve Data" as of, and for each of the years in
the five-year period ended, December 31, 1996 has been derived from the summary
reserve report prepared by Ryder Scott and attached as an exhibit to the Annual
Report on Form 10-K filed with the Commission for each of the years presented
and should be read in conjunction with the notes to Company's consolidated
financial statements which are incorporated by reference herein and "Business
and Properties -- Exploration and Production Data; Reserves" included elsewhere
herein. The data included in the Reports are incorporated in this Prospectus by
reference.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------------------------------------------------------------ -------------------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION (SALES) DATA:
Net daily average and
weighted average price:
Natural gas:
Mcf per day . . . . . . . 105,200 91,700 144,800 121,000 107,700 108,900 173,500
Price per Mcf . . . . . . $1.75 $1.98 $1.88 $1.63 $2.40 $2.36 $2.34
Crude oil and condensate:
Bbls per day . . . . . . 8,699 9,851 11,100 11,786 11,968 12,247 15,187
Price per Bbl . . . . . . $20.17 $17.81 $16.08 $17.80 $22.12 $21.14 $20.14
NGL:
Bbls per day . . . . . . 1,181 1,678 2,222 1,998 2,173 2,228 2,935
Price per Bbl . . . . . . $13.50 $11.90 $11.33 $11.10 $14.92 $13.31 $12.92
RESERVE DATA(A):
Estimated proved reserves
Crude oil, condensate and
natural gas liquids . . . 22,556 28,268 33,862 45,182 49,602 -- --
(MBbls) . . . . . . . . . . .
Natural gas (MMcf) . . . . 207,068 232,866 242,890 328,061 360,944 -- --
Natural gas equivalents
(MMcfe) . . . . . . . . . 342,404 402,474 446,062 599,153 658,566 -- --
Estimated future net
revenues before income
taxes, discounted at
10%(b)(c) . . . . . . . . $405,101 $403,840 $382,980 $532,475 $954,545 -- --
Estimated future net
revenues after income
taxes discounted at
10%(b). . . . . . . . . . $307,657 $300,260 $290,069 $377,145 $686,040 -- --
</TABLE>
__________
(a) Proved reserves were estimated in accordance with Commission
guidelines using oil and gas prices and production and development
costs as of December 31 of each such year.
(b) These values were estimated in accordance with Commission guidelines.
See "Business and Properties -- Exploration and Production Data;
Reserves."
(c) Based on assumed Company-wide flat prices of $20.00 per barrel for oil
and condensate and $2.00 per Mcf for gas, the Company's reservoir
engineers estimate that the present value of future net revenues
before income taxes, discounted at 10%, of the Company's proved
reserves would have been approximately $553 million at December 31,
1996. This calculation represents an internal Company estimate, is
presented for information purposes and has not been calculated
entirely in accordance with Commission guidelines.
23
<PAGE> 27
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof
became entitled to the benefits of certain registration rights under the
Registration Rights Agreement. The Exchange Notes are being offered hereunder
in order to satisfy the obligations of the Company under the Registration
Rights Agreement. See "Exchange Offer; Registration Rights."
For each $1,000 principal amount of Old Notes surrendered to the
Company pursuant to the Exchange Offer, the holder of such Old Notes will
receive $1,000 principal amount of Exchange Notes. Upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter
of Transmittal, the Company will accept all Old Notes properly tendered prior
to 5:00 p.m., New York City time, on the Expiration Date. Holders may tender
some or all of their Old Notes pursuant to the Exchange Offer in integral
multiples of $1,000 principal amount.
Under existing interpretations of the staff of the SEC, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act by the respective holders thereof
(other than a "Restricted Holder," being (i) a broker-dealer who purchased Old
Notes exchanged for such Exchange Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Any holder
of Old Notes who tenders in the Exchange Offer for the purpose of participating
in a distribution of the Exchange Notes must not rely on the interpretation by
the staff of the SEC enunciated in the Morgan Stanley Letter and similar
no-action letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including a representation that (i) it is neither an affiliate of the Company
nor a broker-dealer tendering Old Notes acquired directly from the Company for
its own account, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business and (iii) it is not
participating in, and it has no arrangement with any person to participate in,
the distribution (within the meaning of the Securities Act) of the Exchange
Notes. In addition, in connection with any resales of Exchange Notes, any
broker-dealer (a "Participating Broker-Dealer") who acquired Old Notes for its
own account as a result of market-making activities or other trading activities
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes. The
staff of the SEC has taken the position in no-action letters issued to third
parties including Shearman & Sterling, SEC No-Action Letter (available July 2,
1993), that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of Old Notes) with this Prospectus, as
it may be amended or supplemented from time to time. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
to use this Prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of such Exchange Notes. See "Plan of
Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
As of the date of this Prospectus, $100,000,000 aggregate principal
amount of Old Notes are issued and outstanding. In connection with the
issuance of the Old Notes, the Company arranged for the Old Notes to be
eligible for trading in the Private Offering, Resale and Trading through
Automated Linkages (PORTAL) Market, the National Association of Securities
Dealers' screen based, automated market trading of securities eligible for
resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly
tendered Old Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent
24
<PAGE> 28
will act as agent for the tendering holders of Old Notes for the purpose of
receiving Exchange Notes from the Company and delivering Exchange Notes to such
holders. If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date. Holders of Old Notes who tender in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1997
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date to which the
Exchange Offer is extended. In order to extend the Expiration Date, the
Company will notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination"
shall have occurred and shall not have been waived by the Company (if permitted
to be waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof. If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, the Company will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the Old Notes of such amendment. Without limiting the manner in which the
Company may choose to make public announcements of any delay in acceptance,
extension, termination or amendment of the Exchange Offer, the Company shall
have no obligation to publish, advertise, or otherwise communicate any such
public announcement, other than by making a timely release to the Dow Jones
News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on May 15
and November 15 of each year, commencing November 15, 1997. Holders of
Exchange Notes of record on November 1, 1997 will receive interest on November
15, 1997 from the date of issuance of the Exchange Notes, plus an amount equal
to the accrued interest on the Old Notes from the date of issuance of the Old
Notes, May 22, 1997, to the date of exchange thereof. Consequently, assuming
the Exchange Offer is consummated prior to the record date in respect of the
November 15, 1997 interest payment for the Old Notes, holders who exchange
their Old Notes for Exchange Notes will receive the same interest payment on
November 15, 1997 that they would have received had they not accepted the
Exchange Offer. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by
the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply
with the guaranteed delivery procedures described below. The tender by a
holder of Old Notes will constitute an agreement between such holder and the
Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal. Delivery of all documents must
be made to the Exchange Agent at its address set forth herein. Holders may also
request that their respective brokers, dealers, commercial banks, trust
companies or nominees effect such tender for such holders.
The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility to, and received by, the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility
25
<PAGE> 29
tendering Old Notes which are the subject of such Book-Entry Confirmation that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal, and that the Company may enforce such agreement against
such participant.
The method of delivery of Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes
in the Exchange Offer. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the books of the
Company or any other person who has obtained a properly completed stock power
from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of
such holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder.
If such beneficial holder wishes to tender directly, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time. If the Letter of Transmittal is signed by the record
holder(s) of the Old Notes tendered thereby, the signature must correspond with
the name(s) written on the face of the Old Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal is signed
by a participant in The Depository Trust Company ("DTC"), the signature must
correspond with the name as it appears on the security position listing as the
holder of the Old Notes. Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal and the Exchange Notes are being issued directly to such
registered holder (or deposited into the participant's account at DTC) or (ii)
for the account of an Eligible Institution. If the Letter of Transmittal is
signed by a person other than the registered holder of any Old Notes listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required
documents) and the tendered Old Notes (or a timely confirmation received of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC) with
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the
Exchange Offer or defects or irregularities in tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date. In
addition, the Company reserves the right in its sole discretion to (i) purchase
or make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date, or, as set forth under
26
<PAGE> 30
"-- Termination," to terminate the Exchange Offer and (ii) to the extent
permitted by applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old
Notes at DTC within two business days after the date of this Prospectus, and
any financial institution which is a participant in DTC may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at DTC, an Agent's Message must be transmitted to
and received by the Exchange Agent on or prior to the Expiration Date at one of
its addresses set forth below under "-- Exchange Agent", or the guaranteed
delivery procedure described below must be complied with. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Old Notes shall be deemed to include
DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer
on a timely basis and deliver an Agent's Message, may effect a tender if: (i)
the tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder of the Old Notes, the registration number or numbers of
such Old Notes (if applicable), and the total principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five business days after the Expiration Date, the Letter of Transmittal,
together with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, together with the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of such a book-entry transfer) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms
and conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal or an Agent's Message and any other required documents, by the
Expiration Date or within the time periods set forth above pursuant to a Notice
of Guaranteed Delivery from an Eligible Institution. Each holder tendering the
Old Notes for exchange sells, assigns and transfers the Old Notes to the
Exchange Agent, as agent of the Company, and irrevocably constitutes and
appoints the Exchange Agent as the holder's agent and attorney-in-fact to cause
the Old Notes to be transferred and exchanged. The holder warrants that it has
full power and authority to tender, exchange, sell, assign and transfer the Old
Notes and to acquire the Exchange Notes issuable upon the exchange of such
tendered Old Notes, that the Exchange Agent, as agent of the Company, will
acquire good and unencumbered title to the tendered Old Notes, free and clear
of all liens, restrictions, charges and encumbrances, and that the Old Notes
tendered for exchange are not subject to any adverse claims when accepted by
the Exchange Agent, as agent of the Company. The holder also warrants and
agrees that it will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Old Notes. All
authority conferred or agreed to be conferred in the Letter of Transmittal by
the holder will survive the death, incapacity or dissolution of the holder and
any obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
27
<PAGE> 31
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange. To withdraw a tender of Old
Notes in the Exchange Offer, a written or facsimile transmission notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date and prior
to acceptance for exchange thereof by the Company. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including, if applicable, the registration number or numbers and
total principal amount of such Old Notes), (iii) be signed by the Depositor in
the same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to permit the Trustee with
respect to the Old Notes to register the transfer of such Old Notes into the
name of the Depositor withdrawing the tender, (iv) specify the name in which
any such Old Notes are to be registered, if different from that of the
Depositor and (v) if applicable because the Old Notes have been tendered
pursuant to the book-entry procedures, specify the name and number of the
participant's account at DTC to be credited, if different than that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange any Old Notes not theretofore accepted
for exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of
the SEC.
If the Company determines that it may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Old Notes and return
any Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
State Street Bank & Trust Company (successor in interest as trustee
under the Indenture) has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
By Mail: By Hand or Overnight Courier:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 4th Floor
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
Facsimile Transmission: (617) 664-5739
Confirm by Telephone: (617) 664-5314
28
<PAGE> 32
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to
the Exchange Offer is being made by mail. Additional solicitations may be made
by officers and regular employees of the Company and its affiliates in person,
by telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the
Company upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be amortized by the Company over the term of the Exchange
Notes under generally accepted accounting principles.
29
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter and Six Month Period Ended June 30, 1997, Compared with Quarter and
Six Month Period Ended June 30, 1996
The Company reported net income for the second quarter of 1997 of
$9,174,000 or $0.27 per share ($0.26 on a fully diluted basis) compared to net
income for the second quarter of 1996 of $8,116,000 or $0.24 per share ($0.23 on
a fully diluted basis). For the first six months of 1997, the Company reported
net income of $21,992,000 or $0.64 per share ($0.62 on a fully diluted basis)
compared to net income for the first six months of 1996 of $14,381,000 or $0.42
per share (on both a primary and a fully diluted basis). The Company recorded an
extraordinary loss during the second quarter of 1996 of $821,000, or $0.02 per
share related to early retirement of the Company's 8% Convertible Subordinated
Debentures, due 2005 (the "8% Debentures") with the proceeds from the Company's
issuance of its 5 1/2% Convertible Subordinated Notes, due 2006 (the "2006
Notes") on June 18, 1996. Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding for the second
quarter and first six months of 1997 of 34,153,000,and 34,165,000, respectively,
compared to 33,976,000 and 33,905,000, respectively, for the second quarter and
first six months of 1996. The increases in the weighted average number of common
and common equivalent shares outstanding for the 1997 periods, compared to the
1996 periods, resulted primarily from the issuance of shares of common stock
upon the exercise of stock options pursuant to the Company's stock option plans.
Earnings per share computations on a fully diluted basis in the 1997 periods
primarily reflect additional shares of common stock issuable upon the assumed
conversion of the Company's 5 1/2% Convertible Subordinated Notes, due 2004
(the "2004 Notes") (the only convertible securities of the Company that were
dilutive during any of the periods presented) and the elimination of related
interest requirements, as adjusted for applicable federal income taxes. The
weighted average number of shares of common and common equivalent shares
outstanding on a fully diluted basis for the second quarter and first six
months of 1997 were 38,054,000 and 38,058,000, respectively, compared to
37,899,000 and 37,821,000 respectively, for the second quarter and first six
months of 1996. Earnings applicable to common stock, assuming full dilution,
and, with respect to the 1996 periods, after giving effect to an extraordinary
loss of $821,000, for the second quarter and first six months of 1997 were
$9,945,000 and $23,533,000, respectively, compared to $8,887,000 and
$15,923,000, respectively, for the second quarter and first six months of 1996.
The Company's total revenues for the second quarter of 1997 were
$76,740,000, an increase of approximately 49% compared to total revenues of
$51,543,000 for the second quarter of 1996. The Company's total revenues for
the first six months of 1997 were $138,054,000, an increase of approximately
39% compared to total revenues of $99,595,000 for the first six months of 1996.
The increase in the Company's total revenues for the second quarter and first
six months of 1997, compared to the second quarter and first six months of
1996, resulted primarily from increases in the Company's natural gas and liquid
hydrocarbon (including, crude oil, condensate and NGL) production volumes, that
were only partially offset by decreases in the average price that the Company
received for such production. In addition, the total revenues for the second
quarter and first six months of 1997 were positively affected by a $1,600,000
non-recurring gain recorded in connection with the sale of certain excess
equipment, while the Company's total revenues for the first six months of 1996
were adversely affected by a $165,000 loss resulting from the sale of a
non-strategic property.
30
<PAGE> 34
The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
second quarter and first six months of 1997 and the same periods in the
preceding year.
<TABLE>
<CAPTION>
6 MONTHS
2ND QUARTER 1997 1997 COMPARED
COMPARED TO TO 6 MONTHS
2ND QUARTER 1996 1996
---------------- --------------
<S> <C>
Increase (decrease) in total revenues resulting from
differences in:
Natural gas --
Price . . . . . . . . . . . . . . . . . . . . . . . . $(1,649) $ (535)
Production . . . . . . . . . . . . . . . . . . . . . . 21,467 27,074
------- -------
19,818 26,839
------- -------
Crude oil and condensate --
Price . . . . . . . . . . . . . . . . . . . . . . . . (4,848) (2,465)
Production . . . . . . . . . . . . . . . . . . . . . . 6,432 10,723
------- -------
1,584 8,258
------- -------
NGL and other, net . . . . . . . . . . . . . . . . . . . 2,336 2,038
------- -------
Increase in oil and gas revenues . . . . . . . . . . . . . $23,738 $36,835
======= =======
</TABLE>
Prices that the Company received for its natural gas production during
the second quarter of 1997 averaged $2.14 per Mcf, a decrease of approximately
7% from an average price of $2.31 per Mcf that the Company received for its
production during the second quarter of 1996. Prices that the Company received
for its natural gas production during the first six months of 1997 averaged
$2.34 per Mcf, a decrease of approximately 1% from an average price of $2.36
per Mcf that the Company received for its domestic natural gas production
during the first six months of 1996.
Prices that the Company received for its domestic natural gas
production during the second quarter of 1997 averaged $2.15 per Mcf, a decrease
of approximately 7% from an average price of $2.31 per Mcf that the Company
received for its domestic natural gas production during the second quarter of
1996. Prices that the Company received for its domestic natural gas production
during the first six months of 1997 averaged $2.41 per Mcf, an increase of
approximately 2% from an average price of $2.36 per Mcf that the Company
received for its domestic natural gas production during the first six months of
1996.
The Company's Tantawan Field located in the Kingdom of Thailand
commenced production of natural gas and liquid hydrocarbons in February 1997.
During the second quarter of 1997, the price that the Company received under
its long term gas sales contract for natural gas production from the Tantawan
Field averaged approximately 54 Thai Baht per Mcf. At the then prevailing
currency exchange rates of approximately 25.5 Baht to the dollar, this equaled
approximately $2.12 per Mcf. In early July 1997, the government of the Kingdom
of Thailand announced that the value of the Baht would be set against the
dollar and other currencies under a "managed float" arrangement. Since that
time, the value of the Baht has declined. As of August 22, 1997, the prevailing
currency exchange rate was approximately 34 Baht to the dollar. The Company
cannot predict what the Baht to dollar exchange rate may be in the future.
Moreover, it is anticipated that this exchange rate will remain volatile.
The Company's natural gas production during the second quarter of 1997
averaged 216.8 MMcf per day, an increase of approximately 103% from an average
of 106.6 MMcf per day that the Company produced during the second quarter of
1996. The Company's natural gas production during the first six months of 1997
averaged 173.5 MMcf per day, an increase of approximately 59% from an average
of 108.9 MMcf per day that the Company produced during the first six months of
1996.
The Company's domestic natural gas production during the second
quarter of 1997 averaged 177.8 MMcf per day, an increase of approximately 67%
from an average of 106.6 MMcf per day that the Company produced during the
second quarter of 1996. The Company's domestic natural gas production during
the first six months of 1997 averaged 145.1 MMcf per day, an increase of
approximately 33% from an average of 108.9 MMcf per day that the Company
produced during the first six months of 1996. The increase in the Company's
natural gas production during the second quarter and first six months of 1997,
compared to the second quarter and first six months of 1996, was related in
large measure to production from the Company's East Cameron Block 334 "E"
platform, which commenced production in April 1997, and, to a lesser extent,
the results of successful drilling in the Company's Lopeno Field in South Texas
and its Eugene Island Block 261 field, that was only partially offset by the
anticipated decline from certain of the Company's properties. As of August 1,
1997, the Company was not a party to any future natural gas sales
contracts.
31
<PAGE> 35
The Company commenced production from its Tantawan Field early in
February 1997. Following a field startup phase which ended on March 15, 1997,
production from the Tantawan Field stabilized. During the second quarter of
1997, the Company's share of natural gas production from the Tantawan Field
averaged approximately 39 MMcf per day. The Company anticipates that
production will remain at approximately this level until October 1997, when, in
accordance with the long term gas sales contract with the PTT for the Tantawan
Field, natural gas production from the field is anticipated to increase to
approximately 45 MMcf per day (net to the Company's working interest).
Prices received by the Company for its crude oil and condensate
production during the second quarter of 1997 averaged $18.35 per barrel, a
decrease of approximately 19% from the average price of $22.58 per barrel that
the Company received during the second quarter of 1996. Prices that the
Company received for its crude oil and condensate production during the first
six months of 1997 averaged $20.14 per barrel, a decrease of approximately 5%
from an average price of $21.14 per barrel that the Company received during the
first six months of 1996.
Prices received by the Company for its domestic crude oil and
condensate production during the second quarter of 1997 averaged $18.54 per
barrel, a decrease of approximately 18% from the average price of $22.58 per
barrel that the Company received during the second quarter of 1996. Prices
that the Company received for its domestic crude oil and condensate production
during the first six months of 1997 averaged $20.40 per barrel, a decrease of
approximately 4% from an average price of $21.14 per barrel that the Company
received during the first six months of 1996.
Since the inception of production from the Tantawan Field, crude oil
and condensate has been stored in a FPSO until an economic quantity was
accumulated for offloading and sale. The first such sale of crude oil and
condensate from the Tantawan Field occurred in July 1997. Prices that the
Company recorded for its crude oil and condensate production stored on the FPSO
for the second quarter and first six months of 1997, were $17.26 and $18.15,
respectively. Prices that the Company currently expects to receive for such
production (and in fact did receive for its July 1997 sale) are based on world
benchmark prices, which are denominated in dollars.
The Company's crude oil and condensate production during the second
quarter of 1997 averaged 16,457 barrels per day, an increase of approximately
31% from an average of 12,605 barrels per day during the second quarter of
1996. The Company's crude oil and condensate production during the first six
months of 1997 averaged 15,187 barrels per day, an increase of approximately
24% from an average of 12,247 barrels per day during the first six months of
1996.
The Company's domestic crude oil and condensate production during the
second quarter of 1997 averaged 14,065 barrels per day, an increase of
approximately 12% from an average of 12,605 barrels per day during the second
quarter of 1996. The Company's domestic crude oil and condensate production
during the first six months of 1997 averaged 13,531 barrels per day, an
increase of approximately 10% from an average of 12,247 barrels per day during
the first six months of 1996. The increase in the Company's domestic crude oil
and condensate production during the second quarter and first six months of
1997, compared to the second quarter and first six months of 1996, resulted
primarily from the success of the Company's ongoing development drilling and
workover program in the offshore and onshore Gulf of Mexico regions.
The Company commenced production from its Tantawan Field early in
February 1997. Following a field startup phase which ended on March 15, 1997,
production from the Tantawan Field stabilized. During the second quarter of
1997, the Company's share of crude oil and condensate production from the
Tantawan Field averaged approximately 2,392 barrels per day.
The Company's oil and gas revenues, and total liquid hydrocarbon
production volumes reflect the production and sale of NGL by the Company. In
addition, the Company's oil and gas revenues for the second quarter and first
six months of 1997 and 1996 also reflect adjustments for various miscellaneous
items of a non-recurring nature.
Liquid products are often extracted from its natural gas streams and
sold separately as NGL. All of the Company's NGL production comes from its
domestic operations. The prices that the Company typically receives for its NGL
production is related to crude oil prices. However, because NGL is extracted
from liquid rich natural gas, the Company's NGL production volumes correlate
most closely with increases (or decreases) from certain of the Company's natural
gas fields. Natural gas production from the Company's East Cameron Block 334
"E" platform is considered to be relatively rich in NGL.
The Company's NGL and other, net revenues for the second quarter and
first six months of 1997 increased $2,336,000 and $2,038,000, from the second
quarter and first six months of 1996, respectively. The increase in the
Company's NGL and other, net revenues for the second quarter and first six
months of 1997, compared to the second quarter and first six months of 1996, was
primarily related to an increase in the Company's NGL production from the
32
<PAGE> 36
Company's East Cameron 334 "E" platform that was only partially offset by a
decrease in the average price that the Company received for its NGL production.
The Company's average liquid hydrocarbon (including crude oil,
condensate and NGL) production during the second quarter of 1997 was 20,997
barrels per day, an increase of approximately 39% from an average liquid
hydrocarbon production of 15,077 barrels per day during the second quarter of
1996. The Company's average liquid hydrocarbon production during the first six
months of 1997 was 18,122 barrels per day, an increase of approximately 25%
from an average liquid hydrocarbon production of 14,475 barrels per day during
the first six months of 1996.
Lease operating expenses for the second quarter of 1997 were
$16,191,000, an increase of approximately 76% from lease operating expenses of
$9,205,000 for the second quarter of 1996. Lease operating expenses for the
first six months of 1997 were $28,488,000, an increase of approximately 58%
from lease operating expenses of $18,080,000 for the first six months of 1996.
The increases in lease operating expenses for the second quarter and first six
months of 1997, compared to the second quarter and first six months of 1996,
resulted primarily from expenses related to the leasing of equipment
(principally the FPSO); increased operating activity by the Company and its
industry partners; and increased costs to the Company (and the entire offshore
oil industry) due to a shortage of qualified offshore service contractors and
equipment, which has permitted such contractors to increase the costs of their
services.
General and administrative expenses for the second quarter of 1997 were
$5,121,000, an increase of approximately 17% from general and administrative
expenses of $4,383,000 for the second quarter of 1996. General and
administrative expenses for the first six months of 1997 were $10,957,000, an
increase of approximately 12% from general and administrative expenses of
$9,804,000 for the first six months of 1996. The increases in general and
administrative expenses for the second quarter and first six months of 1997,
compared with the second quarter and first six months of 1996, were related to,
among other things, an increase in the size of the Company's work force and
leased office space in the United States and Bangkok, Thailand and normal
salary and concomitant benefit expense adjustments that were partially offset
by decreases in miscellaneous general and administrative expense items.
Exploration expenses consist primarily of delay rentals and geological
and geophysical costs which are expensed as incurred. Exploration expenses for
the second quarter of 1997 were $4,053,000, an increase of approximately 1% from
exploration expenses of $3,996,000 for the second quarter of 1996. The increase
in exploration expenses for the second quarter of 1997, compared to the second
quarter of 1996, resulted primarily from increased geophysical activity by the
Company in the Gulf of Mexico and an increase in delay rentals, which was not
entirely offset by a decrease in geophysical activity in other areas in which
the Company is currently conducting geophysical operations. Exploration expenses
for the first six months of 1997 were $5,953,000, a decrease of approximately
24% from exploration expenses of $7,876,000 for the first six months of 1996.
The decrease in exploration expenses for the first six months of 1997, compared
to the first six months of 1996, resulted primarily from a decrease in expenses
resulting from the completion of a 3-D seismic survey by the Company on its
leases in South Louisiana and East Texas in the first six months of 1996, which
was partially offset by increased expenses resulting from geophysical activity
by the Company in the Gulf of Mexico; and also by increased delay rental
payments.
Dry hole and impairment expenses relate to costs of unsuccessful wells
drilled, along with impairments due to decreases in expected reserves from
producing wells. The Company's dry hole and impairment expenses for the second
quarter of 1997 were $4,086,000, an increase of approximately 59% from dry hole
and impairment expenses of $2,568,000 for the second quarter of 1996. The
Company's dry hole and impairment expenses for the first six months of 1997 were
$5,007,000, a decrease of approximately 2% from dry hole and impairment expenses
of $5,118,000 for the first six months of 1996.
The Company accounts for its oil and gas activities using the
successful efforts method of accounting. Under the successful efforts method,
lease acquisition costs and all development costs are capitalized. Unproved
properties are reviewed whenever events or changes in circumstances indicate
that the carrying amount of such asset may not be recoverable. Unproved
properties are reviewed quarterly, with any such impairment charged to expense
in the period. Exploratory drilling costs are capitalized until the results
are determined. If proved reserves are not discovered, the exploratory drilling
costs are expensed. Other exploratory costs are expensed as incurred.
The provision for depreciation, depletion and amortization ("DD&A") is
based on the capitalized costs, as determined in the preceding paragraph, plus
future costs to abandon offshore wells and platforms, and is determined on a
cost center by cost center (generally, a field by field) basis using the units
of production method. The Company's DD&A expense for the second quarter of 1997
was $28,457,000, an increase of approximately 80% from DD&A expense of
$15,793,000 for the second quarter of 1996. The Company's DD&A expense for the
first six months of 1997 was $46,877,000, an increase of approximately 49%
from DD&A expense of $31,506,000 for the first six months of 1996. The
increases in DD&A expense for the second quarter and first six months of 1997,
compared to the second quarter and first six months of 1996, resulted primarily
from increased production of oil and gas from the Company's
33
<PAGE> 37
properties and, to a much lesser extent, a slight increase in the Company's
composite DD&A rate. The composite DD&A rate for all of the Company's producing
fields for the second quarter of 1997 was $0.90 per equivalent Mcf ($5.38 per
BOE), an increase of approximately 3% from a composite DD&A rate of $0.87 per
equivalent Mcf ($5.22 per BOE) for the second quarter of 1996.
The composite DD&A rate for all of the Company's producing fields for
the first six months of 1997 was $0.90 per equivalent Mcf ($5.41 per BOE), an
increase of approximately 3% from a composite DD&A rate of $0.87 per equivalent
Mcf ($5.24 per BOE) for the first six months of 1996. The increase in the
composite DD&A rate for all of the Company's producing fields for the second
quarter and the first six months of 1997, compared to the second quarter and
first six months of 1996, resulted primarily from an increased percentage of
the Company's production coming from certain of the Company's fields that have
DD&A rates that are higher than the Company's recent historical composite rate
and a corresponding decrease in the percentage of the Company's production
coming from fields that have DD&A rates that are lower than the Company's
recent historical composite DD&A rate. The Company produced 31,197,000
equivalent Mcf (5,200,000 BOE) during the second quarter of 1997, an increase
of approximately 74% from the 17,932,000 equivalent Mcf (2,989,000 BOE)
produced by the Company during the second quarter of 1996. The Company
produced 51,178,000 equivalent Mcf (8,530,000 BOE) during the first six months
of 1997, an increase of approximately 44% from the 35,628,000 equivalent Mcf
(5,938,000 BOE) produced by the Company during the first six months of 1996.
The Company incurred interest charges for the second quarter of 1997 of
$5,536,000, an increase of approximately 75% from interest charges of $3,172,000
for the second quarter of 1996. Interest charges incurred by the Company for
the first six months of 1997 were $9,831,000, an increase of approximately 59%
from interest charges of $6,184,000 for the first six months of 1996. The
increases in interest charges for the second quarter and first six months of
1997, compared to the second quarter and first six months of 1996, resulted
primarily from an increase in the average amount of the Company's outstanding
debt and, to a lesser extent, increased amortization and debt issuance expenses
resulting from the issuance of the 2006 Notes, that were partially offset by
lower average interest rate levels on the debt outstanding (resulting primarily
from the retirement of the 8% Debentures and the issuance of the 2006 Notes that
bear interest at a 5 1/2% annual interest rate).
Capitalized interest expense for the second quarter of 1997 was
$760,000, a decrease of approximately 24% from capitalized interest expense of
$1,004,000 for the first quarter of 1996. The decrease in capitalized interest
expense for the second quarter of 1997, compared to the second quarter of 1996,
resulted primarily the cessation of the requirement to capitalize interest
expense attributable to capital expenditures on properties once production
commences from such properties. A substantial percentage of the Company's
capitalized interest expense during 1996 and most of the first quarter of 1997
resulted from capitalization of interest related to capital expenditures for
the development of the Tantawan Field (which commenced production in early
February 1997) and the East Cameron Block 334 "E" platform field (which
commenced production in early April 1997). Capitalized interest expense for the
first six months of 1997 was $2,630,000, an increase of approximately 44% from
capitalized interest expense of $1,830,000 for the first six months of 1996.
For the reasons enumerated above, the increase in capitalized interest expense
for the first six months of 1997, compared to the first six months of 1996,
resulted primarily from the requirement to capitalize interest expense
attributable to capital expenditures on non-producing properties, principally
capital expenditures related to the Company's development of the Tantawan Field
and the East Cameron Block 334 "E" platform during the first quarter of 1997,
which substantially exceeded the Company's capital expenditures on
non-producing properties (principally the Tantawan Field) during the first six
months of 1996.
As of August 1, 1997, the Company was a party to an interest rate swap
agreement. The swap agreement, which terminates on March 10, 1998, effectively
changes the interest rate that the Company would pay on $5,000,000 of debt from
a market based variable rate to a fixed rate of 7.2%.
Income tax expense for the second quarter of 1997 was $4,955,000, an
increase of approximately 7% from income tax expense of $4,647,000 for the
second quarter of 1996. Income tax expense for the first six months of 1997 was
$11,708,000, an increase of approximately 50% from income tax expense of
$7,794,000 for the first six months of 1996. The increase in income tax expense
for the second quarter and first six months of 1997, compared to the second
quarter and first six months of 1996, resulted primarily from increased pre-tax
income.
Year Ended December 31, 1996, Compared with Years Ended December 31, 1995 and
1994, Respectively
The Company reported net income for 1996 of $32,760,000 or $0.96 per
share ($35,843,000 or $0.94 per share on a fully diluted basis) compared to net
income for 1995 of $9,230,000 or $0.28 per share (on both a primary and a fully
diluted basis) and net income for 1994 of $27,067,000 or $0.81 per share (on
both a primary and a fully diluted basis). The Company recorded extraordinary
losses of $307,000 during the second quarter of 1994 related to the early
retirement of the Company's 10.25% Convertible Subordinated Notes, due 1999 (the
"10.25% Notes") with the proceeds
34
<PAGE> 38
from the Company's issuance on March 16, 1994, of the 2004 Notes and $821,000
during the second quarter of 1996 related to the early retirement of the
Company's 8% Debentures with the proceeds from the Company's issuance on
June 18, 1996, of the 2006 Notes.
Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding for 1996 of 34,034,000
(37,951,000 on a fully diluted basis), compared to 33,490,000 (on both a
primary and a fully diluted basis) for 1995 and 33,352,000 (36,451,000 on a
fully diluted basis) for 1994. The yearly increases in the weighted average
number of common and common equivalent shares outstanding resulted primarily
from the issuance of shares of common stock upon the exercise of stock options
pursuant to the Company's stock option plans. Earnings per common share
computations on a fully diluted basis primarily reflect additional common
shares issuable upon the assumed conversion of the Company's 2004 Notes in 1994
and 1996 (the only convertible securities of the Company that were dilutive
during the applicable periods) and the elimination of related interest
requirements, as adjusted for applicable federal income taxes. Earnings
applicable to common stock for 1994, assuming full dilution was $29,448,000.
However, the dilution resulting from the assumed conversion of the 2004 Notes
in 1994 was not sufficient to change reported earnings per share in 1994.
The Company's total revenues for 1996 were $203,977,000, an increase
of approximately 29% from total revenues of $157,559,000 for 1995, and an
increase of approximately 17% from total revenues of $173,608,000 for 1994. The
increase in the Company's total revenues for 1996, compared to 1995 and 1994,
resulted primarily from the substantial increase in prices that the Company
received for its NGL production volumes and, to a lesser extent, an increase in
the Company's liquid hydrocarbon production volumes, which was only partially
offset by a decline in the Company's natural gas production volumes.
The Company's oil and gas revenues for 1996 were $204,142,000, an
increase of approximately 30% from oil and gas revenues of $157,459,000 for
1995, and an increase of approximately 18% from oil and gas revenues of
$173,556,000 for 1994. The following table reflects an analysis of variances in
the Company's oil and gas revenues between 1996 and the previous two years:
<TABLE>
<CAPTION>
1996 COMPARED TO
----------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Increase (decrease) in oil and gas revenues resulting from
variances in:
Natural Gas
Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,907 $27,685
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,350) (32,189)
-------- -------
22,557 (4,504)
-------- -------
Crude oil and condensate
Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,614 24,486
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,737 7,281
-------- -------
20,351 31,767
-------- -------
NGL and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,775 3,323
-------- -------
Increase (decrease) in oil and gas revenues . . . . . . . . . . . . . . . . . . . . $ 46,683 $30,586
======== =======
</TABLE>
The average price that the Company received for its natural gas
production during 1996 averaged $2.40 per Mcf. The average price that the
Company received for its natural gas production in 1996 compared favorably with
the average price that the Company had received during the preceding two years
of $1.63 per Mcf for 1995 (an increase of approximately 47%) and $1.88 per Mcf
for 1994 (an increase of approximately 28%). The Company's natural gas
production for 1996 averaged 107.7 MMcf per day, a decrease of approximately
11% from average production of 121 MMcf per day in 1995, and a decrease of
approximately 26% from average production of 144.8 MMcf per day for 1994. The
decrease in the Company's average natural gas production for 1996, compared to
1995, resulted primarily from the difference between the high initial natural
gas production rates from horizontal wells drilled from the Company's Eugene
Island 295 "B" platform which commenced in late February 1994 and the
subsequent natural production decline from those reservoirs, the slowdown of
development drilling, workover and recompletion work on certain of the
Company's non-operated properties in the Gulf of Mexico, largely due to a
decrease in planned drilling by the operators of such properties and production
curtailments due to adverse weather conditions (and drilling and workover
operations on certain of the Company's properties), along with the natural
decline in deliverability from certain of the Company's more mature properties.
Those decreases were only partially offset by new and increased production from
the Company's continued offshore drilling and workover program.
Crude oil and condensate prices received by the Company averaged
$22.12 per barrel in 1996, an increase of approximately 24% compared to an
average of $17.80 per barrel in 1995, and an increase of approximately 38%
35
<PAGE> 39
compared to an average price of $16.08 per barrel that the Company received in
1994. Crude oil and condensate production for 1996 averaged 11,968 Bbls per
day, an increase of approximately 2% from 11,786 Bbls per day for 1995, and an
increase of approximately 8% from 11,100 Bbls per day for 1994. The increase in
the Company's crude oil and condensate production for 1996, compared to 1995
and 1994, resulted primarily from ongoing development drilling and workover
programs in the Gulf of Mexico and in Lea and Eddy Counties of southeastern New
Mexico, which was only partially offset by the slowdown of development
drilling, workover and recompletion work on certain of the Company's
non-operated properties in the Gulf of Mexico, largely due to a decrease in
planned drilling by the operators of such properties and production
curtailments due to adverse weather conditions (and drilling and workover
operations on certain of the Company's properties), along with the natural
decline in deliverability from certain of the Company's more mature properties.
See "Business and Properties."
The Company's oil and gas revenues for 1996, 1995 and 1994 include
revenue from the sale of NGL, as well as adjustments for various miscellaneous
items. The Company's NGL and other, net revenues for 1996 increased $3,775,000
from those reported in 1995, and $3,323,000 from those reported in 1994. The
increase in NGL and other, net revenues in 1996, compared with 1995 and 1994,
primarily related to an increase in the price that the Company received for its
NGL production volumes and, to a lesser extent, an increase in such production
volumes.
The Company's average liquid hydrocarbon (including crude oil,
condensate and NGL) production during 1996 was 14,141 Bbls per day, an increase
of approximately 3% from an average total liquids production of 13,784 Bbls per
day for 1995, and an increase of approximately 6% from an average total liquids
production of 13,322 Bbls per day for 1994.
Lease operating expenses for 1996 were $37,628,000, an increase of
approximately 7% from lease operating expenses of $35,071,000 for 1995, and an
increase of approximately 26% from lease operating expenses of $29,768,000 for
1994. The increase in lease operating expenses for 1996, compared to 1995 and
1994, resulted primarily from increased costs to the Company (and the entire
offshore oil industry) because of an increasing shortage of qualified offshore
service contractors, which has permitted such contractors to increase the costs
of their services significantly in the last year, a year to year increase in
the level of the Company's operating activities, including increased operating
costs related to additional properties brought on production and an increased
ownership interest in certain properties as a result of the acquisition of such
interests. To a lesser extent, lease operating expenses for 1996, compared to
1995 and 1994, also increased as a result of a general maintenance and repair
program that was undertaken on many of the Company's operated properties, for
which no corresponding offsets of such magnitude existed in the comparable
prior periods.
General and administrative expenses for 1996 were $18,028,000, an
increase of approximately 10% from general and administrative expenses of
$16,400,000 for 1995, and an increase of approximately 13% from general and
administrative expenses of $15,984,000 for 1994. The increase in general and
administrative expenses for 1996, compared to 1995 and 1994, was related to,
among other things, the costs associated with the establishment of a Company
office in Bangkok, Thailand in connection with the Company's development
project and other activities in the Gulf of Thailand, an increase in the number
of Company employees resulting from the Company's increased exploration and
production related activities and to normal salary and concomitant benefit
expense adjustments.
Exploration expenses for 1996 were $16,777,000, an increase of
approximately 125% from exploration expenses of $7,468,000 for 1995, and an
increase of approximately 219% from exploration expenses of $5,257,000 for
1994. The increase in exploration expenses for 1996, compared to 1995 and 1994,
resulted primarily from increased geophysical activity by the Company,
including the costs of conducting and processing certain proprietary 3-D
seismic surveys on its domestic onshore and offshore properties, as well as in
the Gulf of Thailand, together with the cost of acquiring several
non-proprietary 3-D seismic surveys in the Gulf of Mexico. In addition, a
portion of the increase in exploration expenses was attributable to increased
delay rental expense resulting from the Company's acquisition of additional
prospective oil and gas acreage. While increases in the Company's exploration
expenses are a component of, and generally correlate fairly closely with,
increases in the Company's capital and exploration budget, the Company does not
currently expect its exploration expenses in 1997 to increase significantly
over those incurred in 1996.
Dry hole and impairment expenses relate to costs of unsuccessful wells
drilled along with impairments due to decreases in expected reserves from
producing wells. The Company's dry hole and impairment expenses for 1996 were
$8,579,000, an increase of approximately 28% from dry hole and impairment costs
of $6,703,000 for 1995, and an increase of approximately 21% from dry hole and
impairment costs of $7,088,000 for 1994.
The Company's DD&A expense for 1996 was $61,857,000, a decrease of
approximately 10% from DD&A expenses of $68,489,000 for 1995, and a decrease of
approximately 2% from DD&A expenses of $63,308,000 for 1994. The decrease in
the
36
<PAGE> 40
Company's DD&A expenses for 1996, compared to 1995, resulted primarily from
a decrease in the Company's composite DD&A rate and from a decrease in the
Company's natural gas production. The decreases in the Company's DD&A expenses
for 1996, compared to 1994, resulted primarily from a decrease in the Company's
natural gas production, partially offset by an increase in the Company's
composite DD&A rate. The composite DD&A rate for all of the Company's producing
fields for 1996 was $0.87 per Mcfe ($5.20 per BOE), a decrease of approximately
4% from a composite DD&A rate of $0.91 per Mcfe ($5.47 per BOE) for 1995, but
an increase of approximately 13% from a composite DD&A rate of $0.77 per Mcfe
($4.59 per BOE) for 1994. The Company produced 70,472,000 Mcfe (11,745,000 BOE)
in 1996, a decrease of approximately 5% from the 74,337,000 Mcfe (12,389,000
BOE) produced in 1995, and a decrease of approximately 14% from the 82,008,000
Mcfe (13,668,000 BOE) produced in 1994. See "Consolidated Financial Statements
- -- Note 1 of Notes to Consolidated Financial Statements" in the Company's
Annual Report incorporated by reference herein.
Interest charges for 1996 were $13,203,000, an increase of
approximately 18% from interest charges of $11,167,000 for 1995, and an
increase of approximately 31% from interest charges of $10,104,000 for 1994.
The increase in the Company's interest charges for 1996, compared to 1995 and
1994, resulted primarily from an increase in the amount of debt outstanding
that was only partially offset by, among other things, a decrease in the
average interest rate paid by the Company on its debt. Capitalized interest for
1996 was $4,244,000, an increase of approximately 131% from capitalized
interest of $1,834,000 for 1995, and an increase of approximately 474% from
capitalized interest of $739,000 for 1994. The increase in the amount of
interest capitalized by the Company in 1996, compared to 1995 and 1994, related
primarily to the capitalization of interest expenses resulting from the
engineering, acquisition and construction of facilities and equipment for the
Company's Tantawan Field and the Company's East Cameron 334/335 "D" platform
(both of which commenced in 1995) and the Company's East Cameron 334/335 "E"
platform (commencing in 1996). See "Business and Properties -- Domestic
Offshore Operations; Significant Domestic Offshore Operating Areas During 1996;
East Cameron."
Income tax expense for 1996 was $18,800,000, an increase of
approximately 284% from income tax expense of $4,891,000 for 1995, and an
increase of approximately 21% from income tax expense of $15,517,000 for 1994.
The increase in income tax expense for 1996, compared to 1995 and 1994,
resulted primarily from increased pre-tax income.
The reduction in the Company's oil and gas revenues and, consequently,
net income in 1995, compared to 1994, resulted primarily from decreases in the
Company's natural gas production volumes, which were not entirely offset by
increases in the Company's liquid hydrocarbon production volumes and the prices
that the Company received for such liquid hydrocarbon production volumes. See
"Business Properties -- Exploration and Production Data; Production and Sales."
LIQUIDITY AND CAPITAL RESOURCES
The Company's Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 1997, reflects net cash provided by operating
activities of $73,807,000 (including an income tax refund of $7,037,000 which
was partially offset by a payment of estimated income taxes of $4,500,000). In
addition to net cash provided by operating activities, the Company received
net proceeds of $97,270,000 from the issuance of the Old Notes on May 22, 1997,
$958,000 from the exercise of stock options and $100,000 from the sale of
certain non-strategic properties.
During the first six months of 1997, the Company invested $112,617,000
of such cash flow in capital projects, repaid a net $8,000,000 under its
revolving credit facility and paid $2,002,000 ($0.03 per share for each of the
first two quarters of 1997) in cash dividends to holders of the Company's common
stock. Of the $112,617,000 invested in capital projects, $56,961,000 was
applicable to 1996 capital projects and $55,656,000 was applicable to 1997
capital projects. As of June 30, 1997, the Company's cash and cash investments
were $23,505,000 and its long-term debt stood at $338,205,000.
The Company's Consolidated Statement of Cash Flows for the year ended
December 31, 1996, reflects net cash provided by operating activities of
$92,898,000. In addition to the net cash provided by operating activities, the
Company also received $3,378,000 from the exercise of stock options, had net
borrowings of $7,000,000 under its revolving credit agreement and uncommitted
money market credit lines with certain banks and received net proceeds totaling
$111,884,000 from the offering of the 2006 Notes. The Company invested
$172,032,000 of such cash flow in capital projects during 1996, paid
$40,699,000 to redeem its 8% Debentures and paid $3,979,000 ($0.03 per share
for four quarters) in cash dividends to holders of the Company's common stock.
Of the $172,032,000 invested in capital projects, $35,254,000 was applicable to
1995 projects and $136,778,000 was applicable to 1996 capital projects. The
Company's long-term debt at December 31, 1996, was $246,230,000. As of December
31, 1996, the Company had $3,054,000 in cash and cash investments.
The Company's capital and exploration budget for 1997, which does not
include any amounts that may be expended for the purchase of proved reserves
or any interest which may be capitalized resulting from projects in progress,
was established by the Company's Board of Directors at $210,000,000. In
addition to anticipated capital
37
<PAGE> 41
and exploration expenses, other material 1997 cash requirements that the
Company currently anticipates include ongoing operating, general and
administrative, income tax, interest expense and the payment of dividends on
its common stock, including a $.03 per share dividend on its common stock to be
paid on August 22, 1997 to stockholders of record as of August 8, 1997. The
Company currently anticipates that its available cash and cash investments,
cash provided by operating activities and funds available under its revolving
credit facility and uncommitted lines of credit with banks will be sufficient
to fund the Company's ongoing expenses, its 1997 capital and exploration budget
any currently anticipated costs associated with the Company's Thailand projects
during 1997 and anticipated future dividend payments. The declaration of future
dividends will depend upon, among other things, the Company's future earnings
and financial condition, liquidity and capital requirements, the general
economic and regulatory climate and other factors deemed relevant by the
Company's Board of Directors.
On May 22, 1997, the Company issued $100,000,000 of the Old Notes. The
proceeds from the issuance of the Old Notes were used to repay amounts
outstanding under the Company's bank revolving credit agreement, and to purchase
short-term cash investments. The Old Notes bear interest at a rate of 8 3/4%,
payable semi-annually in arrears on May 15 and November 15 of each year,
commencing November 15, 1997. The Old Notes are general unsecured senior
subordinated obligations of the Company and are subordinated in right of payment
to the Company's senior indebtedness, which currently includes its obligations
under its bank revolving credit agreement and its unsecured credit lines, but
are senior in right of payment to its subordinated indebtedness, which currently
includes the 2006 Notes and the 2004 Notes. The Company, at its option, may
redeem the Old Notes in whole or in part, at any time on or after May 15, 2002,
at a redemption price of 104.375% of their principal value and decreasing
percentages thereafter. No sinking fund payments are required on the Old Notes.
The Old Notes are redeemable at the option of any holder, upon the occurrence of
a change of control (as defined in the indenture governing the Old Notes), at
101% of their principal amount. The indenture governing the Old Notes also
imposes certain covenants on the Company that are customary for senior
subordinated indebtedness generally, including covenants limiting: incurrence of
indebtedness, including senior indebtedness; restricted payments; the issuance
and sales of restricted subsidiary capital stock; transactions with affiliates;
liens; disposition of proceeds of asset sales; non-guarantor restricted
subsidiaries; dividends and other payment restrictions affecting restricted
subsidiaries; and mergers, consolidations and the sale of assets. See
"Description of the Notes."
Effective August 1, 1997, the Company entered into an amended and
restated Credit Agreement (as so amended and restated, the "Credit Agreement").
The Credit Agreement provides for an unsecured $250,000,000 revolving/term
credit facility which will be fully revolving until July 1, 2000, after which
the balance will be due in eight quarterly term loan installments, commencing
October 31, 2000. The amount that may be borrowed under the Credit Agreement may
not exceed a borrowing base which is composed of both domestic and Thai
properties less, in certain circumstances, the present value of interest
payments on a portion of certain subordinated indebtedness, including the Old
Notes. The domestic borrowing base is determined semi-annually by the lenders
in accordance with the Credit Agreement, based primarily on the discounted
present value of future net revenues from the Company's domestic oil and gas
reserves. The portion of the borrowing base which is composed of properties
located in the Kingdom of Thailand is also determined semi-annually, but may,
at the lenders discretion, be redetermined once more during each semi-annual
period. The value of this portion of the borrowing base is determined by the
lenders applying their usual and customary criteria for oil and gas evaluation.
As of August 1, 1997, the Company's total borrowing base, including both
domestic and Thai properties, exceeded $250,000,000. The Credit Agreement is
governed by various financial and other covenants, including requirements to
maintain positive working capital (excluding current maturities of debt) and a
fixed charge coverage ratio, and limitations on indebtedness, creation of liens,
the prepayment of subordinated debt, the payment of dividends, mergers and
consolidations, investments and asset dispositions. In addition, the Company is
prohibited from pledging borrowing base properties as security for other debt.
Borrowings under the Credit Agreement currently bear interest at a base (prime)
rate or LIBOR plus 5/8%, at the Company's option. A commitment fee on the
unborrowed amount under the Credit Agreement is also charged. The commitment fee
is currently 0.25% per annum on the unborrowed amount under the Credit Agreement
that is designated as "active" and 0.10% per annum on the unborrowed amount
under the Credit Agreement that is designated as "inactive." Of the $250,000,000
that is currently available under the Credit Agreement (subject to borrowing
base limitations), $125,000,000 is designated as "active" and $125,000,000 is
designated as "inactive."
The Company has also entered into separate letter agreements with two
banks under which each bank may provide a $10,000,000 uncommitted money market
line of credit. The two lines of credit are on an as available or offered basis
and neither bank has an obligation to make any advances under its respective
line of credit. Although loans made under these letter agreements are for a
maximum term of 30 days, they are reflected as long-term debt on the Company's
balance sheet because the Company currently has the ability and intent to
reborrow such amounts under its Credit Agreement. Both letter agreements permit
either party to terminate such letter agreement at any time. Under its Credit
Agreement, the Company is currently limited to incurring a maximum of
$20,000,000 of additional senior debt, which would include debt incurred under
these lines of credit. As of June 30, 1997, indebtedness in the principal
amount of $37,000,000 was outstanding under the Credit Agreement and the two
letter agreements.
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<PAGE> 42
The outstanding principal amount of the 2004 Notes was $86,205,000 as
of June 30, 1997. The 2004 Notes are convertible into Common Stock at $22.188
per share, subject to adjustment upon the occurrence of certain events. The
2004 Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 15, 1998, at a redemption price of 103.3%
of their principal amount and decreasing percentages thereafter. No sinking
fund payments are required on the 2004 Notes. The 2004 Notes are redeemable at
the option of the holder, upon the occurrence of a repurchase event (a change
of control and other circumstances as defined in the indenture governing the
2004 Notes), at 100% of the principal amount.
The outstanding principal amount of the 2006 Notes was $115,000,000 as
of June 30, 1997. The 2006 Notes are convertible into Common Stock at $42.185
per share, subject to adjustment upon the occurrence of certain events. The
2006 Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after June 15, 1999, at a redemption price of 103.85%
of their principal amount and decreasing percentages thereafter. No sinking
fund payments are required on the 2006 Notes. The 2006 Notes are redeemable at
the option of the holder, upon the occurrence of a repurchase event (a change
of control and other circumstances as defined in the indenture governing the
2006 Notes), at 100% of the principal amount.
As of February 9, 1996, Tantawan Services, LLC ("TS"), an affiliate of
the Company, entered into a Bareboat Charter Agreement (the "Charter") with
Tantawan Production B.V. for the charter of a FPSO for use in the Tantawan
Field. See "Business and Properties -- International Operations." The term of
the Charter is for a period ending July 31, 2008, subject to extension. In
addition, TS has a purchase option on the FPSO throughout the term of the
Charter. The Charter currently provides for an estimated charter hire commitment
of $24,000,000 per year ($11,122,000 net to Thaipo), which commenced upon its
installation in the field on January 31, 1997. TS has also contracted with
another company, SBM Marine Services (Thailand) Ltd., to operate the FPSO on a
reimbursable basis throughout the initial term of the Charter. Performance of
both the Charter and the agreement to operate the FPSO are non-recourse to TS
and the Company. However, performance is secured by a lien on any hydrocarbons
stored on the FPSO and is guaranteed by each of the working interest holders in
the Tantawan Field, including Thaipo. Thaipo's guarantee is limited to its
percentage interest in the Tantawan Field (currently 46.34%).
OTHER MATTERS
Publicly held companies are asked to comment on the effects of
inflation on their business. Currently annual inflation in terms of the
decrease in the general purchasing power of the dollar is running much below
the general annual inflation rates experienced in the past. While the Company,
like other companies, continues to be affected by fluctuations in the
purchasing power of the dollar, such effect is not currently considered
significant.
39
<PAGE> 43
BUSINESS AND PROPERTIES
The Company was incorporated in 1970 and is engaged in oil and gas
exploration, development and production activities on its properties located
offshore in the Gulf of Mexico, onshore in selected areas in New Mexico, Texas
and Louisiana, and internationally in the Gulf of Thailand. As of December 31,
1996, the Company had interests in 86 lease blocks offshore Louisiana and
Texas, approximately 212,000 gross acres onshore in the United States and
approximately 1,300,000 gross acres offshore in the Kingdom of Thailand. Unless
otherwise specifically identified, the information set forth in this
Prospectus, including production rates and the number of wells, platforms and
blocks, is presented on a gross basis, rather than net to the Company.
In recent years, the Company has concentrated its efforts in selected
areas where it believes that its expertise, competitive acreage position, or
ability to quickly take advantage of new opportunities offer the possibility of
superior rates of return. As of January 1, 1997, seven significant operating
areas, of which four are located in the Gulf of Mexico and one each in New
Mexico, South Texas and Thailand, accounted for approximately 90% of the
estimated proved natural gas reserves and approximately 93% of the estimated
proved oil, condensate and natural gas liquids reserves of the Company. Six of
these operating areas also accounted for approximately 73% of natural gas
production and 88% of oil, condensate and natural gas liquids production for
1996. The seventh operating area, the Gulf of Thailand, did not commence
production until February 1, 1997. Reserves, as estimated by Ryder Scott, and
production data, as estimated by the Company, for the seven significant
operating areas are shown in the following table. No other producing area
accounted for more than 3% of the Company's estimated proved reserves as of
January 1, 1997.
SIGNIFICANT OPERATING AREAS
<TABLE>
<CAPTION>
1996 AVERAGE NET
NET PROVED RESERVES(A) DAILY PRODUCTION
---------------------- ----------------
NATURAL GAS LIQUIDS(B) TOTAL NATURAL GAS LIQUIDS(B)
----------- ---------- ----- ----------- ----------
(MMCF) % (MBBLS) % % (MCF) % (BBLS) %
------ - ------- - - ----- - ------ -
<S> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC OFFSHORE
Eugene Island . . . . 40,911 11.3% 8,378 16.9% 13.8% 27,800 25.7% 4,701 33.2%
East Cameron 44,293 12.3 1,015 2.0 7.7 11,587 10.7 94 0.7
Main Pass 16,970 4.7 4,573 9.2 6.7 7,828 7.2 2,209 15.6
South Pass 16,200 4.5 1,229 2.5 3.6 15,302 14.2 661 4.7
DOMESTIC ONSHORE
New Mexico 21,687 6.0 9,639 19.4 12.1 11,842 11.0 4,752 33.5
South Texas -- Lopeno 40,843 11.3 -- -- 6.2 4,902 4.5 -- --
INTERNATIONAL
Kingdom of Thailand(c) 144,998 40.2 21,332 43.0 41.5 n/a -- n/a --
</TABLE>
__________
(a) Net proved reserves and total net proved reserves are each as of
January 1, 1997. Total net reserves are calculated on an energy
equivalent basis using a ratio of six Mcf equal to one Bbl of oil.
(b) "Liquids," includes oil, condensate and natural gas liquids.
(c) Initial production from the Tantawan Field commenced on February 1,
1997. After giving effect to the Company's March 1997 acquisition of
its proportionate share of the shares of Maersk Oil (Thailand) Ltd.,
the Company's net proved reserves of natural gas and hydrocarbon
liquids located in the Kingdom of Thailand would have been 166,160
MMcf and 26,163 MBbls, respectively, on a pro forma basis on January
1, 1997. This would have equated to 46% of the Company's total net
proved hydrocarbon reserves, 43% of net proved
40
<PAGE> 44
natural gas reserves, and 48% of net proved liquids on a pro forma
basis as of January 1, 1997, while the respective percentages of the
Company's domestic hydrocarbon reserves as a percentage of the
Company's total net proved reserves would have been proportionately
reduced.
DOMESTIC OFFSHORE OPERATIONS
Historically, the Company's interests have been concentrated in the
Gulf of Mexico, where approximately 66% of the Company's domestic proved
reserves and 38% of its total proved reserves are now located. During 1996,
approximately 82% of the Company's natural gas production and 67% of its oil
and condensate production was from its domestic offshore properties,
contributing approximately 72% of consolidated oil and gas revenues. Four
offshore producing areas, Eugene Island, East Cameron, Main Pass and South
Pass, account for approximately 33% of the Company's net proved natural gas
reserves and approximately 31% of the Company's proved crude oil, condensate
and natural gas liquids reserves. See "Significant Domestic Offshore Operating
Areas during 1996."
Lease Acquisitions
The Company has participated, either on its own or with other
companies, in bidding on and acquiring interests in federal and state leases
offshore in the Gulf of Mexico since December 1970. As a result of such sales
and subsequent activities, as of August 1, 1997, the Company owned interests in
88 federal leases and 9 state leases offshore Louisiana and Texas. Federal
leases generally have primary terms of five years and state leases generally
have terms of three years, in each case subject to extension by development and
production operations.
As part of its strategy, the Company intends to continue an active
lease evaluation program in the Gulf of Mexico in order to identify exploration
and exploitation opportunities. During 1996, the Company was successful in
acquiring interests in ten lease blocks through federal Outer Continental Shelf
oil and gas lease sales. The Department of the Interior held one lease sale in
March 1997 (at which the Company and its partners were awarded twelve blocks)
and has announced its intention to hold another lease sale during 1997 covering
federal acreage in the Western portions of the Gulf of Mexico; and it is
anticipated that various states will also hold sales covering offshore state
acreage from time to time. As in the case of prior sales, the extent to which
the Company participates in future bidding will depend on the availability of
funds and its estimates of hydrocarbon deposits, operating expenses and future
revenues which reasonably may be expected from available lease blocks. Such
estimates typically take into account, among other things, estimates of future
hydrocarbon prices, federal regulations, and taxation policies applicable to the
petroleum industry. It is also the Company's objective to acquire certain
producing leasehold properties in areas where additional low-risk drilling or
improved production methods by the Company can provide attractive rates of
return.
Exploration and Development
The scope of exploration and development programs relating to the
Company's offshore interests is affected by prices for oil and gas, and by
federal, state and local legislation, regulations and ordinances applicable to
the petroleum industry. The Company's domestic offshore capital and exploration
expenditures for 1996 were approximately $92,400,000 (excluding approximately
$2,000,000 of net property acquisitions), or 144% higher than the Company's
domestic offshore capital and exploration expenditures of approximately
$37,800,000 (excluding approximately $650,000 of net property acquisitions) for
1995 and 91% higher than the Company's domestic offshore capital and
exploration expenditures of approximately $48,400,000 for 1994 (excluding
approximately $32,600,000 of net property acquisitions). The increase in the
Company's domestic offshore capital and exploration expenditures for 1996,
compared to 1995, resulted primarily from increased drilling activity and
increased costs associated with the construction and installation of offshore
platforms, pipelines and other facilities. The increase in the Company's
domestic offshore capital and exploration expenditures for 1996, compared to
1994, resulted primarily from increased costs associated with construction and
installation of offshore platforms, pipelines and other facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Leases acquired by the Company and other participants in its bidding
groups are customarily committed, on a block-by-block basis, to separate
operating agreements under which the appointed operator supervises exploration
and development operations for the account and at the expense of the group.
These agreements usually contain terms and conditions which have become
relatively standardized in the industry. Major decisions regarding development
and operations typically require the consent of at least a majority (in working
interest) of the participants. Because the Company generally has a meaningful
working interest position, the Company believes it can significantly influence
(but not always control) decisions regarding development and operations on most
of the leases in which it has a working interest even though it may not
be the operator of a particular lease. The Company is currently the operator on
all or a portion of 30 of the 97 offshore leases in which it has an interest.
Platforms are installed on an offshore lease block when, in the
judgment of the lease interest owners, the necessary capital expenditures are
justified. A decision to install a platform generally is made after the
drilling of one or more exploratory wells with contracted drilling equipment.
Platforms are used to accommodate both development drilling and additional
exploratory drilling. Over the last three years, the gross cost of production
platforms to the joint ventures in which the Company has varying net interests
has averaged approximately $7,000,000. Platform costs vary
41
<PAGE> 45
and more expensive platforms could be required in the future depending on,
among other factors, the number of slots, water depth, currents, and sea floor
conditions. During 1996, the Company installed, or substantially completed
construction of, two new platforms on East Cameron Block 334 and one new
platform on Ship Shoal Block 240. See "Significant Domestic Offshore
Operating Areas During 1996."
Significant Domestic Offshore Operating Areas During 1996
Eugene Island
A significant portion of the Company's reserves and a substantial part
of its production are located in the Eugene Island area off the Louisiana coast
in the Gulf of Mexico. The Eugene Island area has been an important part of the
Company's operations since the first lease in that area was purchased in 1970
and production began in 1973. The Company currently holds interests in 10
blocks in the Eugene Island area. These blocks comprise eight fields containing
67 oil and gas wells producing from multiple reservoirs and horizons. Through
January 1997, the Company participated in the drilling of six wells in the
Eugene Island operating area, including three highly successful wells in its
Eugene Island 261 field where the Company has a 66.67% working interest that
added new reserves and production capacity, bringing the total number of
productive wells in this field to six.
The Eugene Island Block 330 field is one of the Company's most
significant producing assets. The field, located in 245 feet of water, contains
three drilling and production platforms in which the Company holds a 35%
working interest, as well as an additional platform in which the Company holds
a 30% working interest. There are currently 9 wells producing primarily natural
gas and 34 wells producing primarily oil on the block. Reserves have been added
to this field consistently since production commenced. These increases have
been derived from new exploratory horizons, infill drilling, field expansions
and higher than anticipated recovery efficiencies. The Company and its joint
venture partners currently plan to drill seven wells in this field during 1997.
East Cameron
The first leasehold interest acquired by the Company in the East
Cameron area off the Texas/Louisiana border in the Gulf of Mexico commenced
production in February 1973. Presently, the Company has interests in five
offshore blocks in this area which contain two fields and 15 producing gas
wells.
During 1996, the Company and its partners were active in the East
Cameron Block 334/335 field. In August 1996, the Company and one of its joint
venture partners commenced production from the fourth platform to be installed
in this field. In addition, together with the same partner, the Company drilled
two additional wells and installed a fifth platform. Production from this
platform commenced in April, 1997. Finally, during the fourth quarter of 1996,
the Company and its joint venture partners drilled another exploratory well into
a new untested fault block. As a result of the success of this well, the Company
and its joint venture partners currently intend to set a sixth platform in the
field.
Main Pass
The Company's 14 lease blocks in the Main Pass area, including one
acquired in 1997, are located near the mouth of the Mississippi River in the
Gulf of Mexico and include leases in which the Company has held an interest
since 1974. The Company currently plans an active exploratory drilling program
during 1997 to evaluate the new lease blocks that it acquired in the Main Pass
Area. The majority of the Company's production from the Main Pass area comes
from a field that includes Main Pass Blocks 72, 73 and 72/74 which was unitized
in 1982. The Company's working interest in this field is 35%. This field
contains 26 producing oil wells and 6 producing natural gas wells from three
platforms operated by the Company's joint venture partner. The field is located
in 125 feet of water. The Company plans to continue into 1997 its drilling
program that commenced in 1995 which has been based in part on the analysis of
a recent 3-D seismic survey over the field.
South Pass
The Company acquired its first leasehold interest in the South Pass
area off of the mouth of the Mississippi River in September 1972. In 1996, the
Company acquired an interest in three additional blocks in this area, bringing
the total number of blocks in the South Pass area in which the Company
currently owns an interest to ten, on which four production platforms have been
set that produce oil and gas from 25 wells. One of the Company's fields in the
South Pass area is located on South Pass Blocks 49 and 50. The Company holds a
50% working interest in South Pass Block 50 and a 20% interest in South Pass
Block 49. The Company plans to drill additional wells in this field during
1997. Another field in which the Company has an interest in the South Pass area
is the South Pass Block 78 field. Following analysis of a recently acquired 3-D
seismic survey, the Company and several of its joint venture partners drilled
and
42
<PAGE> 46
completed four highly deviated wells into previously unexplored reservoirs
during late 1995 and 1996. The Company and its joint venture partners currently
plan to drill an additional well or wells in this field during 1997.
DOMESTIC ONSHORE OPERATIONS
The Company has onshore division staffs in Houston and Midland, Texas.
Its onshore activities are concentrated in known oil and gas provinces,
principally the Permian Basin area of southeastern New Mexico, West Texas and
Northwest Texas, and in the onshore Gulf Coast areas of South Texas, East Texas
and South Louisiana. See "Significant Domestic Onshore Operating Areas During
1996."
Lease Acquisitions
Commencing in 1995 and continuing in 1996, the Company increased its
activities in the onshore Gulf Coast areas of East Texas and South Louisiana.
In addition to participating in the acquisition of several large 3-D seismic
surveys, the Company acquired an interest in, or the right to acquire an
interest in, 22,395 gross acres in East Texas and South Louisiana. As it has in
recent years, in 1996 the Company also successfully participated in various
onshore federal and state lease sales and acquired interests in prospective
acreage from private individuals. As of December 31, 1996, the Company held
interests in approximately 212,000 gross (103,000 net) acres onshore in the
United States, an increase of approximately 40% (9% net) from year end 1995.
Exploration and Development
The Company's primary drilling objective in the Permian Basin is the
Brushy Canyon (Delaware) formation which generally produces oil from depths of
6,000 to 9,000 feet. Since the Company began exploring in the Brushy Canyon
(Delaware) formation in October 1989, it has participated in drilling 299 wells
in the Permian Basin, West and Northwest Texas areas through December 31, 1996,
including 40 wells in 1996.
The Company is also active in exploring for oil and gas in several
other onshore Gulf Coast areas in Texas and Louisiana. In addition to the wells
drilled in the Permian Basin, during 1996 the Company participated in the
drilling of eight exploratory wells (principally in East Texas and South
Louisiana) and ten development wells (principally in the Lopeno Field in South
Texas). See "Significant Domestic Onshore Operating Areas During 1996." During
1996, approximately 18% of the Company's natural gas production and 33% of its
oil and condensate production was from its domestic onshore properties,
contributing approximately 23% of consolidated oil and gas revenues.
The Company generally conducts its onshore activities through joint
ventures and other interest-sharing arrangements with major and independent oil
companies. The Company operates many of its own onshore properties using
independent contractors.
The Company's domestic onshore capital and exploration expenditures
were approximately $43,000,000 (excluding approximately $3,800,000 of net
property acquisitions) for 1996, or 31% higher than the Company's domestic
onshore capital and exploration expenditures of approximately $32,950,000
(excluding approximately $7,750,000 of net property acquisitions) for 1995 and
34% higher than the Company's domestic onshore capital and exploration
expenditures of approximately $32,000,000 for 1994. The increase in the
Company's domestic onshore capital and exploration expenditures for 1996,
compared to 1995 and 1994, resulted primarily from increased drilling activity
in South Texas, East Texas and South Louisiana, as well as increased
exploration costs associated with conducting, processing and interpreting 3-D
seismic surveys. Onshore reserves as of December 31, 1996, accounted for
approximately 34% of the Company's domestic proved reserves and approximately
20% of its total proved reserves.
Significant Domestic Onshore Operating Areas During 1996
New Mexico
The Company believes that during the past five years it has been one
of the most active companies drilling for oil and natural gas in the
southeastern New Mexico (Lea and Eddy Counties) portion of the Permian Basin
where the Company has interests in over 75,000 gross acres. The Company's
primary drilling objective is the Brushy Canyon (Delaware) formation. Fields in
the Brushy Canyon (Delaware) formation in the southeastern New Mexico portion
of the Permian Basin are generally characterized by production from relatively
shallow depths (6,000 to 9,000 feet), multiple producing zones in most wells
and relatively high initial rates of production (frequently equaling the top
field allowables which typically range from of 142 Bbls to 230 Bbls per day,
depending on the depth of production from the field). The Company has achieved
rapid cost recovery with respect to its New Mexico wells drilled to date
because of relatively low capital costs and high initial rates of production.
43
<PAGE> 47
Since the Company began exploring in the Brushy Canyon (Delaware)
formation in the southeastern New Mexico portion of the Permian Basin in
October 1989, it has participated through December 31, 1996, in the drilling
of, among others, 92 wells in the Sand Dunes field where the Company's working
interest ranges from 4% to 100%, 27 wells in the East Loving field where the
Company's working interest ranges from 33% to 98%, 57 wells in the Livingston
Ridge field where the Company's working interest ranges from 25% to 100%, 58
wells in the Red Tank field where the Company's working interest ranges from
89% to 100%, 16 wells in the Cedar Canyon field where the Company's working
interest ranges from 38% to 100% (including nine during 1996), and 3 wells in
the Lost Tank field where the Company's working interest ranges from 50% to
100%. The oil fields in this area are generally developed on a 40 acre spacing
pattern. The Company anticipates drilling many additional locations in these
and other fields in southeastern New Mexico during 1997 including, in
particular, an aggressive drilling program in the Cedar Canyon and Lost Tank
fields.
Lopeno Field
The Lopeno Field is located in south Texas, within 40 miles of the
Mexican border. The Company acquired its initial interest in the Lopeno Field
in 1983. The Company currently has interests in over 7,800 gross acres
containing 23 wells, with working interests generally averaging approximately
50%. The Lopeno Field produces from over 20 upper Wilcox sandstone reservoirs
ranging in depth up to 12,500 feet. Following acquisition, processing and
interpretation of a 3-D seismic survey over the field, the Company and its
joint venture partners commenced an active development drilling program in the
fourth quarter of 1995, including the drilling of seven wells in 1996. The
Company and its joint venture partners currently plan to drill an additional
seven wells in the Lopeno Field during 1997.
INTERNATIONAL OPERATIONS
The Company has conducted international exploration activities since
the late 1970's in numerous oil and gas areas throughout the world. The Company
pursues a strategy of evaluating potentially high return prospects in areas of
the world with a relatively stable political and financial climate such as
certain European and ASEAN countries. Currently, the Company maintains an office
in Bangkok, Thailand from which it directs a field development project in the
Gulf of Thailand on a portion of its Thailand Concession through its wholly
owned subsidiary, Thaipo.
The Company's international capital and exploration expenditures were
approximately $64,400,000 for 1996, or 84% higher than the Company's
international capital and exploration expenditures of approximately $34,950,000
(excluding approximately $4,171,000 of net property acquisitions) for 1995 and
914% higher than the Company's international capital and exploration
expenditures of approximately $6,350,000 for 1994. Substantially all of the
Company's international capital and exploration expenditures for 1996 were
related to the Company's license in the Kingdom of Thailand. In addition, the
Company continues to evaluate other international opportunities that are
consistent with the Company's international exploration strategy.
Platforms are installed on the Thailand Concession in fields where, in
the judgment of Thaipo and its joint venture partners, the necessary capital
expenditures are justified. A decision to install a platform generally is made
after the drilling of one or more exploratory wells with contracted drilling
equipment and the area where the platform would be located has been designated a
production area by the Thai government. See "-- Contractual Terms Governing the
Thailand Concession and Related Production." Platforms are used to accommodate
both development drilling and additional exploratory drilling. Over the last two
years, the gross cost of the first three production platforms in the Tantawan
Field has averaged approximately $20,000,000. Platform costs vary and more (or
less) expensive platforms could be required in the future depending on, among
other factors, the number of slots, water depth, currents, and sea floor
conditions. See "-- Significant International Operating Areas During 1996;
Tantawan Field."
Significant International Operating Areas During 1996
Tantawan Field
In August 1995, at the request of Thaipo and its two joint venture
partners, the government of Thailand designated a portion of the Thailand
Concession comprising approximately 68,000 acres as the Tantawan production
area. The Tantawan production area, of which Thaipo is the operator and has a
46.34% working interest, has been named the Tantawan Field. Through March 1,
1997, eleven exploration and twenty three development wells have been drilled
in the Tantawan Field. Initial production from the Tantawan Field commenced on
February 1, 1997, from wells located on two platforms. Development drilling has
commenced from a third platform that is currently being installed and will
commence early in the third quarter of 1997. A fourth platform has been
announced for the field and is currently under construction. Production from the
Tantawan Field averaged 84.2 MMcf per day and 5,162 Bbls per day (39 MMcf per
day and 2,392 Bbls per day net to the Company's working interest) during the
second quarter of 1997. Oil and gas production from the field is gathered
through pipelines from the platforms into a FPSO named the "Tantawan Explorer."
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<PAGE> 48
The FPSO Tantawan Explorer is a converted oil tanker with a capacity of slightly
less than 1,000,000 Bbls, that is moored in the Tantawan Field, on which
hydrocarbon processing, separation, dehydration, compression, metering and other
production related equipment is installed. Following processing on board the
FPSO, natural gas produced from the field is delivered to the PTT through an
export pipeline. Oil and condensate produced from the field is stored on board
the FPSO and transferred to shore by oil tanker. The FPSO and its processing
equipment is leased from a third party under a bareboat charter by Tantawan
Services, LLC, an affiliate of Thaipo. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Thaipo and its joint venture partners pay a processing fee to
Tantawan Services, LLC, to process the production from the Tantawan Field
through the FPSO.
Benchamas and Pakakrong Fields
Exploration efforts also continue on those portions of the Thailand
Concession outside the Tantawan Field. Through March 1, 1997, fourteen
exploration wells have been drilled on the Thailand Concession outside of the
Tantawan Field. This includes eleven wells, all of which have encountered
hydrocarbons, in the Benchamas and Pakakrong Fields. In June 1997, the
government of Thailand notified the Company that it had designated certain
Thailand Concession areas outside the Tantawan Field comprising approximately
101,000 acres, including the Benchamas and Pakakrong Fields, as production
areas. Thaipo and its joint venture partners have commenced preliminary
planning for the development of these fields. In March 1997, the Company and
its joint venture partners in the Tantawan Field or their affiliates, acquired
all of the outstanding shares of Maersk Oil (Thailand) Ltd., a former joint
venture partner that owned 31.67% of those portions of the Thailand Concession
not currently a part of the Tantawan Field, including the Benchamas and
Pakakrong Fields. With this acquisition, the Company now indirectly owns a
46.34% working interest in the entire Thailand Concession and its subsidiary
Thaipo is the operator of the entire Thailand Concession. Thaipo and its joint
venture partners are currently engaged in additional delineation drilling in
the Benchamas and Pakakrong Fields.
Other Areas on the Thailand Concession
In addition to the above mentioned fields, Thaipo and its joint
venture partners have identified other potentially promising areas on the
Thailand Concession including, among others, the Mailwan Field where Thaipo and
its joint venture partners recently drilled two successful wells. In July 1997,
Thaipo and its joint venture partners requested that the government of Thailand
designate the Maliwan Field area as a production area. The Government is
currently considering the request. In addition, since acquiring their interest
in the Thailand Concession, Thaipo and its joint venture partners have acquired
3-D seismic surveys covering approximately 452,000 acres of the Thailand
Concession and are currently planning to acquire additional 3-D seismic data
over other prospective portions of the Thailand Concession during 1997.
Contractual Terms Governing the Thailand Concession and Related Production
As set forth in the August 1991 Thailand Concession agreement, the
current exploratory term of the concession agreement expired on July 31, 1997,
subject to further extension as described below. At the end of the concession
agreement's current exploration term on July 31, 1997, Thai petroleum law
permits the government to grant, upon application by a concessionaire, an
additional three year exploration term on up to fifty percent of the Thailand
Concession acreage that has not been previously designated as a production area
or returned to the government, subject to certain terms and conditions
including the agreement to undertake a work program and the payment of
substantial fees and rentals. The Company and its joint venture partners
applied to the government for a three year extension of the exploratory term of
the Thailand Concession which would include the maximum amount of acreage
permitted by applicable law. The government has not yet formally responded to
the request. Although the Company currently believes that the government will
grant the request for a three year extension of the exploratory term of the
Thailand Concession agreement, there can be no assurance that the government
will grant the extension or, if it does, that it will be for the full three
years or for all of the acreage that was requested. For those portions of the
Thailand Concession designated as production areas, which currently includes
the Tantawan, Benchamas and Parkakrong Fields and, subject to the governmental
approval discussed above, may include other portions of the Thailand Concession
such as the Maliwan Field and other yet to be designated areas, the initial
production period term is 20 years, which is also subject to a ten year
extension. See also "-- Miscellaneous; Sales."
Production resulting from the Thailand Concession (including the
Tantawan production area) is subject to a royalty ranging from x5% to 15% of oil
and gas sales, plus certain fixed dollar amounts payable at specified
cumulative production levels. Revenue from production in Thailand is also
subject to income taxes and other similar governmental charges including a
Special Remuneratory Benefit tax ("SRB").
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<PAGE> 49
On November 7, 1995, Thaipo and its joint venture partners announced
the signing of a thirty-year gas sales agreement with PTT, initially governing
gas production from the Tantawan Field. Subsequently, Thaipo and its joint
venture partners reached an agreement in principle to amend this gas sales
agreement to include the reserves and anticipated gas production from the
remainder of the Thailand Concession, including the Benchamas Field. Initial
terms of the agreement include an initial minimum daily contract quantity
("DCQ") during the first year of production of 75 MMcf per day with the DCQ
rising to 85 MMcf per day in the following year. The DCQ is the minimum daily
volume that PTT has agreed to take, or pay for if not taken under the
agreement. Mutual agreement on dedicated reserves would be renegotiated as and
when the DCQ exceeds 125 MMcf per day. Initial base gas prices start at
approximately $2.00 per Mcf (payable in Baht), subject to semi-annual
adjustments based upon a formula which takes into account, among other things,
changes in Singapore fuel oil prices, Thai wholesale prices and the U.S./Thai
currency exchange rate. In late 1996, Thaipo and its joint venture partners
signed a memorandum of understanding with PTT providing for the sale of crude
oil and condensate to PTT at prices which fluctuate, based upon posted world
prices, and which take into account the anticipated high quality of the
production from Tantawan Field, and the field's close proximity to Thai
markets.
MISCELLANEOUS
Other Assets
The Company and a subsidiary, Pogo Offshore Pipeline Co., own
interests in seven pipelines (excluding field gathering pipelines) through
which offshore hydrocarbon production is transported. In addition, the Company
owns an approximately 19.3% interest in a cryogenic gas processing plant near
Erath, Louisiana, which entitles it to process up to 186 MMcf of natural gas
and 5,478 Bbls of natural gas liquids per day. The plant is not currently
operating at full capacity.
In 1989, the Company entered into a limited partnership agreement as
general partner of Pogo Gulf Coast, Ltd., a Texas limited partnership ("Pogo
Gulf Coast"). As of December 31, 1996, Pogo Gulf Coast had interests in 5
federal offshore leases. The Company owns 40% of any interest in properties
acquired by the limited partnership. Unless otherwise noted, the statistical
data reported in this Prospectus reflect only the Company's share of Pogo Gulf
Coast's holdings.
Sales
The marketing of offshore oil and gas production is subject to the
availability of pipelines and other transportation, processing and refining
facilities, as well as the existence of adequate markets. As a result, even if
hydrocarbons are discovered in commercial quantities, a substantial period of
time may elapse before commercial production commences. If pipeline facilities
in an area are insufficient, the Company may have to await the construction or
expansion of pipeline capacity before production from that area can be
marketed. The Company's domestic offshore properties are generally located in
areas where a pipeline infrastructure is well developed and there is adequate
availability in such pipelines to handle the Company's current and projected
future production.
The Company's Thailand Concession is traversed by two major (34 inches
and 36 inches in diameter, respectively) natural gas pipelines that are owned
and operated by PTT and which come within approximately 25 miles of the
Tantawan Field (and are slightly closer to the Benchamas and Pakakrong Fields).
Thaipo and its joint venture partners in the Tantawan Field signed a long term
gas sales contract with PTT in November 1995 covering production from the
Tantawan Field. In addition, in November 1996, Thaipo and its joint venture
partners entered into a memorandum of understanding which provides that oil and
condensate production from the Tantawan Field will initially be stored aboard
the FPSO, sold to PTT and transferred to shore by means of oil tankers. See "--
International Operations; Contractual Terms Governing the Thailand Concession
and Related Production."
The marketing of onshore oil and gas production is also subject to the
availability of pipelines, crude oil hauling and other transportation,
processing and refining facilities as well as the existence of adequate
markets. Generally, the Company's onshore domestic oil and gas production is
located in areas where commercial production of economic discoveries can be
rapidly effectuated.
Most of the Company's domestic natural gas sales are currently made in
the "spot market" for no more than one month at a time at then currently
available prices. Prices on the spot market fluctuate with demand. Crude oil and
condensate production is also generally sold one month at a time at the
currently available prices. Other than any futures contracts which may exist
from time to time, and which are referred to in "-- Miscellaneous; Competition
and Market Conditions," and the gas sales contract for production from the
Thailand Concession (see "-- International Operations; Contractual Terms
Governing the Thailand Concession and Related Production") the Company has no
existing contracts that require the delivery of fixed quantities of oil or
natural gas other than on a best efforts basis. See also "Consolidated Financial
Statements -- Note 4 to Notes to Consolidated Financial Statements and --
Unaudited Supplementary
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<PAGE> 50
Financial Data." During 1996, sales by the Company to Enron Corp. (including
its affiliates) was approximately 28.5% of the Company's 1996 revenues. During
that period, there was no other customer to whom sales by the Company exceeded
10% of the Company's 1996 revenues.
Competition and Market Conditions
The Company experiences competition from other oil and gas companies
in all phases of its operations, as well as competition from other energy
related industries. The Company's profitability and cash flow are highly
dependent upon the prices of oil and natural gas, which historically have been
seasonal, cyclical and volatile. In general, prices of oil and gas are
dependent upon numerous factors beyond the control of the Company, including
various weather, economic, political and regulatory conditions. During 1996,
the average price that the Company received for its crude oil, condensate and
natural gas production was substantially higher than it has been in recent
years. In the first half of 1997, the average prices that the Company
received for its production were less than what it received in 1996. See
"Selected Reserve and Operating Data." In the past, when natural gas
prices in the United States were lower than they are currently, the Company at
times elected to curtail certain quantities of its production. Should natural
gas prices fall further in the future, the Company may again elect to curtail
certain quantities of its natural gas production. Any significant decline in
oil or gas prices could have a material adverse effect on the Company's
operations and financial condition and could, under certain circumstances,
result in a reduction in funds available under the Company's bank credit
facility.
Because it is impossible to predict future oil and gas price movements
with any certainty, the Company from time to time enters into contracts on a
portion of its production to hedge against the volatility in oil and gas
prices. Such hedging transactions, historically, have never exceeded 50% of
the Company's total oil and gas production on an energy equivalent basis for
any given period. While intended to limit the negative effect of further price
declines, such transactions could effectively limit the Company's participation
in price increases for the covered period, which increases could be
significant. Furthermore, no assurance can be given that such transactions will
reduce risk or mitigate the effect of any substantial decline in oil and gas
prices. As of August 1, 1997, the Company was not a party to any natural gas
futures contracts or crude oil swap agreements. When the Company does engage in
such hedging activities, it may satisfy its obligations with its own production
or by the purchase (or sale) of third party production. The Company may also
cancel all delivery obligations by offsetting such obligations with equivalent
agreements, thereby effecting a purely cash transaction.
Operating and Uninsured Risks
The Company's operations are subject to risks inherent in the
exploration for and production of oil and natural gas, such as blowouts,
cratering, explosions, uncontrollable flows of oil, natural gas or well fluids,
fires, pollution and other environmental risks. Offshore oil and gas operations
are subject to the additional hazards of marine and helicopter operations, such
as capsizing, collision and adverse weather and sea conditions. These hazards
could result in substantial losses to the Company due to injury or loss of
life, severe damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. The Company carries
insurance which it believes is in accordance with customary industry practices,
but is not fully insured against all risks incident to its business.
Drilling activities are subject to numerous risks, including the risk
that no commercially productive hydrocarbon reserves will be encountered. The
cost of drilling, completing and operating wells and of installing production
facilities and pipelines is often uncertain. The Company's drilling operations
may be curtailed, delayed or canceled as a result of numerous factors,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery or availability of
equipment and fabrication yards. The availability of a ready market for the
Company's natural gas production depends on a number of factors, including the
demand for and supply of natural gas, the proximity of natural gas reserves to
pipelines, the capacity of such pipelines and government regulations.
Risks of Foreign Operations
Ownership of property interests and production operations in Thailand,
and in any other areas outside the United States in which the Company may
choose to do business, are subject to the various risks inherent in foreign
operations. These risks may include, among other things, currency restrictions
and exchange rate fluctuations, loss of revenue, property and equipment as a
result of hazards such as expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and governmental royalties,
renegotiation of contracts with governmental entities, changes in laws and
policies governing operations of foreign-based companies and other
uncertainties arising out of foreign government sovereignty over the Company's
international operations. The Company's international operations may also be
adversely affected by laws and policies of the United States affecting foreign
trade, taxation and
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<PAGE> 51
investment. In addition, in the event of a dispute arising from foreign
operations, the Company may be subject to the exclusive jurisdiction of foreign
courts or may not be successful in subjecting foreign persons to the
jurisdiction of the courts of the United States. The Company seeks to manage
these risks by concentrating its international exploration efforts in areas
where the Company believes that the existing government is stable and favorably
disposed towards United States exploration and production companies. The
Company believes that the Kingdom of Thailand currently presents favorable
conditions in which to conduct international operations.
EXPLORATION AND PRODUCTION DATA
In the following data "gross" refers to the total acres or wells in
which the Company has an interest and "net" refers to gross acres or wells
multiplied by the percentage working interest owned by the Company.
Acreage
The following table shows the Company's interest in developed and
undeveloped oil and gas acreage as of December 31, 1996:
<TABLE>
<CAPTION>
DEVELOPED ACREAGE(A) UNDEVELOPED ACREAGE(B)
-------------------- ----------------------
GROSS NET GROSS NET
------- ------- --------- -------
<S> <C> <C> <C> <C>
Domestic Onshore
Louisiana 869 209 28,072 9,373
New Mexico 21,246 11,882 54,354 39,119
Texas 13,676 4,987 90,597 37,452
Other 3,200 333 238 55
------- ------- --------- -------
Total Domestic 38,991 17,411 173,261 85,999
------- ------- --------- -------
Onshore
Domestic Offshore
Louisiana (State) 8,756 3,326 1,508 753
Louisiana (Federal)(c) 169,625 58,453 117,901 35,797
Texas (Federal) 46,080 11,819 17,280 8,640
------- ------- --------- -------
Total Domestic 224,461 73,598 136,689 45,190
------- ------- --------- -------
Offshore
Total Domestic 263,452 91,009 309,950 131,189
------- ------- --------- -------
International
Thailand (Offshore) 67,995 31,510 1,283,561 406,461
------- ------- --------- -------
TOTAL COMPANY 331,447 122,519 1,593,511 537,650
======= ======= ========= =======
</TABLE>
__________
(a) "Developed acreage" consists of lease acres spaced or assignable to
production on which wells have been drilled or completed to a point
that would permit production of commercial quantities of oil or
natural gas.
(b) "Undeveloped acreage" includes acreage under lease or subject to lease
or purchase options that the Company currently expects to exercise.
Approximately 9% of the Company's total domestic offshore net
undeveloped acreage is under leases that have terms expiring in 1997
(unless otherwise extended) and no domestic offshore undeveloped
acreage will expire in 1998. Approximately 5% of the Company's total
domestic onshore net undeveloped acreage is under leases that have
terms expiring in 1997 (unless otherwise extended) and another
approximately 10% of total domestic onshore net undeveloped acreage
will expire in 1998 (unless otherwise extended). All of the Company's
international undeveloped acreage must be relinquished to the Thai
government in 1997 unless designated as a production area or unless
the exploration term is extended as discussed above. See "Business --
International Operations; Contractual Terms Governing the Thailand
Concession and Related Production."
(c) The Company also owns overriding royalty interests in one federal
lease offshore Louisiana totaling 5,000 gross acres (1,250 net acres).
Drilling Activity and Productive Wells
The following table shows the number of successful gross and net
exploratory and development wells in which the Company has participated and the
number of gross and net wells abandoned as dry holes during the periods
indicated. An onshore well is considered successful upon the installation of
permanent equipment for the production of hydrocarbons or when electric logs
run to evaluate such wells indicate the presence of commercial hydrocarbons and
the Company currently intends to complete such wells. Successful offshore wells
consist of exploratory or development wells that have been completed or are
"suspended" pending completion (which has been determined to be feasible and
economic) and exploratory test wells that were not intended to be completed and
that encountered commercially producible hydrocarbons. A well is considered a
dry hole upon reporting of permanent abandonment to the appropriate agency.
48
<PAGE> 52
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- --------------
SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
GROSS WELLS:
Offshore United States
Exploratory 4.0 2.0 7.0 4.0 2.0 --
Development 17.0 3.0 3.0 1.0 25.0 2.0
Onshore United States
Exploratory 12.0 4.0 8.0 1.0 3.0 6.0
Development 39.0 1.0 47.0 1.0 51.0 3.0
Offshore Kingdom of Thailand
Exploratory 7.0 -- 3.0 -- 5.0 --
Development 16.0 -- 7.0 -- -- --
---- --- ---- --- ---- ---
Total 95.0 10.0 75.0 7.0 86.0 11.0
==== ==== ==== === ==== ====
NET WELLS:
Offshore United States
Exploratory 1.7 1.5 3.0 1.6 0.6 -
Development 4.9 1.5 1.0 0.4 8.4 1.4
Onshore United States
Exploratory 6.5 0.9 4.6 1.0 2.8 3.6
Development 24.4 0.7 31.3 0.1 29.9 0.9
Offshore Kingdom of Thailand
Exploratory 2.4 - 1.1 - 1.6 -
Development 7.4 - 3.2 - - -
---- --- ---- --- ---- ---
Total 47.3 4.6 44.2 3.1 43.3 5.9
==== === ==== === ==== ===
</TABLE>
As of December 31, 1996, the Company was participating in the drilling
of 3 gross (1.3 net) offshore domestic wells, 6 gross (4.2 net) onshore wells
and 1 gross (0.3 net) wells offshore the Kingdom of Thailand.
The following table shows the Company's interest in productive oil and
natural gas wells as of December 31, 1996. Productive wells are producing wells
plus wells "capable of production" (e.g., natural gas wells waiting for
pipeline connections or necessary governmental certification to commence
deliveries and oil wells waiting to be connected to production facilities).
<TABLE>
<CAPTION>
NATURAL GAS
OIL WELLS(A) WELLS(A)
------------- --------------
GROSS NET GROSS NET
----- ------ ------ ------
<S> <C> <C> <C> <C>
Offshore United States . . . . . . . . . . . . . . . . . . 180 46.0 178 58.8
Onshore United States . . . . . . . . . . . . . . . . . . . 285 183.4 84 35.2
Kingdom of Thailand(b) . . . . . . . . . . . . . . . . . . -- -- 9 4.2
--- ----- --- ----
Total . . . . . . . . . . . . . . . . . . . . . . 465 229.4 271 98.2
=== ===== === ====
</TABLE>
__________
(a) One or more completions in the same bore hole are counted as one well.
The data in the above table includes 25 gross (6.7 net) oil wells and
14 gross (5.7 net) natural gas wells with multiple completions.
(b) The number of wells set forth in this table as "capable of production"
in Thailand does not include 9 gross (4.2 net) wells that had been
drilled and were awaiting completion and connection at year end. All
of such wells have subsequently been completed as productive wells
during the first two months of 1997.
49
<PAGE> 53
Production and Sales
The following table summarizes the Company's average daily production,
net of all royalties, overriding royalties and other outstanding interests, for
the periods indicated. Natural gas production refers only to marketable
production of natural gas on an "as sold" basis.
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Production Sales:
Natural Gas (Mcf per day) . . . . . . . . . . . . . . . . . . . . . . 107,700 121,000 144,800
======== ======= =======
Liquid Hydrocarbons (Bbls per day)
Crude Oil and Condensate . . . . . . . . . . . . . . . . . . . . . 11,968 11,786 11,100
Natural Gas Liquids(a) . . . . . . . . . . . . . . . . . . . . . . 2,173 1,998 2,222
-------- ------- -------
Total Liquid Hydrocarbons . . . . . . . . . . . . . . . . . . 14,141 13,784 13,322
======== ======= =======
</TABLE>
__________
(a) Natural Gas Liquids production sales includes sales attributable to
both the Company's leasehold and plant ownership.
The following table shows the average sales prices received by the
Company for its production and the average production (lifting) costs per unit
of production during the periods indicated. See "-- Miscellaneous; Competition
and Market Conditions and Sales."
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C>
Sales Prices:
Natural Gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . $2.40 $1.63 $1.88
Crude Oil and Condensate (per Bbl) . . . . . . . . . . . . . . . . . $22.12 $17.80 $16.08
Natural Gas Liquids (per Bbl) . . . . . . . . . . . . . . . . . . . . $14.92 $11.10 $11.33
Production (lifting) Costs(a):
Natural Gas, Crude Oil, Condensate and Natural Gas
Liquids (per Mcf equivalent) . . . . . . . . . . . . . . . . . . . $0.53 $0.47 $0.36
</TABLE>
__________
(a) Production costs were converted to common units of measure on the
basis of relative energy content. Such production costs exclude all
depletion and amortization associated with property and equipment.
Reserves
The following table sets forth information as to the Company's net
proved and proved developed reserves as of December 31, 1996, 1995, and 1994,
and the present value as of such dates (based on an annual discount rate of
10%) of the estimated future net revenues from the production and sale of those
reserves, as estimated by Ryder Scott in accordance with criteria prescribed by
the Commission. The summary report of Ryder Scott on the reserve estimates,
which includes definitions and assumptions, is set forth as an exhibit to the
Annual Report, and the definitions, assumptions and descriptions of methodology
following the tables are based upon the Ryder Scott report. See "Incorporation
of Certain Documents by Reference."
50
<PAGE> 54
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Total Proved Reserves:
Oil, condensate, and natural gas liquids
(MBbls) --
Located in the United States . . . . . . . . . . . . . . . . . . . 28,270 26,185 26,188
Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 21,332 18,997 7,674
-------- -------- --------
Total Company(a) . . . . . . . . . . . . . . . . . . . . . . 49,602 45,182 33,862
======== ======== ========
Natural Gas (MMcf) --
Located in the United States . . . . . . . . . . . . . . . . . . . 215,946 196,454 186,151
Located in the Kingdom of Thailand(a) . . . . . . . . . . . . . . 144,998 131,607 56,739
-------- -------- --------
Total Company . . . . . . . . . . . . . . . . . . . . . . . . 360,944 328,061 242,890
======== ======== ========
Present value of estimated future net revenues,
before income taxes (in thousands)(b) --
Located in the United States . . . . . . . . . . . . . . . . . . . $773,127 $400,845 $330,868
Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 181,418 131,630 52,112
-------- -------- --------
Total Company . . . . . . . . . . . . . . . . . . . . . . . . $954,545 $532,475 $382,980
======== ======== ========
Total Developed Reserves:
Oil, condensate, and natural gas liquids
(MBbls) --
Located in the United States . . . . . . . . . . . . . . . . . . . 25,898 22,488 24,670
Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 5,192 -- --
-------- -------- --------
Total Company . . . . . . . . . . . . . . . . . . . . . . . . 31,090 22,488 24,670
======== ======== ========
Natural Gas (MMcf) --
Located in the United States . . . . . . . . . . . . . . . . . . . 192,034 164,679 178,518
Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 45,998 -- --
-------- -------- --------
Total Company . . . . . . . . . . . . . . . . . . . . . . . . 238,032 164,679 178,518
======== ======== ========
Present value of estimated future net revenues,
before income taxes (in thousands)(a) --
Located in the United States . . . . . . . . . . . . . . . . . . . $710,871 $359,984 $321,514
Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 69,062 -- --
-------- -------- --------
Total Company . . . . . . . . . . . . . . . . . . . . . . . . $779,933 $359,984 $321,514
======== ======== ========
</TABLE>
__________
(a) After giving effect to the Company's March 1997 acquisition of its
proportionate share of the shares of Maersk Oil (Thailand) Ltd., the
Company's net proved reserves of natural gas and hydrocarbon liquids
located in the Kingdom of Thailand would have been 166,160 MMcf and
26,163 MBbls, respectively, on a pro forma basis on December 31, 1996.
(b) The Company believes, for the reasons set forth in succeeding
paragraphs, that the present value of estimated future net revenues
set forth in this Prospectus and calculated in accordance with
Commission guidelines are not necessarily indicative of the true
present value of the Company's reserves and, due to the fact that
essentially all of the Company's domestic natural gas production is
currently sold on the spot market, whereas all of the Company's Thai
natural gas production is sold pursuant to a long term gas sales
contract, such estimates of future net revenues from the Company's
domestic and Thai reserves are, accordingly, not useful for
comparative purposes.
Natural gas liquids comprise approximately 8% of the Company's total
proved liquids reserves and approximately 12% of the Company's proved developed
liquids reserves. All hydrocarbon liquid reserves are expressed in standard 42
gallon Bbls. All gas volumes and gas sales are expressed in MMcf at the
pressure and temperature bases of the area where the gas reserves are located.
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing conditions. Reservoirs are considered proved if
economic producibility is supported by actual production or formation tests. In
certain instances, proved reserves are assigned on the basis of a combination
of core analysis and electrical and other type logs which indicate the
reservoirs are analogous to reservoirs in the same field which are producing or
have demonstrated the ability to produce on a formation test. The area of a
reservoir considered proved includes (i) that portion delineated by drilling
and defined by fluid contacts, if any, and (ii) the adjoining portions not yet
drilled that can be reasonably judged as economically productive on the basis
of available geological and engineering data. In the absence of data on fluid
contacts, the lowest known structural occurrence of hydrocarbons
51
<PAGE> 55
controls the lower proved limit of the reservoir. Proved reserves are estimates
of hydrocarbons to be recovered from a given date forward. They may be revised
as hydrocarbons are produced and additional data becomes available. Proved
natural gas reserves are comprised of nonassociated, associated and dissolved
gas. An appropriate reduction in gas reserves has been made for the expected
removal of liquids, for lease and plant fuel and the exclusion of
non-hydrocarbon gases if they occur in significant quantities and are removed
prior to sale. Reserves that can be produced economically through the
application of established improved recovery techniques are included in the
proved classification when these qualifications are met: (i) successful testing
by a pilot project or the operation of an installed program in the reservoir
provides support for the engineering analysis on which the project or program
was based, and (ii) it is reasonably certain the project will proceed. Improved
recovery includes all methods for supplementing natural reservoir forces and
energy, or otherwise increasing ultimate recovery from a reservoir, including,
(i) pressure maintenance, (ii) cycling, and (iii) secondary recovery in its
original sense. Improved recovery also includes the enhanced recovery methods
of thermal, chemical flooding, and the use of miscible and immiscible
displacement fluids. Estimates of proved reserves do not include crude oil,
condensate, natural gas, or natural gas liquids being held in underground
storage. Depending on the status of development, these proved reserves
are further subdivided into:
(i) "developed reserves" which are those proved reserves
reasonably expected to be recovered through existing wells with
existing equipment and operating methods, including (a) "developed
producing reserves" which are those proved developed reserves
reasonably expected to be produced from existing completion intervals
now open for production in existing wells, and (b) "developed
non-producing reserves" which are those proved developed reserves
which exist behind casing of existing wells which are reasonably
expected to be produced through these wells in the predictable future
where the cost of making such hydrocarbons available for production
should be relatively small compared to the cost of new wells; and
(ii) "undeveloped reserves" which are those proved reserves
reasonably expected to be recovered from new wells on undrilled
acreage, from existing wells where a relatively large expenditure is
required and from acreage for which an application of fluid injection
or other improved recovery technique is contemplated where the
technique has been proved effective by actual tests in the area in the
same reservoir. Reserves from undrilled acreage are limited to those
drilling units offsetting productive units that are reasonably certain
of production when drilled. Proved reserves for other undrilled units
are included only where it can be demonstrated with reasonable
certainty that there is continuity of production from the existing
productive formation.
In computing future revenues from gas reserves attributable to the
Company's domestic interests, prices in effect at December 31, 1996 were used,
including current market prices, contract prices and fixed and determinable
price escalations where applicable. In accordance with Commission guidelines,
the gas prices that were used make no allowances for seasonal variations in gas
prices which are likely to cause future yearly average gas prices to be
somewhat lower than December gas prices. For domestic gas sold under contract,
the contract gas price including fixed and determinable escalations, exclusive
of inflation adjustments, was used until the contract expires and then was
adjusted to the current market price for the area and held at this adjusted
price to depletion of the reserves. In computing future revenues from liquids
attributable to the Company's domestic interests, prices in effect at December
31, 1996 were used and these prices were held constant to depletion of the
properties. The future revenues are adjusted to reflect the Company's net
revenue interest in these reserves as well as any ad valorem and other
severance taxes but do not include, unless otherwise noted, any provisions for
corporate income taxes.
In computing future revenues from the Company's gas reserves
attributable to the Company's interests in the Kingdom of Thailand, the current
contract price under the gas sales agreement with PTT was used, without giving
effect to any of the adjustments provided for in the gas sales agreement due to
their indeterminate nature as of December 31, 1996 in accordance with
Commission guidelines. In computing future revenues from liquids attributable
to the Company's interests in the Kingdom of Thailand, a price of $24.56 was
used, which the Company believes approximates the price that the Company would
have received for production from the Thailand Concession under the memorandum
of understanding with PTT on December 31, 1996 if production had been sold to
PTT on that date, and this price was held constant until depletion of the
Company's reserves in the Kingdom of Thailand. The future revenues are adjusted
to reflect the Company's net revenue interest in these reserves and the
Company's obligations under the Thailand Concession, including the payment of
SRB and applicable production bonuses, but does not include, unless otherwise
noted, any provisions for U.S. or Thai corporate income or other taxes.
The estimates of future net revenue from the Company's domestic and
Thailand properties are based on existing law where the properties are located
and are calculated in accordance with Commission guidelines. Operating costs
for the leases and wells include only those costs directly applicable to the
leases or wells. When applicable, the operating costs include a portion of
general and administrative costs allocated directly to the leases and wells
under terms of operating agreements. Development costs are based on
authorization for expenditure for the proposed work or actual costs for similar
projects. The current operating and development costs were held constant
throughout the life
52
<PAGE> 56
of the properties. For properties located onshore, the estimates of future net
revenues and the present value thereof do not consider the salvage value of the
lease equipment or the abandonment cost of the lease since both are relatively
insignificant and tend to offset each other. The estimated net cost of
abandonment after salvage was considered for offshore properties where such
costs net of salvage are significant.
No deduction was made for indirect costs such as general and
administrative and overhead expenses, loan repayments, interest expenses, and
exploration and development prepayments. Accumulated gas production imbalances,
if any, have been taken into account. Production data used to arrive at the
estimates set forth above includes estimated production for the last few months
of 1996.
The future production rates from reservoirs now on production may be
more or less than estimated because of, among other reasons, mechanical
breakdowns and changes in market demand or allowables set by regulatory bodies.
Properties which are not currently producing may start producing earlier or
later than anticipated in the estimates of future production rates.
The future prices received by the Company for the sales of its
production may be higher or lower than the prices used in calculating the
estimates of future net revenues and the present value thereof as set forth
herein, and the operating costs and other costs relating to such production may
also increase or decrease from existing levels; however, such possible changes
in prices and costs were, in accordance with rules adopted by the Commission,
omitted from consideration in arriving at such estimates.
There are numerous uncertainties in estimating the quantity of proved
reserves and in projecting the future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized as
a subjective process of estimating underground accumulations of oil and gas
that cannot be measured in an exact way, and estimates of other engineers might
differ materially from those of Ryder Scott, the Company's reserve engineers.
The accuracy of any reserve estimate is a function of the quality of available
data and of engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate may
justify revision of such estimate, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered.
The Company is periodically required to file estimates of its oil and
gas reserve data with various U.S. governmental regulatory authorities and
agencies, including the Federal Energy Regulatory Commission ("FERC") and the
Federal Trade Commission and, with respect to reserves located in Thailand, the
Kingdom of Thailand's Department of Mineral Resources. In addition, estimates
are from time to time furnished to governmental agencies in connection with
specific matters pending before such agencies. The basis for reporting reserves
to these agencies, in some cases, is not comparable to that furnished by Ryder
Scott because of the nature of the various reports required. The major
differences generally include differences in the time as of which such
estimates are made, differences in the definition of reserves, requirements to
report in some instances on a gross, net or total operator basis and
requirements to report in terms of smaller geographical units. During 1996, no
estimates by the Company of its total proved net oil and gas reserves were
filed with or included in reports to any governmental authority or agency other
than the Commission and, with respect to reserves relating to the Company's
properties located in Thailand, the Kingdom of Thailand's Department of Mineral
Resources.
GOVERNMENT REGULATION
The Company's operations are affected from time to time in varying
degrees by political developments and governmental laws and regulations. Rates
of production of oil and gas have for many years been subject to governmental
conservation laws and regulations, and the petroleum industry has been subject
to federal and state tax laws dealing specifically with it.
Federal Income Tax
The Company's operations are significantly affected by certain
provisions of the federal income tax laws applicable to the petroleum industry.
The principal provisions affecting the Company are those that permit the
Company, subject to certain limitations, to deduct as incurred, rather than to
capitalize and amortize, its domestic "intangible drilling and development
costs" and to claim depletion on a portion of its domestic oil and gas
properties based on 15% of its oil and gas gross income from such properties
(up to an aggregate of 1,000 Bbls per day of domestic crude oil and/or
equivalent units of domestic natural gas) even though the Company has little or
no basis in such properties. Under certain circumstances, however, a portion
of such intangible drilling and development costs and the percentage depletion
allowed in excess of basis will be tax preference items that will be taken into
account in computing the Company's alternative minimum tax.
53
<PAGE> 57
Environmental Matters
Domestic oil and gas operations are subject to extensive federal
regulation and, with respect to federal leases, to interruption or termination
by governmental authorities on account of environmental and other
considerations including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") also known as the "Superfund Law." The recent
trend towards stricter standards in environmental legislation and regulation
may continue, and this could increase costs to the Company and others in the
industry. Regulations of the Department of the Interior currently impose
absolute liability upon the lessee under a federal lease for the costs of
clean-up of pollution resulting from a lessee's operations, and such lessee may
also be subject to possible legal liability for pollution damages. The Company
maintains insurance against costs of clean-up operations, but is not fully
insured against all such risks. A serious incident of pollution may, as it has
in the past, also result in the Department of the Interior requiring lessees
under federal leases to suspend or cease operation in the affected area.
The operators of the Company's properties have numerous applications
pending before the Environmental Protection Agency (the "EPA") for National
Pollution Discharge Elimination System water discharge permits with respect to
offshore drilling and production operations. The issue generally involved is
whether effluent discharges from each facility or installation comply with the
applicable federal regulations.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills
in United States waters. A "responsible party" includes the owner or operator
of a facility or vessel, or the lessee or permittee of the area in which an
offshore facility is located. The OPA assigns liability to each responsible
party for oil removal costs and a variety of public and private damages. While
liability limits apply in some circumstances, a party cannot take advantage of
liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of a federal safety, construction or
operating regulation. If the party fails to report a spill or cooperate fully
in the cleanup, liability limits likewise do not apply. Few defenses exist to
the liability imposed by the OPA.
The OPA also imposes ongoing requirements on responsible parties,
including proof of financial responsibility to cover at least some costs in a
potential spill. For tank vessels, including mobile offshore drilling rigs, the
OPA imposes on owners, operators and charterers of the vessels, an obligation
to maintain evidence of financial responsibility of up to $10,000,000 depending
on gross tonnage. With respect to offshore facilities, proof of greater levels
of financial responsibility may be applicable. For offshore facilities that
have a worst case oil spill potential of more than 1,000 barrels (which
includes many of the Company's offshore producing facilities), certain
amendments to the OPA that were enacted in 1996 provide that the amount of
financial responsibility that must be demonstrated for most facilities ranging
from $10,000,000 to $35,000,000, depending upon location, with higher amounts,
up to $150,000,000 in certain limited circumstances. The Company believes that
it currently has established adequate proof of financial responsibility for its
offshore facilities at no significant increase in expense over recent prior
years. However, the Company cannot predict whether these financial
responsibility requirements under the OPA amendments will result in the
imposition of substantial additional annual costs to the Company in the future
or otherwise materially adversely effect the Company. The impact, however,
should not be any more adverse to the Company that it will be to other
similarly situated or less capitalized owners or operators in the Gulf of
Mexico.
The Company's onshore operations are subject to numerous United States
federal, state, and local laws and regulations controlling the discharge of
materials into the environment or otherwise relating to the protection of the
environment including CERCLA. Such laws and regulations, among other things,
impose absolute liability on the lessee under a lease for the cost of clean-up
of pollution resulting from a lessee's operations, subject the lessee to
liability for pollution damages, may require suspension or cessation of
operations in affected areas, and impose restrictions on the injection of
liquids into subsurface aquifers that may contaminate groundwater. Such laws
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. Federal, state and local initiatives to
further regulate the disposal of oil and gas wastes are also pending in certain
states, and these initiatives could have a similar impact on the Company.
The Company is asked to comment on the costs it incurred during the
prior year on capital expenditures for environmental control facilities and the
amount it anticipates incurring during the coming year. The Company believes
that, in the course of conducting its oil an gas operations, many of the costs
attributable to environmental control facilities would have been incurred
absent environmental regulations as prudent, safe oilfield practice. During
1996, the Company incurred capital expenditures of approximately $1,971,000 for
environmental control facilities, primarily relating to the completion of two
salt water disposal facilities in New Mexico and the installation of certain
environmental control facilities on two platforms installed in the Gulf of
Thailand and on one platform installed in the Gulf of Mexico. The Company
currently has budgeted approximately $1,240,000 for expenditures involving
environmental control facilities during 1997, including, among other things,
two salt water disposal facilities and environmental control equipment for one
platform in the Gulf of Mexico.
54
<PAGE> 58
Other Laws and Regulations
Various laws and regulations often require permits for drilling wells
and also cover spacing of wells, the prevention of waste of oil and gas
including maintenance of certain gas/oil ratios, rates of production and other
matters. The effect of these laws and regulations, as well as other regulations
that could be promulgated by the jurisdictions in which the Company has
production, could be to limit the number of wells that could be drilled on the
Company's properties and to limit the allowable production from the successful
wells completed on the Company's properties, thereby limiting the Company's
revenues.
The MMS administers the oil and gas leases held by the Company on
federal onshore lands and offshore tracts in the Outer Continental Shelf. The
MMS holds a royalty interest in these federal leases on behalf of the federal
government. While the royalty interest percentage is fixed at the time that the
lease is entered into, from time to time the MMS changes or reinterprets the
applicable regulations governing its royalty interests, and such action can
indirectly affect the actual royalty obligation that the Company is required to
pay. In a letter dated May 3, 1993, the MMS announced a reinterpretation of its
right to collect royalty payments from producers on certain settlements in
which such producers and pipeline companies were involved a number of years
ago. The MMS reinterpretation has been challenged in court by various producers
and trade groups representing them. On August 27, 1996, in Independent
Petroleum Association of America, et al. v. Babbit et al., Nos. 95-5210 etc.,
the United States Court of Appeals for the District of Columbia Circuit held
that the May 3, 1993, reinterpretation was invalid and unenforceable. Unless
and until this or other similar cases are resolved in favor of the MMS'
reinterpretation of its regulations, it is unlikely that the Company or other
producers will be legally required to pay royalties on such settlement
agreements. The Company was involved in several settlement agreements with
pipelines that could be subject to the MMS' new reinterpretation. The MMS has
reviewed the Company's and other producers' settlement agreements, to determine
whether it believes any additional royalty payments may be due and has asserted
that additional royalties may be due in connection with two of the Company's
settlement agreements. Based upon existing case law, the Company has asserted
through the administrative appeals process, and continues to believe, that it
does not owe any additional royalties beyond what it has previously paid.
However, in the event that the MMS is able to successfully assert that
additional royalty is due from the Company in connection with settlement
agreements to which the Company is a party, the Company does not currently
believe that such additional assessment will have a material adverse impact on
the financial position or results of operations of the Company.
The FERC has recently embarked on regulatory initiatives relating to
its jurisdiction over rates for natural gas gathering services provided by
interstate pipelines and to the availability of market-based and other
alternative rate mechanisms to such pipelines for transmission and storage
services. Among the FERC initiatives is a policy allowing pipelines and
transportation customers to negotiate rates above the otherwise applicable
maximum lawful cost-based rates on the condition that the pipelines
alternatively offer so-called recourse rates equal to the maximum lawful
cost-based rates. This negotiated/recourse rate policy has been challenged in
the United States Court of Appeals for the District of Columbia, and the appeal
remains pending. With respect to gathering services, the FERC has issued orders
declaring that certain facilities owned by interstate pipelines primarily
perform a gathering function, and may be transferred to affiliated and non-
affiliated entities that are not subject to the FERC's rate jurisdiction. Many
of these orders have been challenged on rehearing to the FERC, and on appeal
to the courts. The Company cannot predict the ultimate outcome of these
developments, nor the effect of these developments on transportation rates.
Inasmuch as the rates for these pipeline services can affect the gas prices
received by the Company for the sale of its production, the FERC's actions may
have an impact on the Company. However, the impact should not be substantially
different on the Company than it will on other similarly situated gas
producers and sellers.
EMPLOYEES
As of May 1, 1997, the Company and its subsidiary Thaipo had 150
full-time employees, including sixteen in its Bangkok, Thailand office. None of
the Company's employees are presently represented by a union for collective
bargaining purposes. The Company considers its relations with its employees to
be excellent.
55
<PAGE> 59
MANAGEMENT AND BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Executive officers of the Company are appointed annually to serve for
the ensuing year or until their successors have been elected or appointed. The
executive officers of the Company, their age as of June 1, 1997, and the year
each was elected to his present position are as follows:
<TABLE>
<CAPTION>
YEAR
EXECUTIVE OFFICER EXECUTIVE OFFICE AGE ELECTED
------------------- --------------------------- --- -------
<S> <C> <C> <C>
Paul G. Van Wagenen . . . . . . . . . . . . . . . . . Chairman of the Board, 51 1991
President and Chief Executive
Officer
Kenneth R. Good . . . . . . . . . . . . . . . . . . . Corporate Senior Vice 59 1996
President
Bruce E. Archinal . . . . . . . . . . . . . . . . . . Vice President and Onshore 44 1997
Division Manager
Stuart P. Burbach . . . . . . . . . . . . . . . . . . Vice President and Offshore 45 1991
Division Manager
Jerry A. Cooper . . . . . . . . . . . . . . . . . . . Vice President and Western 48 1990
Division Manager
John W. Elsenhans . . . . . . . . . . . . . . . . . . Vice President -- Finance and 44 1995
Treasurer
Harvey L. Gold . . . . . . . . . . . . . . . . . . . Vice President -- Engineering 61 1988
Thomas E. Hart . . . . . . . . . . . . . . . . . . . Vice President and Controller 54 1988
R. Phillip Laney . . . . . . . . . . . . . . . . . . Vice President and 56 1991
International Division Manager
John O. McCoy, Jr . . . . . . . . . . . . . . . . . . Vice President and Chief 45 1989
Administrative Officer
J. D. McGregor . . . . . . . . . . . . . . . . . . . Vice President -- Sales 52 1988
Ronald B. Manning . . . . . . . . . . . . . . . . . . Vice President and General 43 1995
Counsel
Gerald A. Morton . . . . . . . . . . . . . . . . . . Vice President -- Law and 38 1997
Corporate Secretary
Sammie M. Shaw . . . . . . . . . . . . . . . . . . . Vice President -- Operations 65 1992
</TABLE>
Prior to assuming their present positions with the Company, the
business experience of each executive officer for more than the last five years
was as follows: Mr. Van Wagenen, who joined the Company in 1979, served as
President and Chief Operating Officer of the Company since 1990; Mr. Good, who
joined the Company in 1977, served as Senior Vice President -- Land and Budgets
since 1991; Mr. Archinal, who joined the Company in 1982, was Onshore Division
Manager since 1994, and prior thereto served as Offshore Division Exploration
Manager since 1991; Mr. Burbach, who rejoined the Company in 1991, was Vice
President of Norfolk Holding Inc. from 1986 until rejoining the Company; Mr.
Cooper served in various positions since joining the Company in 1979; Mr.
Elsenhans was Director, Corporate Finance for the Company since 1991; Mr. Gold
was Manager of Reservoir Engineering for the Company since joining the Company
in 1977; Mr. Hart was Controller for the Company since joining the Company in
1977; Mr. Laney, who joined the Company in 1977, served as International
Exploration Manager for the Company since 1983; Mr. McCoy served as Director of
Personnel and Administration for the Company since joining the Company in 1978;
Mr. McGregor was Manager of Hydrocarbon Sales and Contracts for the Company
since joining the Company in 1981; Mr. Manning, who joined the Company in 1987,
was Corporate Secretary and an Associate General Counsel for the Company since
1990; Mr. Morton was Corporate Secretary and Associate General Counsel for the
Company since 1995, an Associate General Counsel since joining the Company in
1993, and prior thereto was an attorney with the law firm of Weil, Gotshal &
Manges since 1988; Mr. Shaw was Operations Manager for the Company since
joining the Company in 1981.
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<PAGE> 60
BOARD OF DIRECTORS
The following is a list of the members of the Company's Board of
Directors and their principal occupations.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---------------------- ---------------------------------------
<S> <C>
Paul G. Van Wagenen . . . . . Chairman of the Board, President and Chief
Executive Officer of the Company
Tobin Armstrong . . . . . . . Rancher
Jack S. Blanton . . . . . . . President, Eddy Refining Company; Chairman,
Houston Endowment, Inc.
W. M. Brumley, Jr . . . . . . Personal Investments
John B. Carter, Jr . . . . . Chairman of the Board, Houston National Bank
William L. Fisher . . . . . . Barrow Chair and Geological Sciences
Professor University of Texas at Austin
William E. Gipson . . . . . . Independent Petroleum Geologist, President,
Wines of Pheasant Ridge
Gerrit W. Gong . . . . . . . Director, Asian Studies, Center for Strategic
and International Studies
J. Stuart Hunt . . . . . . . Personal Investments
Frederick A. Klingenstein . . Chairman of the Board, Klingenstein, Fields &
Co., L.P.
Nicholas R. Petry . . . . . . Chairman of the Board, Petry Company
Jack A. Vickers . . . . . . . Chairman of the Board, The Vickers Companies
</TABLE>
57
<PAGE> 61
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Old Notes were issued,
pursuant to an indenture (the "Indenture") between the Company, as issuer, and
State Street Bank & Trust Company (as successor in interest to Fleet National
Bank under the Indenture), as trustee (the "Trustee"). The terms of the Notes
include those set forth or referred to in the Indenture and those made part of
the Indenture by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Notes are subject to all such terms, and prospective
Holders of the Notes are referred to the Indenture, the documents referred to in
the Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture is materially complete. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions."
If this Exchange Offer is consummated, Holders of Old Notes who do not
exchange their Old Notes for Exchange Notes will vote together with Holders of
Exchange Notes for all relevant purposes under the Indenture. In that regard,
the Indenture requires that certain actions by the Holders thereunder
(including acceleration following an Event of Default) must be taken, and
certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether Holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes that remain outstanding
after the Exchange Offer will be aggregated with the Exchange Notes, and the
Holders of such Old Notes and the Exchange Notes will vote together as a single
series for all such purposes. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Notes shall be
deemed to mean, at any time after the Exchange Offer is consummated, such
percentages in aggregate principal amount of the Old Notes and the Exchange
Notes then outstanding.
GENERAL
The Notes are unsecured senior subordinated obligations of the Company
limited to $100,000,000 aggregate principal amount. The Exchange Notes will be
issued, and the Old Notes were issued, only in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. Principal
of, premium, if any, on and interest on the Notes is payable, and the Notes are
transferable, at the office or agency of the Company in the City of New York
maintained for such purposes, which initially will be the corporate trust
office or agency of the Trustee maintained at New York, New York. In addition,
interest may be paid, at the option of the Company, by check mailed to the
registered Holders of the Notes at their respective addresses as shown on the
Note Register or, upon application to the Trustee by any Holder of an aggregate
principal amount of Notes in excess of $500,000 not later than the applicable
Regular Record Date, by transfer to an account (such transfer to be made only
to a Holder of an aggregate principal amount of Notes in excess of $500,000)
maintained by such Holder with a bank in New York City. No transfer will be
made to any such account unless the Trustee has received written wire
instructions not less than 15 days prior to the relevant payment date. No
service charge will be made for any transfer, exchange or redemption of Notes,
but the Company or the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be payable in connection
therewith. For a discussion of the circumstances in which the interest rate on
the Notes may be temporarily increased, see "Exchange Offer;
Registration Rights."
Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on May 15, 2007. Interest on the Notes will
accrue at the rate of 8 3/4% per annum and will be payable semiannually on May
15 and November 15 of each year (each an "Interest Payment Date"), commencing
November 15, 1997, to the Person in whose name the Note is registered in the
Note Register at the close of business on the May 1, or November 1 next
preceding such interest payment date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on an interest payment date that is on or prior to the
redemption date), if redeemed during the 12-month period beginning on May 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---------------- --------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.375%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.917%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.458%
2005 and thereafter . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
Selection and Notice. In the event that less than all of the Notes are
to be redeemed at any time, selection of such Notes (or any portion thereof
that is an integral multiple of $1,000) for redemption will be made by the
Trustee from the outstanding Notes not previously called for redemption (or
otherwise purchased by the Company) on a pro rata
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<PAGE> 62
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Note with a principal amount of $1,000 or less shall
be redeemed in part. Notice of redemption shall be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
a principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption and accepted for payment.
Offers to Purchase. As described below, (a) upon the occurrence of a
Change of Control, the Company is obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase and (b) upon the occurrence of an Asset Sale, the Company may be
obligated to make offers to purchase Notes with a portion of the Net Cash
Proceeds of such Asset Sale at a purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "-- Certain Covenants -- Change of Control" and "-- Limitation
on Disposition of Proceeds of Asset Sales."
SUBORDINATION
Payments of and distributions on or with respect to the Note
Obligations is subordinated, to the extent set forth in the Indenture, in right
of payment to the prior payment in full in cash or Cash Equivalents of all
existing and future Senior Indebtedness, which includes, without limitation,
all Credit Agreement Obligations of the Company. The Notes will rank prior in
right of payment only to other Indebtedness of the Company which is, by its
terms, subordinated in right of payment to the Notes. As of June 30, 1997, there
was $201,205,000 of Indebtedness of the Company which would constitute such
Subordinated Indebtedness. In addition, the Note Obligations are effectively
subordinated to all creditors of the Company's Subsidiaries, including trade
creditors. See "Risk Factors -- Subordination of Notes" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
The Indenture provides that in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company (or its creditors, as such) or its properties and assets, or (b) any
liquidation, dissolution or other winding-up of the Company, whether voluntary
or involuntary or (c) any assignment for the benefit of creditors or other
marshaling of assets or liabilities of the Company, all Senior Indebtedness of
the Company must be paid in full in cash or Cash Equivalents before any direct
or indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred
to in the Indenture as "Permitted Junior Securities"), is made on account of
the Note Obligations. In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Note receives any payment or distribution of
properties or assets of the Company of any kind or character, whether in cash,
property or securities, by set-off or otherwise, in respect of Note Obligations
before all Senior Indebtedness is paid or provided for in full in cash or Cash
Equivalents, then the Trustee or the Holders of Notes receiving any such
payment or distribution (other than a payment or distribution in the form of
Permitted Junior Securities) will be required to pay or deliver such payment or
distribution forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full.
During the continuance of any default in the payment when due (whether
at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise)
of principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of
any kind or character shall be made on account of the Note Obligations or any
obligation under any Subsidiary Guarantee unless and until such default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full in cash or Cash
Equivalents.
In addition, during the continuance of any default other than a
Payment Default with respect to any Designated Senior Indebtedness pursuant to
which the maturity thereof may then be accelerated (a "Non-payment Default"),
after receipt by the Trustee from the holders (or their representative) of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
no payment or distribution of any kind or character may be made by the Company
on account of the Note Obligations for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice
of a Non-payment Default by the Trustee from the holders (or their
representative) of Designated Senior Indebtedness stating that such notice is a
payment blockage notice pursuant to the Indenture and shall end on the earliest
to occur of the following events: (a) 179 days shall have elapsed since the
receipt by the Trustee of such notice; (b) the date, as set forth in a written
notice to the Company or the Trustee from the holders (or their representative)
of the Designated Senior Indebtedness initiating such Payment Blockage Period,
on which such default is cured or waived or ceases to exist (provided, that no
other Payment Default or Non-payment Default has occurred or is then continuing
after giving effect to such cure or waiver); (c) the date on which such
Designated Senior Indebtedness is discharged or paid in full in cash or Cash
Equivalents; and (d) the date, as set forth in a written notice to the Company
or the Trustee from the holders (or their representative) of the Designated
Senior Indebtedness initiating such Payment Blockage Period, on which such
Payment Blockage Period shall
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<PAGE> 63
have been terminated by written notice to the Company or the Trustee from the
holders (or their representative) of Designated Senior Indebtedness initiating
such Payment Blockage Period, after which the Company, subject to the
subordination provisions set forth above and the existence of another Payment
Default, shall promptly resume making any and all required payments in respect
of the Notes, including any missed payments. Only one Payment Blockage Period
with respect to the Notes may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a
period of 360 consecutive days, unless such default has been cured or waived
for a period of not less than 90 consecutive days (it being acknowledged that
any subsequent action, or any breach of any financial covenant for a period
commencing after the date of commencement of such Payment Blockage Period,
that, in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was
continuing shall constitute a new Non-payment Default for this purpose;
provided, however, that, in the case of a breach of a particular financial
covenant, the Company shall have been in compliance for at least one full 90
consecutive day period commencing after the date of commencement of such
Payment Blockage Period). In no event will a Payment Blockage Period extend
beyond 179 days from the date of the receipt by the Trustee of the notice, and
there must be a 181 consecutive day period in any 360-day period during which
no Payment Blockage Period is in effect. In the event that, notwithstanding the
foregoing, the Company makes any payment or distribution to the Trustee or the
Holder of any Note prohibited by the subordination provision of the Indenture,
then such payment or distribution will be required to be paid over and
delivered forthwith to the holders (or their representative) of Designated
Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure will constitute an Event of
Default under the Indenture and will enable the Holders of the Notes to
accelerate the maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of liquidation,
receivership, reorganization or insolvency, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the Holders of
the Notes, and funds which would be otherwise payable to the Holders of the
Notes will be paid to the holders of the Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full, and the Company may be unable
to meet its obligations in full with respect to the Notes.
As of June 30, 1997, the aggregate amount of outstanding Senior
Indebtedness was approximately $37,000,000. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and the
Restricted Subsidiaries may incur, the amounts of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness or
Indebtedness of Subsidiaries to which the Notes will be subordinated. The
Indenture prohibits the incurrence by the Company of Indebtedness that is
contractually subordinated in right of payment to any Senior Indebtedness of the
Company and senior in right of payment to the Notes. As of June 30, 1997, there
was $201,205,000 of Indebtedness of the Company that was contractually
subordinated in right of payment to the Old Notes and there was no Indebtedness
of the Company which was pari passu in right of payment with the Old Notes.
POSSIBLE SUBSIDIARY GUARANTEES OF THE NOTES
In the event that certain of the Company's existing or future
Restricted Subsidiaries issue or guarantee certain indebtedness, they will be
required by the terms of the Indenture to jointly and severally guarantee the
Notes on a senior subordinated basis. At the date hereof, no Subsidiary of the
Company has issued or is required to issue a Subsidiary Guarantee and the
Company does not intend to cause any Subsidiary to take any action that would
require it to issue any Subsidiary Guarantee.
Any Subsidiary that issues a Subsidiary Guarantee is herein called a
Subsidiary Guarantor. Each Subsidiary Guarantor will guarantee, jointly and
severally, to each Holder of Notes and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of (or premium, if any, on) and interest on
the Notes pursuant to its Subsidiary Guarantee. The Subsidiary Guarantees will
be subordinated to Guarantor Senior Indebtedness of the Subsidiary Guarantors to
the same extent and in the same manner as the Notes are subordinated to Senior
Indebtedness.
The obligations of each Subsidiary Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor (if any) in a pro rata amount based on the
Adjusted Net Assets (as defined in the Indenture) of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell,
assign, convey, transfer, lease or otherwise dispose of its properties and
assets substantially as an entirety (or any portion thereof) to the Company or
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<PAGE> 64
another Subsidiary Guarantor without limitation, except to the extent any such
transaction is subject to the covenants described below under the caption "--
Merger, Consolidation and Sale of Assets." Each Subsidiary Guarantor may
consolidate with or merge into or sell, assign, convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety in
one transaction or series of related transactions to a Person other than the
Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor); provided, that (a) in the case of a merger or
consolidation, if the surviving Person is not the Subsidiary Guarantor, such
surviving Person or, in the case of a sale, assignment, conveyance, transfer,
lease or other disposition, the transferee Person agrees to assume such
Subsidiary Guarantor's Subsidiary Guarantee and all its obligations pursuant to
the Indenture, except to the extent that the following paragraph would result
in the release of such Subsidiary Guarantee and (b) such transaction does not
(i) violate any of the covenants described below under the caption "-- Certain
Covenants" or in the Indenture or (ii) result in a Default or Event of Default
immediately thereafter.
The Subsidiary Guarantee of any Restricted Subsidiary may be released
upon the terms and subject to the conditions described under paragraph (b) of
the caption "-- Certain Covenants -- Limitation on Non-Guarantor Restricted
Subsidiaries." Each Subsidiary Guarantor that is designated as an Unrestricted
Subsidiary in accordance with the Indenture shall be released from its
Subsidiary Guarantee and related obligations set forth in the Indenture for so
long as it remains an Unrestricted Subsidiary.
Although the Indenture does not contain any requirement that any
Subsidiary execute and deliver a Subsidiary Guarantee, certain covenants
described below require a Restricted Subsidiary in the future to execute and
deliver a Subsidiary Guarantee prior to the issuance or guarantee of certain
other Indebtedness. See "Certain Covenants -- Limitation on Non-Guarantor
Restricted Subsidiaries" and "Limitation on other Senior Subordinated
Indebtedness."
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness. The Indenture provides that neither the
Company nor any Restricted Subsidiary will create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable for the payment
of (collectively "incur") any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary
Indebtedness, as the case may be; provided, however, that the Company and its
Restricted Subsidiaries that are Subsidiary Guarantors may incur additional
Indebtedness if (i) the Company's Consolidated Fixed Charge Coverage Ratio for
the four full fiscal quarters immediately preceding the incurrence of such
Indebtedness (and for which financial statements are available), taken as one
period (at the time of such incurrence, after giving pro forma effect to: (A)
the incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom as if such Indebtedness had been incurred and the
application of such proceeds had occurred at the beginning of such four-quarter
period; (B) the incurrence, repayment or retirement of any other Indebtedness
(including Permitted Indebtedness and Permitted Subsidiary Indebtedness) by the
Company or its Restricted Subsidiaries since the first day of such four-quarter
period (including any other Indebtedness to be incurred concurrent with the
incurrence of such Indebtedness) as if such Indebtedness had been incurred,
repaid or retired at the beginning of such four-quarter period; and (C)
notwithstanding clause (d) of the definition of Consolidated Net Income, the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any Person acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition had occurred
at the beginning of such four-quarter period), would have been equal to at
least 2.5 to 1.0 and (ii) no Default or Event of Default would occur or be
continuing.
Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take any of the following actions (unless such action constitutes a
Permitted Investment):
(i) declare or pay any dividend on, or make any distribution
to holders of, any shares of the Company's Capital Stock (other than
dividends or distributions payable solely in shares of Qualified
Capital Stock of the Company, options, warrants or other rights to
purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any Affiliate thereof (other than
any Wholly Owned Restricted Subsidiary of the Company) or any options,
warrants or other rights to acquire such Capital Stock; provided,
however, that the Company may make any payment of the applicable
redemption price in connection with a Qualified Redemption
Transaction;
(iii) make any principal payment on or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, any Pari Passu Indebtedness or Subordinated Indebtedness,
except in any case out of a Pari Passu Offer or a Net Proceeds
Deficiency (each as defined in "-- Limitation on Disposition of
Proceeds of Asset Sales") pursuant to the provisions of the Indenture
described under the caption "-- Limitation on Disposition of Proceeds
of Asset Sales" and except upon a Change of Control or similar event
required by the indenture or other agreement or instrument pursuant to
which such Pari Passu Indebtedness or Subordinated Indebtedness was
issued, provided the Company is then obligated to make a Change of
Control Offer in compliance with the covenant described below under
"-- Change of Control;" provided, however, that the Company may make
any payment of the applicable redemption price in connection with a
Qualified Redemption Transaction;
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<PAGE> 65
(iv) declare or pay any dividend on, or make any distribution
to the holders of, any shares of Capital Stock of any Restricted
Subsidiary of the Company (other than to the Company or any of its
Wholly Owned Restricted Subsidiaries) or purchase, redeem or otherwise
acquire or retire for value any Capital Stock of any Restricted
Subsidiary (other than a Wholly Owned Restricted Subsidiary) or any
options, warrants or other rights to acquire any such Capital Stock
(other than with respect to any such Capital Stock held by the Company
or any Wholly Owned Restricted Subsidiary of the Company);
(v) make any Investment; or
(vi) in connection with the acquisition of any property or
asset by the Company or its Restricted Subsidiaries after the date of
the Indenture, which property or asset would secure or be subject to
any Production Payment obligations of the Company or its Restricted
Subsidiaries, make any investment (of cash, property or other assets)
in such property or asset so acquired in addition to the amount of
Indebtedness (including Production Payment obligations) incurred by
the Company or its Restricted Subsidiaries in connection with such
acquisition;
(such payments or other actions described in (but not excluded from) clauses
(i) through (vi) are collectively referred to as "Restricted Payments"), unless
at the time of and after giving effect to the proposed Restricted Payment (with
the amount of any such Restricted Payment, if other than cash, being the amount
determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in accordance with the
covenant described above under the caption " -- Limitation on Indebtedness" and
(3) the aggregate amount of all Restricted Payments declared or made after the
date of the Indenture shall not exceed the sum (without duplication) of the
following:
(A) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on
the first day of the first month after the date of the Indenture and
ending on the last day of the Company's last fiscal quarter ending
prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss), plus
(B) the aggregate net cash proceeds received after the date of
the Indenture by the Company as capital contributions to the Company
(other than from any Restricted Subsidiary), plus
(C) the aggregate net cash proceeds received after the date of
the Indenture by the Company from the issuance or sale (other than to
any of its Restricted Subsidiaries) of shares of Qualified Capital
Stock of the Company or any options, warrants or rights to purchase
such shares of Qualified Capital Stock of the Company, plus
(D) the aggregate net cash proceeds received after the date of
the Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after the date of
the Indenture by the Company from the issuance or sale (other than to
any of its Restricted Subsidiaries) of debt securities or shares of
Redeemable Capital Stock that have been converted into or exchanged
for Qualified Capital Stock of the Company to the extent such debt
securities were originally sold for cash, together with the aggregate
cash received by the Company at the time of such conversion or
exchange, plus
(F) to the extent not otherwise included in the Company's
Consolidated Net Income, the net reduction in Investments in
Affiliates and Unrestricted Subsidiaries resulting from the payments
of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or
a Restricted Subsidiary after the date of the Indenture from any
Affiliate or Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each
case as provided in the definition of "Investment"), not to exceed in
the case of any Affiliate or Unrestricted Subsidiary the total amount
of Investments (other than Permitted Investments) in such Affiliate or
Unrestricted Subsidiary made by the Company and its Restricted
Subsidiaries in such Affiliate or Unrestricted Subsidiary after the
date of the Indenture, plus
(G) $15,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as (in the case
of clauses (ii), (iii) and (iv) below) no Default or Event of Default shall
have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such declaration date such declaration
complied with the provisions of paragraph (a) above (and such payment
shall be deemed to have been paid on such date of declaration for
purposes of any calculation required by the provisions of paragraph
(a) above);
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(ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
or any Restricted Subsidiary, in exchange for, or out of the aggregate
net cash proceeds of, a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock
of the Company;
(iii) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for or out of the
aggregate net cash proceeds of a substantially concurrent issue and
sale (other than to a Restricted Subsidiary) of shares of Qualified
Capital Stock of the Company;
(iv) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for, or out of the
aggregate net cash proceeds of, a substantially concurrent incurrence
(other than to a Restricted Subsidiary) of Subordinated Indebtedness
of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount (or, if such
Subordinated Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the
date of determination) of the Subordinated Indebtedness being so
purchased, redeemed, repaid, defeased, acquired or retired, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Subordinated Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus the amount
of fees and expenses of the Company incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to
the Notes at least to the same extent as such Subordinated
Indebtedness so purchased, redeemed, repaid, defeased, acquired or
retired, (C) such new Subordinated Indebtedness has an Average Life to
Stated Maturity that is longer than the Average Life to Stated
Maturity of the Notes and such new Subordinated Indebtedness has a
Stated Maturity for its final scheduled principal payment that is at
least 91 days later than the Stated Maturity for the final scheduled
principal payment of the Notes; and
(v) repurchases, acquisitions or retirements of shares of
Qualified Capital Stock of the Company deemed to occur upon the
exercise of stock options or similar rights issued under employee
benefit plans of the Company if such shares represent all or a portion
of the exercise price or are surrendered in connection with satisfying
any Federal income tax obligation.
The actions described in clauses (i), (ii) and (iii) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a) (provided, that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clauses (iv) and (v) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (i) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Limitation on Issuances and Sales of Restricted Subsidiary Capital
Stock. The Indenture provides that the Company (a) will not permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Company
or a Wholly Owned Restricted Subsidiary) and (b) will not permit any Person
(other than the Company and/or one or more Wholly Owned Restricted
Subsidiaries) to own any Capital Stock of any Restricted Subsidiary; provided,
however, that this covenant shall not prohibit (i) the issuance and sale of
all, but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary owned by the Company or any of its Restricted
Subsidiaries in compliance with the other provisions of the Indenture, (ii) the
ownership by directors of directors' qualifying shares, (iii) the ownership by
any Person of Capital Stock of a Restricted Subsidiary that was owned by a
Person at the time such Restricted Subsidiary became a Restricted Subsidiary or
acquired by a Person in connection with the formation of the Restricted
Subsidiary (including, in each case, any Capital Stock issued as a result of a
stock split, a dividend of shares of Capital Stock to holders of such Capital
Stock, a recapitalization affecting such Capital Stock or similar event) and
(iv) the ownership by any Person of Capital Stock of any Foreign Subsidiary so
long as none of the Capital Stock of that Subsidiary has been issued in a
public offering.
Limitation on Transactions with Affiliates. The Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or the rendering of any services) with, or for the
benefit of, any Affiliate of the Company other than a Restricted Subsidiary
(each, other than a Restricted
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Subsidiary, being an "Interested Person"), unless (a) such transaction or
series of transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that would be
available in a comparable arm's length transaction with unrelated third parties
who are not Interested Persons, or, in the event no comparable transaction with
an unrelated third party who is not an Interested Person is available, on terms
that are fair from a financial point of view to the Company or such Restricted
Subsidiary, as the case may be, (b) with respect to any one transaction or
series of related transactions involving aggregate payments in excess of
$10,000,000, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of transactions complies with clause
(a) above and such transaction or series of transactions has been approved by
the Board of Directors and (c) with respect to any one transaction or series of
related transactions involving aggregate payments in excess of $20,000,000, the
Officers' Certificate referred to in clause (b) above also includes a
certification that such transaction or series of transactions has been approved
by a majority of the Disinterested Directors (either of the full Board of
Directors or, in the case of action by a committee thereof, of such committee)
or, in the event there are no such Disinterested Directors, that the Company
has obtained a written opinion from an independent nationally recognized
investment banking firm or appraisal firm, in either case specializing or
having a specialty in the type and subject matter of the transaction or series
of related transactions at issue, which opinion shall be to the effect set
forth in clause (a) above; provided, however, that this covenant will not
restrict the Company from (i) paying reasonable and customary regular
compensation and fees to directors of the Company who are not employees of the
Company or any Restricted Subsidiary, (ii) paying dividends on, or making
distributions with respect to, shares of Capital Stock of the Company on a pro
rata basis to the extent permitted by the covenant described above under the
caption "-- Limitation on Restricted Payments," (iii) making Restricted
Payments that are permitted by the provisions of the Indenture described above
under the caption "-- Limitation on Restricted Payments," (iv) making loans or
advances to officers, directors and employees of the Company or any Restricted
Subsidiary in the ordinary course of business and consistent with customary
practices in the Oil and Gas Business in an aggregate amount not to exceed
$1,000,000 outstanding at any one time, (v) making any indemnification or
similar payment to any director or officer (A) in accordance with the corporate
charter or bylaws of the Company or any Restricted Subsidiary, (B) under any
agreement or (C) under applicable law and (vi) fulfilling obligations of the
Company or any Restricted Subsidiary under employee compensation and other
benefit arrangements entered into or provided for in the ordinary course of
business.
Limitation on Liens. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume, affirm or suffer to exist or become effective any Lien
of any kind, except for Permitted Liens, on or with respect to any of its
property or assets (including any intercompany notes), whether owned at the
date of the Indenture or thereafter acquired, or any income, profits or
proceeds therefrom, or assign or otherwise convey any right to receive income
thereon, unless (a) in the case of any Lien securing Subordinated Indebtedness,
the Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Lien and (b) in the case of any other Lien, the
Notes are directly secured equally and ratably with the obligation or liability
secured by such Lien. The incurrence of additional secured Indebtedness by the
Company or any Restricted Subsidiary is subject to further limitations on the
incurrence of Indebtedness as described above under the caption "-- Limitation
on Indebtedness."
Change of Control. Upon the occurrence of a Change of Control, the
Company shall be obligated to make an offer to purchase all of the then
outstanding Notes (a "Change of Control Offer"), and shall purchase, on a
business day (the "Change of Control Purchase Date") not more than 75 nor less
than 30 days following the Change of Control, all of the then outstanding Notes
validly tendered pursuant to such Change of Control Offer at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Company's obligations to make a Change of Control Offer may
not be waived without the consent of the requisite Holders. The Change of
Control Offer is required to remain open for at least 20 Business Days and until
the close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall,
not later than the 30th day after the Change of Control, mail to each Holder of
a Note a notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that Holders of the Notes must follow to accept the Change of
Control Offer.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes delivered by Holders of the Notes seeking
to accept the Change of Control Offer. If on a Change of Control Purchase Date
the Company does not have available funds sufficient to pay the Change of
Control Purchase Price or is prohibited from purchasing the Notes, an Event of
Default will occur under the Indenture.
Moreover, the definition of Change of Control includes a phrase
relating to the sale of other disposition of the Company's properties and
assets "substantially as an entirety." Although there is a developing body of
case law interpreting phrases such as "substantially as an entirety," there is
no precise established definition of such phrases under applicable law.
Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale or other disposition of less than
all of the properties and assets of the Company on a consolidated basis to
another Person or related group of Persons may be uncertain.
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer at
the same purchase price, at the same times and otherwise in substantial
compliance with the requirements applicable to a Change of Control Offer made
by the Company and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
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The Company intends to comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder, if applicable, in the
event that a Change of Control occurs and the Company is required to purchase
Notes as described above. The existence of a Holder's right to require, subject
to certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction
that constitutes, or results in, a Change of Control.
Limitation on Disposition of Proceeds of Asset Sales. (a) The
Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution) and (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, in
respect of such Asset Sale consists of cash, Cash Equivalents and/or the
assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the Notes)
or any Restricted Subsidiary as a result of which the Company and its remaining
Restricted Subsidiaries are no longer liable.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may either (i) apply the Net Cash Proceeds thereof to reduce
Senior Indebtedness, to reduce Guarantor Senior Indebtedness or to reduce
Indebtedness of any Restricted Subsidiary incurred pursuant to clause (m) of
the definition of Permitted Subsidiary Indebtedness, provided, if any such
Senior Indebtedness, Guarantor Senior Indebtedness or Permitted Subsidiary
Indebtedness has been incurred under any revolving credit facility, that the
related commitment to lend or the amount available to be reborrowed under such
facility is also reduced, or (ii) invest all or any part of the Net Cash
Proceeds thereof, within 365 days after such Asset Sale, in properties and
assets which replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the business of the
Company or its Restricted Subsidiaries, as the case may be ("Replacement
Assets"). The amount of such Net Cash Proceeds not applied or invested as
provided in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$15,000,000, the Company shall make an offer to purchase, from all Holders of
the Notes and any then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any then outstanding Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(i) (A) the Company shall make an offer to purchase (a "Net
Proceeds Offer") from all Holders of the Notes in accordance with the
procedures set forth in the Indenture the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out
of an amount (the "Payment Amount") equal to the product of such
Excess Proceeds, multiplied by a fraction, the numerator of which is
the outstanding principal amount of the Notes and the denominator of
which is the sum of the outstanding principal amount of the Notes and
such Pari Passu Indebtedness, if any (subject to proration in the
event such amount is less than the aggregate Offered Price (as defined
below) of all Notes tendered), and (B) to the extent required by such
Pari Passu Indebtedness and provided there is a permanent reduction in
the principal amount of such Pari Passu Indebtedness, the Company
shall make an offer to purchase Pari Passu Indebtedness (a "Pari Passu
Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to
the excess of the Excess Proceeds over the Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in
an amount equal to 100% of the principal amount of the Notes tendered
pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if
any, to the date such Net Proceeds Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate Offered Price of the Notes tendered
pursuant to a Net Proceeds Offer is less than the Payment Amount
relating thereto or the aggregate amount of the Pari Passu
Indebtedness that is purchased or repaid pursuant to the Pari Passu
Offer is less than the Pari Passu Indebtedness Amount (such shortfall
constituting a "Net Proceeds Deficiency"), the Company may use such
Net Proceeds Deficiency for general corporate purposes, subject to the
limitations described above under the caption "-- Limitation on
Restricted Payments."
(iii) If the aggregate Offered Price of Notes validly tendered
and not withdrawn by Holders thereof exceeds the Payment Amount, Notes
to be purchased will be selected on a pro rata basis. Upon completion
of such Net Proceeds Offer and Pari Passu Offer, the amount of Excess
Proceeds shall be reset to zero.
The Company intends to comply with Rule 14e-1 under the Exchange Act, and any
other securities laws and regulations thereunder, if applicable, in the event
that an Asset Sale occurs and the Company is required to purchase Notes as
described above.
The Credit Agreement may prohibit the Company from purchasing any
Notes from Excess Proceeds. Any future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may
contain similar restrictions. In the event a Net Proceeds Offer occurs at a
time when the Company is prohibited by the terms of any Senior Indebtedness
from purchasing the Notes, the Company could seek the consent of the holders of
such Senior Indebtedness to the purchase or could attempt to refinance such
Senior Indebtedness. If the Company does not obtain such a consent or repay
such Senior Indebtedness, the Company may remain prohibited from purchasing the
Notes. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Credit Agreement and possibly a default under
other
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agreements relating to Senior Indebtedness. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of the Notes.
Limitation on Non-Guarantor Restricted Subsidiaries. (a) The Indenture
provides that the Company will not permit any Restricted Subsidiary that is not
a Subsidiary Guarantor to guarantee the payment of any Indebtedness of the
Company unless (i)(A) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Subsidiary
Guarantee of the Notes by such Restricted Subsidiary which Subsidiary Guarantee
will be subordinated to Guarantor Senior Indebtedness (but no other
Indebtedness) to the same extent that the Notes are subordinated to Senior
Indebtedness and (B), with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
(ii) such Restricted Subsidiary waives, and agrees not in any manner whatsoever
to claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee until such time as the obligations guaranteed
thereby are paid in full; and (iii) such Restricted Subsidiary shall deliver to
the Trustee an Opinion of Counsel to the effect that such Subsidiary Guarantee
has been duly executed and authorized and constitutes a valid, binding and
enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof (A) may be limited by bankruptcy, insolvency or similar
laws (including, without limitation, all laws relating to fraudulent transfers
and fraudulent conveyances), (B) is subject to general principles of equity and
(C) any implied covenant of good faith or fair dealing.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, each Subsidiary Guarantee shall provide by its terms that it shall
be automatically and unconditionally released and discharged upon (i)(A) any
sale, exchange or transfer of all the Capital Stock in the applicable
Subsidiary Guarantor owned by the Company and any Restricted Subsidiary or (B)
any sale, assignment, conveyance, transfer, lease or other disposition of the
properties and assets of such Subsidiary Guarantor substantially as an
entirety, in each case, in a single transaction or series of related
transactions to any Person that is not a Restricted Subsidiary (provided, that
such transaction or series of transactions is not prohibited by the Indenture),
(ii) the merger or consolidation of such Subsidiary Guarantor with or into the
Company or a Restricted Subsidiary (provided, that, in the case of a merger
into or consolidation with a Restricted Subsidiary that is not then a
Subsidiary Guarantor, the surviving Restricted Subsidiary assumes the
Subsidiary Guarantee and that transaction or series of transactions is not
prohibited by the Indenture) or (iii) the release or discharge of all
guarantees by such Subsidiary Guarantor of Indebtedness other than the Note
Obligations, except a discharge or release by or as a result of the payment of
such Indebtedness by such Subsidiary Guarantor pursuant to its Subsidiary
Guarantee.
Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any
Restricted Subsidiary, (c) make an Investment in the Company or any Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or
any Restricted Subsidiary, except for such encumbrances or restrictions (i)
pursuant to any agreement in effect or entered into on the date of the
Indenture, (ii) pursuant to any agreement or other instrument of a Person
acquired by the Company or any Restricted Subsidiary in existence at the time
of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any other Person, or the
properties or assets of any other Person, other than the Person, or the
property or assets of the Person, so acquired, (iii) by reason of customary
non-assignment provisions in leases and licenses entered into in the ordinary
course of business, (iv) pursuant to capital leases and purchase money
obligations for property leased or acquired in the ordinary course of business
that impose restrictions of the nature described in clause (d) above on the
property so leased or acquired, (v) pursuant to any merger agreements, stock
purchase agreements, asset sale agreements and similar agreements limiting the
transfer of properties and assets pending consummation of the subject
transaction, (vi) pursuant to Permitted Liens which are customary limitations
on the transfer of collateral, (vii) pursuant to applicable law, (viii)
pursuant to agreements among holders of Capital Stock of any Restricted
Subsidiary of the Company requiring distributions in respect of such Capital
Stock to be made pro rata based on the percentage of ownership in and/or
contribution to such Restricted Subsidiary or (ix) existing under any agreement
that extends, renews, refinances or replaces the agreements containing the
restrictions in the foregoing clauses (i) and (ii), provided, that the terms
and conditions of any such restrictions are not materially less favorable to
the Holders of the Notes than those under or pursuant to the agreement
evidencing the Indebtedness so extended, renewed, refinanced or replaced.
Limitation on Other Senior Subordinated Indebtedness. The Indenture
provides that the Company will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in
any respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Notes, or is expressly subordinated in right of
payment to the Notes.
Reports. The Indenture requires that the Company (and the Subsidiary
Guarantors, if applicable) file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15(d) of the Exchange
Act). The Company (and the Subsidiary Guarantors, if applicable) will also be
required (a) to file with the Trustee, and provide to each holder of Notes,
without cost to such holder, copies of such reports and documents within 15
days after the date on which the Company files such reports and documents with
the Commission or the date on which the
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Company (and the Subsidiary Guarantors, if applicable) would be required to
file such reports and documents if the Company (and the Subsidiary Guarantors,
if applicable) were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to furnish at the Company's cost copies of such reports and
documents to any holder of Notes promptly upon written request. The Company is
obligated to make available, upon request, to any Holder of Notes the
information required by Rule 144A(d)(4) under the Securities Act, during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may
be affected by the designation by the Company of any existing or future
Subsidiary of the Company as an Unrestricted Subsidiary. Generally, a
Restricted Subsidiary includes any Subsidiary of the Company, whether existing
on or after the date of the Indenture, unless the Subsidiary of the Company is
designated as an Unrestricted Subsidiary pursuant to the terms of the
Indenture. The definition of "Unrestricted Subsidiary" set forth below under
the caption "-- Certain Definitions" describes the circumstances under which a
Subsidiary of the Company may be designated as an Unrestricted Subsidiary by
the Board of Directors.
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Indenture provides that the Company will not, in any single
transaction or series of related transactions, consolidate or merge with or
into any other Person, or sell, assign, convey, transfer, lease or otherwise
dispose of the properties and assets of the Company and its Restricted
Subsidiaries substantially as an entirety on a consolidated basis to any
Person, and the Company will not permit any Restricted Subsidiary to enter into
any transaction or series of related transactions if such transaction or series
of transactions would result in a sale, assignment, conveyance, transfer, lease
or other disposition of the properties and assets of the Company and its
Restricted Subsidiaries substantially as an entirety on a consolidated basis to
any Person, unless at the time and after giving effect thereto (a) either (i)
if the transaction or series of related transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or to which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, conveyed, transferred,
leased or otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to the Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture, and, in each case, the Indenture shall remain in
full force and effect; (b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of Company or any of its
Restricted Subsidiaries in connection with or as a result of such transaction
or series of transactions as having been incurred at the time of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (c) except in the case of the consolidation or
merger of any Restricted Subsidiary with or into the Company, immediately after
giving effect to such transaction or series of transactions on a pro forma
basis, the Consolidated Net Worth of the Company (or the Surviving Entity if
the Company is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; (d) except in the case of the
consolidation or merger of (i) any Restricted Subsidiary with or into the
Company or any Wholly Owned Restricted Subsidiary or (ii) the Company with or
into any Person that has no Indebtedness outstanding, immediately before and
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (on the assumption that the transaction or series of
transactions occurred on the first day of the period of four fiscal quarters
ending immediately prior to the consummation of such transaction or series of
transactions, with the appropriate adjustments with respect to such transaction
or series transactions being included in such pro forma calculation), the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the covenant described above under the
caption " -- Limitation on Indebtedness;" (e) each Subsidiary Guarantor, unless
it is the other party to the transactions or series of transactions described
above, shall have by supplemental indenture to the Indenture confirmed that its
Subsidiary Guarantee shall apply to such Person's obligations under the
Indenture and the Notes; and (f) if any of the properties or assets of the
Company or any Restricted Subsidiary would upon such transaction or series of
transactions become subject to any Lien (other than a Permitted Lien), the
creation and imposition of such Lien shall have been in compliance with the
covenant described above under the caption "-- Limitation on Liens."
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (a) of the preceding paragraph
have been complied with. Upon any such consolidation or merger or any such
sale, assignment, transfer, lease or other disposition substantially as an
entirety on a consolidated basis of the properties and assets of the Company in
accordance with the foregoing in which the Company is not the continuing
Person, the Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the
same effect as if the Surviving Entity had been named as the Company therein,
and thereafter the Company, except in the case of a lease, will be discharged
from all obligations and covenants under the Indenture and the Notes.
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EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(a) default in the payment of the principal of or premium, if
any, on any of the Notes, whether such payment is due at maturity,
upon redemption, upon repurchase pursuant to a Change of Control Offer
or a Net Proceeds Offer, upon acceleration or otherwise; or
(b) default in the payment of any installment of interest on
any of the Notes, when it becomes due and payable, and the continuance
of such default for a period of 30 days; or
(c) default in the performance or breach of the provisions of
the "Merger, Consolidation and Sale of Assets" section of the
Indenture, the failure to make or consummate a Change of Control Offer
in accordance with the provisions of the Indenture described under the
caption " -- Change of Control" or the failure to make or consummate a
Net Proceeds Offer in accordance with the provisions of the Indenture
described under the caption " -- Limitation on Disposition of Proceeds
of Asset Sales;" or
(d) the Company or any Subsidiary Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in
the Notes, any Subsidiary Guarantee or the Indenture (other than a
default specified in (a), (b) or (c) above) for a period of 45 days
after written notice of such failure requiring the Company to remedy
the same shall have been given (i) to the Company by the Trustee or
(ii) to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding; or
(e) the occurrence and continuation beyond any applicable
grace period of any default in the payment of the principal of (or
premium, if any, on) or interest on any Indebtedness of the Company
(other than the Notes or any Non-Recourse Indebtedness) or any
Restricted Subsidiary for money borrowed when due, or any other
default causing acceleration of any Indebtedness (other than
Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary
for money borrowed, provided, that the aggregate principal amount of
such Indebtedness shall exceed $12,000,000; provided further, that if
any such default is cured or waived or any such acceleration
rescinded, or such Indebtedness is repaid, within a period of 10 days
from the continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, as the case may be,
such Event of Default under the Indenture and any consequential
acceleration of the Notes shall be automatically rescinded, so long as
such rescission does not conflict with any judgment or decree; or
(f) the commencement of proceedings, or the taking of any
enforcement action (including by way of set-off), by any holder of at
least $12,000,000 in aggregate principal amount of Indebtedness (other
than Nonrecourse Indebtedness) of the Company or any Restricted
Subsidiary, after a default under such Indebtedness, to retain in
satisfaction of such Indebtedness or to collect or seize, dispose of
or apply in satisfaction of such Indebtedness, property or assets of
the Company or any Restricted Subsidiary having a fair market value
(as determined by the Board of Directors) in excess of $12,000,000
individually or in the aggregate, provided, that if any such
proceedings or actions are terminated or rescinded, or such
Indebtedness is repaid, such Event of Default under the Indenture and
any consequential acceleration of the Notes shall be automatically
rescinded, so long as (i) such rescission does not conflict with any
judgment or decree and (ii) the holder of such Indebtedness shall not
have applied any such property or assets in satisfaction of such
Indebtedness; or
(g) any Subsidiary Guarantee shall for any reason cease to be,
or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect, enforceable in
accordance with its terms (except pursuant to the release of any such
Subsidiary Guarantee in accordance with the Indenture); or
(h) certain events giving rise to ERISA liability; or
(i) final judgments or orders rendered against the Company or
any Restricted Subsidiary that are unsatisfied and that require the
payment in money, either individually or in an aggregate amount, that
is more than $12,000,000 over the coverage under applicable insurance
policies and either (i) commencement by any creditor of an enforcement
proceeding upon such judgment (other than a judgment that is stayed by
reason of pending appeal or otherwise) or (ii) the occurrence of a
60-day period during which a stay of such judgment or order, by reason
of pending appeal or otherwise, was not in effect; or
(j) the entry of a decree or order by a court having
jurisdiction in the premises (i) for relief in respect of the Company
or any Material Restricted Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) adjudging the
Company or any Material Restricted Subsidiary bankrupt or insolvent,
or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Material Restricted
Subsidiary under any applicable federal or state law, or appointing
under any such law a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any
Material Restricted Subsidiary or of a substantial part of their
consolidated assets, or ordering the winding up or liquidation of
their affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
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(k) the commencement by the Company or any Material Restricted
Subsidiary of a voluntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding to be adjudicated bankrupt
or insolvent, or the consent by the Company or any Material Restricted
Subsidiary to the entry of a decree or order for relief in respect
thereof in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by the Company or any
Material Restricted Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or
the consent by it under any such law to the filing of any such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of any of the Company or any Material Restricted
Subsidiary or of any substantial part of their consolidated assets, or
the making by it of an assignment for the benefit of creditors under
any such law.
If an Event of Default (other than as specified in clause (j) or (k)
above) shall occur and be continuing, the Trustee, by written notice to the
Company, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee and the Company, may declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable.
If an Event of Default specified in clause (j) or (k) above occurs and is
continuing, then the principal of, premium, if any, and accrued and unpaid
interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any Holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company or any Subsidiary Guarantor has
paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all outstanding Notes, (iii) the unpaid principal
of and premium, if any, on any Notes which have become due otherwise than by
such declaration of acceleration, including any securities required to have
been purchased on a Change of Control Date or Net Proceeds Date pursuant to a
Change of Control Offer or a Net Proceeds Offer, as applicable, and interest
thereon at the rate borne by the Notes, and (iv) to the extent that payment of
such interest is lawful, interest upon overdue interest and overdue principal
at the rate borne by the Notes which has become due otherwise than by such
declaration of acceleration; (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the nonpayment of principal of, premium, if any, and
interest on the Notes that has become due solely by such declaration of
acceleration, have been cured or waived.
The Holders of not less than a majority in aggregate principal amount
of the outstanding Notes may on behalf of the Holders of all the Notes waive
any past defaults under the Indenture, except a default in the payment of the
principal of (or premium, if any, on) or interest on any Note or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the Holder of each outstanding Note affected
thereby.
No Holder of any of the Notes has any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless such
Holder has previously given written notice to the Trustee of a continuing Event
of Default, the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and the
Indenture, the Trustee has failed to institute such proceeding within 60 days
after receipt of such notice and offer of indemnity and the Trustee, within
such 60-day period, has not received directions inconsistent with such written
request by Holders of a majority in principal amount of the outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a Holder of a
Note for the enforcement of the payment of the principal of, premium, if any,
or interest on such Note on or after the respective due dates expressed in such
Note.
During the existence of an Event of Default, the Trustee is required
to exercise such of the rights and powers vested in it under the Indenture, and
use the same degree of care and skill in its exercise, as a prudent Person
would exercise or use under the circumstances in the conduct of such Person's
own affairs. Subject to the provisions of the Indenture relating to the duties
of the Trustee, the Trustee under the Indenture is not under any obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any Holders of the Notes unless such Holders shall have offered to
the Trustee reasonable security or indemnity. Subject to certain provisions in
the Indenture relating to the rights of the Trustee, the Holders of a majority
in aggregate principal amount of the outstanding Notes have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee under the Indenture.
If a Default or an Event of Default occurs and is known to the
Trustee, the Trustee shall mail to each Holder of Notes notice of the Default
or Event of Default within 60 days after the occurrence thereof in the manner
and to the extent provided in Section 313(c) of the Trust Indenture Act. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the Holders of such Notes if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or responsible
officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders of the Notes.
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The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors
of its obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten
days after any Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the
obligations of the Company and the Subsidiary Guarantors with respect to the
outstanding Notes ("legal defeasance"). Such legal defeasance means that the
Company and the Subsidiary Guarantors shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, except
for (a) the rights of Holders of outstanding Notes to receive payment in
respect of the principal of, premium, if any, on and interest on such Notes
when such payments are due, (b) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes and maintain an office or agency for payments
in respect of the Notes, (c) the rights, powers, trusts, duties and immunities
of the Trustee, and (d) the defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and any Subsidiary Guarantor with respect to
certain covenants that are set forth in the Indenture, some of which are
described above under the caption " -- Certain Covenants," and any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance,
(a) the Company or any Subsidiary Guarantor must irrevocably deposit, with the
Trustee, in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, on and interest on the outstanding Notes to
redemption or maturity; (b) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance or covenant defeasance had
not occurred (in the case of legal defeasance, such opinion must refer to and
be based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (c) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit; (d) such legal
defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act with
respect to any securities of the Company or any Subsidiary Guarantor; (e) such
legal defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any material agreement or
instrument to which the Company or any Subsidiary Guarantor is a party or by
which it is bound; and (f) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee,
which, taken together, state that all conditions precedent under the Indenture
to either legal defeasance or covenant defeasance, as the case may be, have
been complied with and that no violations under agreements governing any other
outstanding Indebtedness would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of transfer or exchange
of the Notes, as expressly provided for in the Indenture) as to all outstanding
Notes when (a) either (i) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year, or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the serving
of notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (and premium, if any, on) and interest on the
Notes to the date of deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be,
together with instructions from the Company irrevocably directing the Trustee
to apply such funds to the payment thereof at maturity or redemption, as the
case may be; (b) the Company has paid all other sums payable under the
Indenture by the Company; and (c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee,
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with and that no violations under agreements governing any other outstanding
Indebtedness would result therefrom.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the
consent of the Holders of the Notes, modify, amend or supplement the Indenture
or the Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act of 1939, provided
that such change does not adversely affect the rights of any Holder of the
Notes. Other modifications and amendments of the Indenture or the Notes may be
made by the Company, the Subsidiary Guarantors and the Trustee with the consent
of the Holders of not less than a majority of the aggregate principal amount of
the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of
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interest on any Note, (b) reduce the principal amount of (or the premium, if
any, on) or interest on any Note, (c) change the place, coin or currency of
payment of principal of (or the premium, if any, on) or interest on, any Note,
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note, (e) reduce the above-stated percentage of aggregate
principal amount of outstanding Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults under the Indenture, (g) modify
or amend any provisions of the Indenture relating to the modification and
amendment of the Indenture or relating to the waiver of past defaults or
covenants, except as otherwise specified, (h) modify or amend any provision of
the Indenture relating to Subsidiary Guarantees in a manner adverse to the
Holders or (i) modify or amend the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or to
make and consummate the Net Proceeds Offer with respect to any Asset Sale or
modify any of the provisions or definitions with respect thereto.
THE TRUSTEE
Prior to a Default, the Trustee shall not be liable except for the
performance of such duties as are specifically set out in the Indenture. If an
Event of Default has occurred and is continuing, the Trustee will exercise such
rights and powers vested in it under the Indenture, and use the same degree of
care and skill in its exercise, as a prudent Person would exercise or use under
the circumstances in the conduct of such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, contains limitations on the rights of the Trustee thereunder, should
it become a creditor of the Company, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined in the Trust Indenture Act) it must eliminate such conflict or
resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that
they will be governed by the laws of the State of New York, without regard to
the principles of conflicts of law.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Old Notes were issued,
and the Exchange Notes will be issued, in the form of one or more global Notes
(the "Global Notes"). The Global Notes will be deposited on the original date
of issuance of the Notes with, or on behalf of, DTC and registered in the name
of Cede & Co., as nominee of DTC. The interest of "qualified institutional
buyers" ("QIBs") in the Global Notes are represented through financial
institutions acting on their behalf as direct or indirect participants
of DTC.
Old Notes (a) originally purchased by or transferred to an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act (each an "Institutional
Accredited Investor") who are not QIBs or (b) held by QIBs who elect to take
physical delivery of their certificates instead of holding their interest the
Global Notes (and which are thus ineligible to trade through DTC) will be
represented by certificates in definitive form registered in the names of such
investors or their nominees ("Certificated Securities"). Upon the transfer of
Certificated Securities to a QIB, such Certificated Securities will, unless the
transferee requests otherwise or the Global Notes have previously been
exchanged in whole for Certificated Securities, be exchanged for an interest in
the Global Notes.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of these ownership interests will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the applicable procedures of DTC (in addition to those under
the Indenture referred to herein).
Payments on Global Notes will be made to DTC or its nominee, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that DTC
or its nominee, upon receipt of any payment in respect of a Global Note
representing any Notes held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note for
such Notes as shown on the records of DTC or its nominee. The Company also
expects that payments by participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
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Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules. The laws of some states require that certain
persons take physical delivery of securities in definitive form. Consequently,
the ability to transfer beneficial interests in a Global Note to such persons
may be limited. Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants (as defined below) and certain banks,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate of such interest.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC and facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly
("indirect participants"). The rules applicable to DTC and its participants
are on file with the Commission. Although DTC is expected to follow the
foregoing procedures in order to facilitate transfers of interests in the
Global Notes among participants of DTC it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC or the participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest
in a Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee
of any thereof). In addition, if (a) DTC or any successor depositary (the
"Depositary") notifies the Company in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (b) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in the
form of Certificated Securities under the Indenture, then, upon surrender by
the registered owner or holder of a Global Note (a "Global Note Holder") of its
Global Note, Notes in such form will be issued to each Person that such Global
Note Holder and the Depositary identify as the beneficial owner of the related
Notes.
Neither the Company nor the Trustee will be liable for any delay by
the related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Note Holder or
of the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Notes to be issued).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (i) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such refinancing,
(ii) in the case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Notes at least to the same extent as
the Indebtedness being refinanced and (iii) such new Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity later than the final Stated Maturity of the Notes.
"Adjusted Consolidated Net Tangible Assets" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net revenues from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines before any
state or federal income taxes, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year, as increased by, as of the
date of determination, the estimated discounted future net revenues from (A)
estimated proved oil and gas reserves acquired since the date of such year-end
reserve report, and (B) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the date of such
year-end reserve report due to exploration, development or exploitation
activities, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report), and
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decreased by, as of the date of determination, the estimated discounted future
net revenues from (C) estimated proved oil and gas reserves produced or
disposed of since the date of such year-end reserve report and (D) estimated
oil and gas reserves attributable to downward revisions of estimates of proved
oil and gas reserves since the date of such year-end reserve report due to
changes in geological conditions or other factors which would, in accordance
with standard industry practice, cause such revisions, in each case calculated
in accordance with SEC guidelines (utilizing the prices utilized in such
year-end reserve report); provided, that in the case of each of the
determinations made pursuant to clauses (A) through (D), such increases and
decreases shall be as estimated by the Company's petroleum engineers, except
that in the event there is a Material Change as a result of such acquisitions,
dispositions or revisions, then the discounted future net revenues utilized for
purposes of this clause (a)(i) shall be confirmed in writing by a nationally
recognized firm of independent petroleum engineers, (ii) the capitalized costs
that are attributable to oil and gas properties of the Company and its
Restricted Subsidiaries to which no proved oil and gas reserves are
attributable, based on the Company's books and records as of a date no earlier
than the date of the Company's latest annual or quarterly financial statements,
(iii) the Net Working Capital on a date no earlier than the date of the
Company's latest annual or quarterly financial statements and (iv) the greater
of (A) the net book value on a date no earlier than the date of the Company's
latest annual or quarterly financial statements or (B) the appraised value, as
estimated by independent appraisers, of other tangible assets (including,
without duplication, Investments in unconsolidated Restricted Subsidiaries) of
the Company and its Restricted Subsidiaries, as of the date no earlier than the
date of the Company's latest audited financial statements, minus (b) the sum of
(i) minority interests (other than a minority interest in a Subsidiary that is
a business trust or similar entity formed for the primary purpose of issuing
preferred securities the proceeds of which are loaned to the Company or a
Restricted Subsidiary), (ii) any net gas balancing liabilities of the Company
and its Restricted Subsidiaries reflected in the Company's latest audited
financial statements, (iii) to the extent included in (a)(i) above, the
discounted future net revenues, calculated in accordance with SEC guidelines
(utilizing the prices utilized in the Company's year-end reserve report),
attributable to reserves which are required to be delivered to third parties to
fully satisfy the obligations of the Company and its Restricted Subsidiaries
with respect to Volumetric Production Payments on the schedules specified with
respect thereto and (iv) the discounted future net revenues, calculated in
accordance with SEC guidelines, attributable to reserves subject to
Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted
future net revenues specified in (a)(i) above, would be necessary to fully
satisfy the payment obligations of the Company and its Restricted Subsidiaries
with respect to Dollar-Denominated Production Payments on the schedules
specified with respect thereto. If the Company changes its method of accounting
from the successful efforts method to the full cost method or a similar method
of accounting, "Adjusted Consolidated Net Tangible Assets" will continue to be
calculated as if the Company were still using the successful efforts method of
accounting.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this definition, beneficial ownership of 10% or more
of the voting common equity (on a fully diluted basis) or options or warrants
to purchase such equity (but only if exercisable at the date of determination
or within 60 days thereof) of a Person shall be deemed to constitute control of
such Person. No Person shall be deemed an Affiliate of an oil and gas royalty
trust solely by virtue of ownership of units of beneficial interest in such
trust.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged
with or into the Company or any Restricted Subsidiary or (b) the acquisition by
the Company or any Restricted Subsidiary of the properties and assets of any
Person which constitute all or substantially all of the properties and assets
of such Person or any division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including by means of a Sale/Leaseback Transaction or by way of
merger or consolidation) (collectively, for purposes of this definition, a
"transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any Restricted Subsidiary; (b) the properties and assets of any
division or line of business of the Company or any of its Restricted
Subsidiaries substantially as an entirety; or (c) any other properties or
assets of the Company or any of its Restricted Subsidiaries other than a
disposition of hydrocarbons or other mineral products in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any transfer of properties or assets that is governed by, and made
in accordance with, the provisions described under the caption "-- Merger,
Consolidation and Sale of Assets;" (ii) any transfer of properties or assets to
any Person, if permitted under the provisions described under the caption "--
Limitation on Restricted Payments;" (iii) any trade or exchange of properties
and assets used in the Oil and Gas Business of the Company or any Restricted
Subsidiary or shares of Capital Stock in any Person in the Oil and Gas Business
owned by the Company or any Restricted Subsidiary for properties and assets
used in the Oil and Gas Business of any Person or shares of Capital Stock in
any Person owned or held by another Person, provided, that (A) the fair market
value of the properties, assets and shares traded or exchanged by the Company
or such Restricted Subsidiary (including any cash or Cash Equivalents, not to
exceed 15% of such fair market value, to be delivered by the Company or such
Restricted Subsidiary) is reasonably equivalent to the fair market value of the
properties, assets and shares of Capital Stock (together with any cash or Cash
Equivalents, not to exceed 15% of such fair market value) to be received by the
Company or such Restricted Subsidiary as determined in good faith by (x) any
officer of the Company if such fair market value is less than $5,000,000 and
(y) the Board of Directors of the Company as certified by a certified
resolution delivered to the Trustee if such fair market value is equal to or in
excess of
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$5,000,000; provided, that if such fair market value is equal to or in
excess of $10,000,000 the Company shall deliver a written appraisal by a
nationally recognized investment banking firm or appraisal firm, in each case
specializing or having a speciality in oil and gas properties, and (B) such
exchange is approved by a majority of the Disinterested Directors; or (iv) any
transfer of properties or assets in a single transaction or series of related
transactions having a fair market value of less than $5,000,000.
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable and at any date as of which
the amount thereof is to be determined, the present value of the total net
amount of rent required to be paid by such Person under the lease during the
primary term thereof, without giving effect to any renewals at the option of
the lessee, discounted from the respective due dates thereof to such date of
determination at the rate of interest per annum implicit in the terms of the
lease. As used in the preceding sentence, the "net amount of rent" under any
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges. In the case of any lease which is terminable by the lessee upon
payment of a penalty, such net amount of rent shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Board of Directors" means, (a) with respect to the Company, either
the board of directors of the Company or any properly constituted committee
thereof that is (i) authorized to take the action in question and (ii)
comprised of members, a majority of whom are not officers or employees of the
Company or any Subsidiary of the Company, and (b) with respect to any
Restricted Subsidiary, the board of directors of that Restricted Subsidiary or
any properly constituted committee thereof that is authorized to take the
action in question.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of the Indenture, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided, that the full faith and credit of the United States of America is
pledged in support thereof), (b) demand and time deposits and certificates of
deposit or acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $100,000,000 or any
commercial bank organized under the laws of any country other than the United
States of America that is a member of the Organization for Economic Cooperation
and Development ("OECD") and has total assets in excess of $100,000,000, (c)
commercial paper with a maturity of 365 days or less issued by a Person that is
not an Affiliate of the Company and is organized under the laws of any state of
the United States of America or the District of Columbia and rated at least A-1
by S&P or at least P-1 by Moody's (or, if at any time neither S&P nor Moody's
shall be rating such obligations, then from such other rating service as may be
acceptable to the Trustee), (d) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (a)
above entered into with any commercial bank meeting the specifications of
clause (b) above, (e) overnight bank deposits and bankers' acceptances at any
commercial bank meeting the qualifications specified in clause (b) above, and
(f) investments in money market mutual or similar funds which have assets in
excess of $500,000,000.
"Change of Control" means the occurrence of any of the following
events: (a) the Company's properties and assets are sold or otherwise disposed
of substantially as an entirety on a consolidated basis to any Person or related
group of Persons in any one transaction or a series of related transactions; (b)
there shall be consummated any consolidation or merger of the Company (i) in
which the Company is not the continuing or surviving Person (other than a
consolidation or merger with a wholly owned Subsidiary of the Company in which
all shares of Common Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same number of shares of Common
Stock of such Subsidiary) or (ii) pursuant to which the Common Stock would be
converted into cash, securities or other property, in each case, other than a
consolidation or merger of the Company in which the holders of the Common Stock
immediately prior to the consolidation or merger have, directly or indirectly,
at least a majority of the Common Stock of the continuing or surviving Person
immediately after such consolidation or merger; or (c) any Person or any Persons
acting together which would constitute a "group" for purposes of Section 13(d)
of the Exchange Act (other than the Company, any Subsidiary of the Company, any
employee stock purchase plan, stock option plan or other stock incentive plan or
program, retirement plan or automatic dividend reinvestment plan or any
substantially similar plan of the Company or any Subsidiary of the Company or
any Person holding securities of the Company for
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or pursuant to the terms of any such employee benefit plan), together with any
Affiliates thereof, shall acquire beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) of at least 50% of the Voting Stock of the
Company.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all determined
in accordance with GAAP, decreased (to the extent included in determining
Consolidated Net Income) by the sum of (i) the amount of deferred revenues that
are amortized during such period and are attributable to reserves that are
subject to Volumetric Production Payments and (ii) amounts recorded in
accordance with GAAP as repayments of principal and interest pursuant to
Dollar-Denominated Production Payments, to (b) the sum of such Consolidated
Interest Expense for such period; provided, that (A) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness required to be computed on a pro forma basis in accordance with
clause (i) of the covenant described under the caption "-- Limitation on
Indebtedness" and bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period, (B) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility required to be computed on a pro forma basis in accordance with clause
(i) of the covenant described under the caption "-- Limitation on Indebtedness"
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period, provided, that such average daily balance shall
be reduced by the amount of any repayment of Indebtedness under a revolving
credit facility during the applicable period, which repayment permanently
reduced the commitments or amounts available to be reborrowed under such
facility, (C) notwithstanding clauses (A) and (B) of this proviso, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Rate Protection Obligations, shall
be deemed to have accrued at the rate per annum resulting after giving effect
to the operation of such agreements and (D) in making such calculation,
Consolidated Interest Expense shall exclude interest attributable to
Dollar-Denominated Production Payments.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (i) any amortization of
debt discount, (ii) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (v) all accrued interest, in each case to the extent attributable
to such period, (b) to the extent any Indebtedness of any Person (other than
the Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (c) the aggregate amount of the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP and (d) the aggregate amount of dividends paid or accrued on Redeemable
Capital Stock or Preferred Stock of the Company and its Restricted
Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is
owned by Persons other than Restricted Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends, interest on indebtedness or other
distributions actually paid to the Company or its Restricted Subsidiaries in
cash by such other Person during such period (regardless of whether such cash
dividends, interest on indebtedness or other distributions is attributable to
net income (or net loss) of such Person during such period or during any prior
period), (d) net income (or net loss) of any Person combined with the Company
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (f) income resulting from transfers of assets
received by the Company or any Restricted Subsidiary from an Unrestricted
Subsidiary and (g) any write-downs of non-current assets; provided, however,
that any ceiling limitation write-downs under SEC guidelines shall be treated
as capitalized costs, as if such write-downs had not occurred.
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.
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"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization, impairment and other non-cash expenses
of the Company and its Restricted Subsidiaries reducing Consolidated Net Income
for such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge which requires an accrual of or reserve for
cash charges for any future period).
"Credit Agreement" means the Amended and Restated Credit Agreement
dated June 1, 1995 (which has been further amended and restated effective
August 1, 1997) among the Company and Bank of Montreal and Banque Paribas,
as co-agents, and the other banks specified therein, including any notes and
guarantees executed in connection therewith, as such agreement may be amended,
modified, supplemented, extended, restated, replaced (including replacement
after the termination of such agreement), restructured, increased, renewed or
refinanced from time to time in one or more credit agreements, loan agreements,
instruments or similar agreements, whether or not with the same lenders or
agents, as such may be further amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to
the lenders or any agent under or in respect of the Credit Agreement.
"Default" means any event, act or condition that is, or after notice
or passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (a) all Senior Indebtedness
constituting Credit Agreement Obligations and (b) any other Senior Indebtedness
which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate
principal amount and (ii) is specifically designated by the Company in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" for purpose of the Indenture.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required
to deliver its resolution under the Indenture, a member of the Board of
Directors who does not have any material direct or indirect financial interest
(other than an interest arising solely from the beneficial ownership of Capital
Stock of the Company) in or with respect to such transaction or series of
transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"Foreign Subsidiary" means (a) any Restricted Subsidiary engaged in
the Oil and Gas Business having the majority of its operations outside the
United States of America, irrespective of its jurisdiction of organization, and
(b) any other Restricted Subsidiary whose assets (excluding any cash and Cash
Equivalents) consist exclusively of Capital Stock or Indebtedness of one or
more Restricted Subsidiaries described in clause (a) of this definition.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America, which are applicable as of the date of the Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor created, incurred, assumed or guaranteed by such Subsidiary Guarantor
(and all renewals, substitutions, refinancings or replacements thereof)
(including the principal of, interest on and fees, premiums, expenses
(including costs of collection), indemnities and other amounts payable in
connection with such Indebtedness) (and including, in the case of the Credit
Agreement, interest accruing after the filing of a petition by or against such
Subsidiary Guarantor under any bankruptcy law, in accordance with and at the
rate, including any default rate, specified with respect to such Indebtedness,
whether or not a claim for such interest is allowed as a claim after such
filing in any proceeding under such bankruptcy law), unless the instrument
governing such Indebtedness expressly provides that such Indebtedness is not
senior in right of payment to its Subsidiary Guarantee. Notwithstanding the
foregoing, Guarantor Senior Indebtedness of a Subsidiary Guarantor will not
include (a) Indebtedness of such Subsidiary Guarantor evidenced by its
Subsidiary Guarantee, (b) Indebtedness of such Subsidiary Guarantor that is
expressly subordinated or junior in right of payment to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor or its Subsidiary Guarantee, (c)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11 United States Code, is by its terms without
recourse to such Subsidiary Guarantor or Non-Recourse Indebtedness, (d) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of such Subsidiary Guarantor, (e) to the extent it might constitute
Indebtedness,
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any liability for federal, state, local or other taxes owed or owing by
such Subsidiary Guarantor, (f) Indebtedness of such Subsidiary Guarantor to the
Company or any of the Company's other Subsidiaries or any other Affiliate of
the Company or any of such Affiliate's Subsidiaries and (g) that portion of any
Indebtedness of such Subsidiary Guarantor which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (g) if the
holder(s) of such Indebtedness or their representative or such Subsidiary
Guarantor shall have furnished to the Trustee an Opinion of Counsel, addressed
to the Trustee (which counsel may, as to matters of fact, rely upon a
certificate of such Subsidiary Guarantor) to the effect that the incurrence of
such Indebtedness does not violate the provisions of such Indenture); provided,
that the foregoing exclusions shall not affect the priorities of any
Indebtedness arising solely by operation of law in any case or proceeding or
similar event described in clause (a), (b) or (c) of the second paragraph
described under the caption "-- Subordination."
"Hedging Obligations" means obligations of any Person arising out of
hedging transactions entered into in the ordinary course of business,
including, without limitation, swaps, options, forward sales and futures
contracts entered into in connection with interest rates, currencies and
energy-related commodities.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade accounts payable
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, bankers'
acceptance or other similar credit transaction and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all Indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) the Attributable Indebtedness
(in excess of any related Capitalized Lease Obligations) related to any
Sale/Leaseback Transaction of such Person, (f) all Indebtedness referred to in
the preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition (including, with respect to any Production
Payment, any warranties or guarantees of production or payment by such Person
with respect to such Production Payment but excluding other contractual
obligations of such Person with respect to such Production Payment), (h) all
Redeemable Capital Stock of such Person valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued dividends, (i) all
obligations of such Person under or in respect of currency exchange contracts
and Interest Rate Protection Obligations and (j) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
such Person of the types referred to in clauses (a) through (i) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock, provided, however,
that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock. Subject to clause (g)
of the first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and includes, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property or
assets to others or any payment for property, assets or services for the
account or use of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities (including
derivatives) or evidences of Indebtedness issued by, any other Person. In
addition, the fair market value of the net assets of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time. "Investments" shall exclude (a)
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices and (b) Interest Rate Protection Obligations entered
into in the ordinary course of business or as required by any Permitted
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Indebtedness, Permitted Subsidiary Indebtedness or any Indebtedness incurred in
compliance with the covenant described above under the caption "-- Limitation
on Indebtedness," but only to the extent that the notional principal amount of
such Interest Rate Protection Obligations does not exceed 105% of the principal
amount of such Indebtedness to which such Interest Rate Protection Obligations
relate and (c) bonds, notes, debentures or other securities received in
compliance with the covenant described under the caption "-- Limitation on
Disposition of Proceeds of Asset Sales."
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any property of any kind; provided,
however, "Lien" shall not include rights created in a third Person in
connection with the creation by the Company or a Subsidiary of a Production
Payment. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 50% during a fiscal
quarter in the estimated discounted future net cash flows from proved oil and
gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a) (i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the quarter of
oil and gas reserves that have been estimated by a nationally recognized firm
of independent petroleum engineers and on which a report or reports exist and
(ii) any disposition of properties held at the beginning of such quarter that
have been disposed of as provided in the covenant described under the caption
"-- Limitation on Disposition of Proceeds of Asset Sales".
"Material Restricted Subsidiary" means, at any particular time, (a)
any Subsidiary Guarantor and (b) any other Restricted Subsidiary that, together
with its Subsidiaries, (i) accounted for more than 5% of the consolidated
revenues of the Company and its Restricted Subsidiaries for the most recently
completed fiscal year of the Company or (ii) was the owner of more than 5% of
the consolidated assets of the Company and its Restricted Subsidiaries at the
end of such fiscal year, all as shown in the case of (i) and (ii) on the
consolidated financial statements of the Company and its Restricted
Subsidiaries for such fiscal year.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof received by the Company or any Restricted Subsidiary in the
form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary)), net of (a) brokerage commissions
and other fees and expenses (including fees and expenses of engineers, legal
counsel, accountants and investment banks) related to such Asset Sale, (b)
provisions for all taxes payable as a result of such Asset Sale, (c) amounts
required to be paid (i) to any minority interest holder or other Person (other
than the Company or any Restricted Subsidiary) owning a beneficial interest in
the assets subject to the Asset Sale or (ii) in respect of any Indebtedness
(other than Indebtedness under the Credit Agreement) secured by a Lien on any
of the properties or assets that were the subject of such Asset Sale and (d)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee; provided,
however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Cash Proceeds.
"Net Working Capital" means (a) all current assets of the Company and
its Restricted Subsidiaries, minus (b) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or a Restricted Subsidiary incurred in connection
with the acquisition by the Company or a Restricted Subsidiary of any property
or assets and as to which (a) the holders of such Indebtedness agree that they
will look solely to the property or assets so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms of any other Indebtedness of the
Company or a Restricted Subsidiary, any holder of such other Indebtedness to
declare a default under such other Indebtedness or cause the payment of such
other Indebtedness to be accelerated or payable prior to its stated maturity.
"Note Obligations" means any principal of, premium, if any, and
interest on, and any other amounts (including, without limitation, any payment
obligations with respect to the Notes as a result of any Asset Sale, Change of
Control
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or redemption) owing in respect of, the Notes payable pursuant to the terms of
the Notes or the Indenture or upon acceleration of the Notes.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and, after
the Exchange Offer, the Exchange Notes and of transfer of the Notes and the
Exchange Notes.
"Officers' Certificate" means a certificate delivered to the Trustee
signed by the Chairman, the President, a Vice President or the Chief Financial
Officer, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company.
"Oil and Gas Business" means (a) the acquisition, exploration,
exploitation, development, operation and disposition of interests in oil, gas
and other hydrocarbon properties, (b) the gathering, marketing, treating,
processing, storage, refining, selling and transporting of any production from
such interests or properties, (c) any business relating to or arising from
exploration for or exploitation, development, production, treatment,
processing, storage, refining, transportation or marketing of oil, gas and
other minerals and products produced in association therewith, (d) any power
generation and electrical transmission business in a jurisdiction outside North
America where fuel required by such business is supplied, directly or
indirectly, from hydrocarbons produced substantially from properties in which
the Company or its Restricted Subsidiaries, directly or indirectly,
participates and (e) any activity necessary, appropriate or incidental to the
activities described in the foregoing clauses (a) through (d) of this
definition.
"Opinion of Counsel" means a written opinion of legal counsel for the
Company (or any Subsidiary Guarantor, if applicable) including an employee of
the Company (or any Subsidiary Guarantor, if applicable), who is reasonably
acceptable to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Notes.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company under one or more bank credit
or revolving credit facilities in an aggregate principal amount at any
one time outstanding not to exceed (i) the greater of (A) $270,000,000
and (B) an amount equal to the sum of (1) $170,000,000 and (2) 10% of
Adjusted Consolidated Net Tangible Assets determined as of the date of
the most recent quarterly consolidated financial statements of the
Company and its Restricted Subsidiaries, less (ii) the amount of Net
Cash Proceeds applied to reduce Indebtedness pursuant to the covenant
of the Indenture described under the caption "-- Limitation on
Disposition of Proceeds of Asset Sales" (together with interest and
fees under such facilities, the "Maximum Credit Amount," with the
Maximum Credit Amount being an aggregate maximum amount for the
Company and all Guarantor Subsidiaries, pursuant to clause (a) of the
definition of "Permitted Subsidiary Indebtedness"), and any renewals,
amendments, extensions, supplements, modifications, deferrals,
refinancings or replacements (each, for purposes of this clause, a
"refinancing") thereof by the Company, including any successive
refinancings thereof by the Company, so long as the aggregate
principal amount of any such new Indebtedness, together with the
aggregate principal amount of all other Indebtedness outstanding
pursuant to this clause (a) (and clause (a) of the definition of
"Permitted Subsidiary Indebtedness"), shall not at any one time exceed
the Maximum Credit Amount;
(b) Indebtedness of the Company under the Notes;
(c) Indebtedness of the Company outstanding on the date of the
Indenture (and not repaid or defeased with the proceeds of the sale of
the Old Notes by the Company);
(d) obligations of the Company pursuant to Interest Rate
Protection Obligations, but only to the extent such obligations do not
exceed 105% of the aggregate principal amount of the Indebtedness
covered by such Interest Rate Protection Obligations; obligations
under currency exchange contracts entered into in the ordinary course
of business; and Hedging Obligations;
(e) Indebtedness of the Company to any Restricted
Subsidiaries;
(f) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;
(g) Indebtedness in respect of bid, performance or surety
bonds issued or other reimbursement obligations for the account of the
Company in the ordinary course of business, including guarantees and
letters of credit supporting such bid, performance, surety bonds or
other reimbursement obligations (in each case other than for an
obligation for money borrowed);
(h) Non-Recourse Indebtedness;
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(i) Indebtedness incurred in respect of any letters of credit
in the ordinary course of business of the Company or reimbursement
obligations in respect thereof;
(j) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
the Company of any Indebtedness of the Company described in clauses
(b) or (c) above, including any successive refinancings by the
Company, so long as (i) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than
the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus the amount of expenses of the Company incurred in connection with
such refinancing, and (ii) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate
to the Notes at least to the same extent as the Indebtedness being
refinanced and (iii) such new Indebtedness has an Average Life equal
to or longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity equal to or later than the
final Stated Maturity of the Indebtedness being refinanced;
(k) other Indebtedness of the Company in an aggregate
principal amount not in excess of $25,000,000 at any one time
outstanding.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any of its Restricted
Subsidiaries;
(c) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (i)
such other Person becomes a Restricted Subsidiary of the Company or
(ii) such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its properties and
assets to, the Company or a Restricted Subsidiary;
(d) entry into operating agreements, joint ventures,
partnership agreements, working interests, royalty interests, mineral
leases, processing agreements, farm-out agreements, contracts for the
sale, transportation or exchange of oil and natural gas, unitization
agreements, pooling arrangements, area of mutual interest agreements,
development agreements, joint ownership arrangements and other similar
or customary agreements, transactions, properties, interests and
arrangements, whether or not any such Investment involves or results
in the creation of a legal entity, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered
into in the ordinary course of the Company or its Restricted
Subsidiaries' Oil and Gas Business;
(e) entry into any arrangement pursuant to which the Company
or any of its Restricted Subsidiaries may incur Hedging Obligations;
and
(f) other Investments having an aggregate fair market value
(measured on the date each such Investment was made without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (f) that are at the
time outstanding (net of repayments, dividends and distributions
received with respect to such Investments), not to exceed $25,000,000
at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Notes are first
issued;
(b) Liens securing the Notes;
(c) Liens in favor of the Company or a Subsidiary
Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor
Senior Indebtedness;
(e) Liens for taxes, assessments and governmental charges
or claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(f) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made in respect thereof;
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(g) Liens incurred and deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, and Liens
incurred and deposits made to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, leases, government contracts and leases, trade contracts (other
than to secure an obligation for borrowed money), performance and
return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money but including lessee and
operator obligations under statutes, governmental regulations or
instruments related to the ownership, exploration and production of
oil, gas and minerals on state, federal or foreign lands or waters);
(h) pre-judgment Liens and judgment Liens not giving rise
to an Event of Default so long as any appropriate legal proceedings
which may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which such
proceeding may be initiated shall not have expired;
(i) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease;
(j) Liens resulting from the deposit of funds or
evidences of Indebtedness in trust for the purpose of defeasing
Indebtedness of the Company or any of the Subsidiaries; customary
Liens for the fees, costs and expenses of trustees and escrow agents
pursuant to the indenture, escrow agreement or other similar agreement
establishing such trust or escrow arrangement; and Liens pursuant to
merger agreements, stock purchase agreements, asset sale agreements
and similar agreements (i) limiting the transfer of properties and
assets pending consummation of the subject transaction or (ii) in
respect of earnest money deposits, good faith deposits, purchase price
adjustment escrows or similar deposits or escrow arrangements made or
established thereunder;
(k) Liens securing any Hedging Obligations of the
Company or any Restricted Subsidiary;
(l) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(m) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer
of the Company or its Restricted Subsidiaries relating to such
property or assets and Liens to secure Indebtedness used to finance
all or a part of the construction of property or assets used by the
Company or any of its Restricted Subsidiaries in the Oil and Gas
Business, provided, that such Liens do not extend to any other
property or assets owned by the Company or its Restricted
Subsidiaries;
(o) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(p) Liens securing Interest Rate Protection Obligations
which Interest Rate Protection Obligations relate to Indebtedness that
is secured by Liens otherwise permitted under this Indenture;
(q) Liens on, or related to, properties or assets to
secure all or part of the costs incurred in the ordinary course of
business for the exploration, drilling, development or operation
thereof;
(r) Liens on pipeline or pipeline facilities which arise
out of operation of law;
(s) Liens arising under operating agreements, joint
venture agreements, partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale,
purchase, transportation, processing or exchange of oil, gas or other
hydrocarbons, unitization and pooling declarations and agreements,
area of mutual interest agreements, development agreements, joint
ownership arrangements and other agreements which are customary in the
Oil and Gas Business;
(t) Liens reserved in oil and gas mineral leases for
bonus or rental payments and for compliance with the terms of such
leases;
(u) Liens constituting survey exceptions, encumbrances,
easements, or reservations of, or rights to others for, rights-of-way,
zoning, restrictions and other similar charges and encumbrances as to
the use of real properties, and minor defects of title which, in the
case of any of the foregoing, were not incurred or created to secure
the payment of borrowed money or the deferred purchase price of
property, assets or services, and in the aggregate do not interfere in
any material respect with the ordinary conduct of the business of the
Company or its Restricted Subsidiaries;
(v) rights reserved to or vested in any municipality or
governmental, statutory or public authority by the terms of any right,
power, franchise, grant, license or permit, or by any provision of
law, to terminate
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such right, power, franchise, grant, license or permit or to purchase,
condemn, expropriate or recapture or to designate a purchaser of any
of the property of such Person; rights reserved to or vested in any
municipality or governmental, statutory or public authority to control
or regulate any property of such Person, or to use such property in a
manner which does not materially impair the use of such property for
the purposes for which it is held by such Person; any obligation or
duties affecting the property of such Person to any municipality or
governmental, statutory or public authority with respect to any
franchise, grant, license or permit;
(w) Liens securing Non-Recourse Indebtedness; provided,
however, that the related Non-Recourse Indebtedness shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired by the Company
with the proceeds of such Non-Recourse Indebtedness; and
(x) Liens securing Acquired Indebtedness; provided,
however, that any such lien extends only to the properties or assets
that were subject to such Lien prior to the related acquisition by the
Company or such Restricted Subsidiary and was not created, incurred or
assumed in contemplation of such transaction.
Notwithstanding anything in clauses (a) through (x) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.
"Permitted Subsidiary Indebtedness" means any of the following:
(a) Indebtedness of any Guarantor Subsidiary under one or more
bank credit or revolving credit facilities (and "refinancings"
thereof) in an amount at any one time outstanding not to exceed the
Maximum Credit Amount (in the aggregate for all Guarantor Subsidiaries
and the Company, pursuant to clause (a) of the definition of
"Permitted Indebtedness");
(b) Indebtedness of any Restricted Subsidiary outstanding on
the date of the Indenture;
(c) obligations of any Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent such
obligations do not exceed 105% of the aggregate principal amount of
the Indebtedness covered by such Interest Rate Protection Obligations;
and Hedging Obligations of any Restricted Subsidiary;
(d) the Subsidiary Guarantees (and any assumption of the
obligations guaranteed thereby);
(e) Indebtedness of any Restricted Subsidiary relating to
guarantees by such Restricted Subsidiary of Permitted Indebtedness;
(f) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;
(g) Indebtedness in respect of bid, performance or surety
bonds or other reimbursement obligations issued for the account of any
Restricted Subsidiary in the ordinary course of business, including
guarantees and letters of credit supporting such bid, performance,
surety bonds or other reimbursement obligations (in each case other
than for an obligation for money borrowed);
(h) Indebtedness of any Restricted Subsidiary to any other
Restricted Subsidiary or to the Company;
(i) Indebtedness relating to guarantees by any Restricted
Subsidiary permitted to be incurred pursuant to paragraph (a) of the
provisions of the Indenture described under the caption "-- Limitation
on Non-Guarantor Restricted Subsidiaries";
(j) Indebtedness incurred in respect of letters of credit in
the ordinary course of business of any Restricted Subsidiary or
reimbursement obligation in respect thereof;
(k) Non-Recourse Indebtedness;
(l) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
any Restricted Subsidiary of any Indebtedness of such Restricted
Subsidiary, including any successive refinancings by such Restricted
Subsidiary, so long as (i) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than
the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by such Restricted Subsidiary as necessary to accomplish
such refinancing, plus the amount of expenses of such Subsidiary
incurred in connection with such refinancing and (ii) such new
Indebtedness has an Average Life equal to or longer than the Average
Life of the Indebtedness being refinanced and a final Stated Maturity
equal to or later than the final Stated Maturity of the Indebtedness
being refinanced; and
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(m) other Indebtedness incurred by one or more Restricted
Subsidiaries that are not Guarantor Subsidiaries in an aggregate
principal amount not to exceed $20,000,000 at any time outstanding.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of the Indenture, including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Public Market" exists at any time with respect to the Qualified
Capital Stock of the Company if such Qualified Capital Stock of the Company is
then (a) registered with the Commission pursuant to Section 12(b) or 12(g) of
the Exchange Act and (b) traded either on a national securities exchange or on
the NASDAQ Stock Market.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Qualified Redemption Transaction" means a call for redemption of any
Capital Stock or Subordinated Indebtedness (including any Subordinated
Indebtedness accounted for as a minority interest of the Company that is held
by a Subsidiary that is a business trust or similar entity formed for the
primary purpose of issuing preferred securities the proceeds of which are
loaned to the Company or a Restricted Subsidiary) that by its terms is
convertible into Common Stock of the Company if on the date of notice of such
call for redemption (a) a Public Market exists in the shares of Common Stock of
the Company and (b) the average closing price on the Public Market for shares
of Common Stock of the Company for the twenty trading days immediately
preceding the date of such notice exceeds 120% of the conversion price per
share (determined by reference to the redemption price) of Common Stock of the
Company issuable upon conversion of the Capital Stock or Subordinated
Indebtedness called for redemption.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to 91 days after the final Stated Maturity of the Notes or is redeemable
at the option of the holder thereof at any time prior to 91 days after such
final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to 91 days after such final Stated Maturity.
"Regular Record Date" for the interest payable on any Interest Payment
Date means May 1 or November 1 (whether or not a business day, as the case may
be) next preceding each such Interest Payment Date.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Rating Group, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which properties or assets are sold
or transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries; provided, however, Sale/Leaseback Transactions shall not
include transactions whereby property or assets are sold or transferred by the
Company or any of its Restricted Subsidiaries to any Affiliate of the Company
or pursuant to any Permitted Investment constituting a joint ownership
arrangement, which property or assets are leased back, directly or indirectly,
to the Company, any Affiliate of the Company or to the constituent parties to
any such joint venture arrangement.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company (including, in the case of the
Credit Agreement, interest accruing after the filing of a petition by or
against the Company under any bankruptcy law, in accordance with and at the
rate, including any default rate, specified with respect to such indebtedness,
whether or not a claim for such interest is allowed as a claim after such
filing in any proceeding under such bankruptcy law), whether outstanding on the
date of the Indenture or thereafter created, incurred or assumed, unless, in
the case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to the Company or which is Non-Recourse Indebtedness, (d) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of the Company, (e) to the extent it might constitute Indebtedness, any
liability for federal, state, local or other taxes owed or owing by the
Company, (f) Indebtedness of the Company to a Subsidiary of the Company or any
other Affiliate of the Company or any of such Affiliate's Subsidiaries and (g)
that portion of any Indebtedness of the Company which at the
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time of issuance is issued in violation of the Indenture (but, as to any such
Indebtedness, no such violation shall be deemed to exist for purposes of this
clause (g) if the holder(s) of such Indebtedness or their representative or the
Company shall have furnished to the Trustee an Opinion of Counsel addressed to
the Trustee (which counsel may, as to matters of fact, rely upon a certificate
of the Company) to the effect that the incurrence of such Indebtedness does not
violate the provisions of such Indenture); provided, that the foregoing
exclusions shall not affect the priorities of any Indebtedness arising solely
by operation of law in any case or proceeding or similar event described in
clause (a), (b) or (c) of the second paragraph under the caption "--
Subordination."
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness or any
installment of interest thereon, means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means (a) the Company's 5 1/2%
Convertible Subordinated Notes due 2006 issued under the Indenture dated as of
June 15, 1996, between the Company and Fleet National Bank, as Trustee, (b) the
Company's 5 1/2% Convertible Subordinated Notes due 2004 issued under the
Indenture dated as of March 23, 1994, between the Company and Fleet National
Bank, as Trustee, and (c) other Indebtedness of the Company which, by its
terms, is subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, a corporation,
partnership, limited liability company, association or other business entity a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof. For purposes of the foregoing definition, an
arrangement by which a Person who owns an interest in an oil and gas property
is subject to a joint operating agreement, processing agreement, net profits
interest, overriding royalty interest, farmout agreement, development
agreement, area of mutual interest agreement, joint bidding agreement,
unitization agreement, pooling arrangement or other similar agreement or
arrangement shall not, in and of itself, be considered a Subsidiary.
"Subsidiary Guarantee" means any guarantee of the Notes by (a) any
Subsidiary Guarantor in accordance with the provisions set forth in
"-- Possible Subsidiary Guarantees of the Notes" and (b) any Restricted
Subsidiary in accordance with the provisions set forth in the covenant
described under the caption "-- Limitation on Non-Guarantor Restricted
Subsidiaries."
"Subsidiary Guarantor" means each of the Company's Restricted
Subsidiaries that becomes a guarantor of the Notes in compliance with the
provisions described under the caption "-- Subsidiary Guarantees of the Notes"
or the provisions of the covenant described under the caption "-- Limitation on
Non-Guarantor Restricted Subsidiaries" or otherwise executes a supplemental
indenture in which such Subsidiary agrees to be bound by the terms of the
Indenture and to guarantee the payment of the Notes pursuant to the provisions
described under the caption "-- Possible Subsidiary Guarantees of the Notes."
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that
at the time of determination will be designated an Unrestricted Subsidiary by
the Board of Directors of the Company as provided below and (b) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long
as (i) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary;
(ii) no default with respect to any Indebtedness of such Subsidiary would
permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; (iii) neither the Company nor any
Restricted Subsidiary has made an Investment in such Subsidiary unless such
Investment was made pursuant to, and in accordance with, the covenant described
under the caption "-- Limitation on Restricted Payments" (other than
Investments of the type described in clause (d) of the definition of "Permitted
Investments"); and (iv) such designation shall not result in the creation or
imposition of any Lien on any of the Properties of the Company or any
Restricted Subsidiary (other than any Permitted Lien or any Lien the creation
or imposition of which shall have been in compliance with the covenant
described under the caption "-- Limitation on Liens"); provided, however, that
with respect to clause (i), the Company or a Restricted Subsidiary may be
liable for Indebtedness of an Unrestricted Subsidiary if (A) such liability
constituted a Permitted Investment or a Restricted Payment permitted by the
provisions of the Indenture described under the caption "-- Limitation on
Restricted Payments," in each case at the time of incurrence, or (B) the
liability would be a Permitted Investment at the time of designation of such
Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing a resolution with the
Trustee giving effect to such designation. The Board of Directors may designate
any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after
giving effect to such designation, (1) no Default or Event of Default shall
have occurred and be continuing, (2) the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the first
paragraph of the covenant described above under the caption "-- Limitation on
Indebtedness" and (3) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such designation become subject to any Lien
(other than a Permitted Lien), the creation or imposition of such Lien shall
have been in compliance with the covenant described under the caption "--
Limitations on Liens."
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
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"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote in the election of the directors, managers or trustees of
any Person (irrespective of whether or not, at the time, Capital Stock of any
other class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent (a) all of the Capital Stock in such Restricted Subsidiary, other
than any directors qualifying shares mandated by applicable law, is owned
directly or indirectly by the Company or (b) such Restricted Subsidiary is
organized in a foreign jurisdiction and is required by the applicable laws and
regulations of such foreign jurisdiction to be partially owned by the
government of such foreign jurisdiction or individual or corporate citizens of
such foreign jurisdiction in order for such Restricted Subsidiary to transact
business in such foreign jurisdiction, provided, that the Company, directly or
indirectly, owns the remaining Capital Stock or ownership interest in such
Restricted Subsidiary and, by contract or otherwise, controls the management
and business of such Restricted Subsidiary and derives the economic benefits of
ownership of such Restricted Subsidiary to substantially the same extent as if
such Restricted Subsidiary were a wholly owned Subsidiary.
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EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the sale of the Old Notes, the Company entered into
a registration rights agreement with the Initial Purchasers pursuant to which
the Company agreed, for the benefit of the holders of the Old Notes, at the
Company's cost, to use its reasonable best efforts (i) to file with the
Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer of the Exchange Notes not later than July 6, 1997, (ii) to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act not later than September 4, 1997, (iii) to keep the Exchange
Offer Registration Statement effective until the closing of the Exchange Offer,
and (iv) to cause the Exchange Offer to be consummated not later than November
18, 1997. Promptly after the Exchange Offer Registration Statement has been
declared effective, the Company will offer the Exchange Notes in exchange for
surrender of the Old Notes. The Company will keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer has been mailed to the holders of the Old Notes.
For each Old Note validly tendered to the Company pursuant to the Exchange
Offer and not withdrawn by the holder thereof, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to the principal
amount of such surrendered Old Note. Interest on each Exchange Note will
accrue from the last interest payment date to which interest was paid on the
Old Note surrendered in exchange therefor or, if no interest has been paid on
such Note, from the date of the original issuance of the Old Note.
Based on existing interpretations of the Securities Act by the staff
of the Commission set forth in several no- action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and transferred by the holders thereof without further compliance with
the registration and prospectus delivery provisions of the Securities Act.
However, any purchaser of Old Notes who is an affiliate of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes, or any broker-dealer who purchased the Old Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on the interpretations by the
staff of the Commission set forth in the above-mentioned no-action letters,
(ii) will not be able to tender its Old Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. The
Company does not intend to seek its own no-action letter and there is no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Notes as it has in such no-action letters to
third parties.
Each holder of Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company nor a
broker- dealer tendering Old Notes acquired directly from the Company for its
own account, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the commencement of
the Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In addition, in connection with any resales of Exchange Notes, any
Participating Broker-Dealer must deliver a prospectus meeting the requirements
of the Securities Act. The staff of the Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Old Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company will be required to allow Participating Broker-Dealers to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of Exchange Notes received in exchange for Old Notes acquired
by such Participating Broker-Dealers for their own account as a result of
market-making or other trading activities.
In the event that any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer Registration Statement is not
declared effective or the Exchange Offer is not consummated by November 18,
1997, or upon the request of the Initial Purchasers in certain circumstances,
the Company will, in lieu of effecting (or, in the case of such a request by
the Initial Purchasers, in addition to effecting) the registration of the
Exchange Notes pursuant to the Exchange Offer Registration Statement (i) as
promptly as practicable, file with the Commission the Shelf Registration
Statement covering sales of the Old Notes, (ii) use its reasonable best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act by (or promptly in the event of a request by the Initial
Purchasers) and (iii) use its reasonable best efforts to keep effective the
Shelf Registration Statement (subject to the Company's right to suspend use of
the Shelf Registration Statement in limited circumstances for no more than 60
days within any twelve month period (a "Shelf Registration Suspension"), as set
forth in the Registration Rights Agreement) until two years after its effective
date (or until one year after such effective date if such Shelf Registration
Statement is filed at the request of the Initial Purchasers) or until all of
the Old Notes covered by such Shelf Registration Statement have been sold. In
the event of the filing of a Shelf Registration Statement, the Company will
provide to each holder of the Old Notes copies of the prospectus which is a
part of the Shelf Registration Statement and notify each such holder when the
Shelf Registration Statement has become effective. A holder of Old Notes that
sells such Old Notes pursuant to the Shelf Registration Statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations). In addition, each holder of the Old Notes
will be required to deliver information to be used in connection with the Shelf
Registration Statement and in order to have its Old Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding the
increase in the interest rate borne by the Old Notes described in the second
succeeding paragraph.
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Each Note will contain a legend to the effect that the holder of such
Notes, by its acceptance thereof, will be deemed to have agreed to be bound by
the provisions of the Registration Rights Agreement. In that regard, each
holder will be deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event that makes any statement in the
prospectus that is part of the Shelf Registration Statement (or, in the case of
Participating Broker-Dealers, the prospectus that is a part of the Exchange
Offer Registration Statement) untrue in any material respect or that requires
the making of any changes in such prospectus in order to make the statements
therein not misleading or of certain other events specified in the Registration
Rights Agreement, such holder (or Participating Broker-Dealer, as the case may
be) will suspend the sale of Notes pursuant to such prospectus until the
Company has amended or supplemented such prospectus to correct such
misstatement or omission, has furnished copies of the amended or supplemented
prospectus to such holder (or Participating Broker-Dealer, as the case may be)
or the Company has given notice that the sale of the Notes may be resumed, as
the case may be. If the Company shall give such notice to suspend the sale of
the Notes, it shall extend the relevant period referred to above during which
it is required to keep effective the Shelf Registration Statement (or the
period during which Participating Broker-Dealers are entitled to use the
prospectus included in the Exchange Offer Registration Statement in connection
with the resale of Exchange Notes, as the case may be) by the number of days
during the period from and including the date of the giving of such notice to
and including the date when holders shall have received copies of the
supplemented or amended prospectus necessary to permit resales of the Notes or
to and including the date on which the Company has given notice that the sale
of Notes may be resumed, as the case may be.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to July 6, 1997, (b) the Exchange Offer
Registration Statement is not declared effective on or prior to September 4,
1997, (c) the Exchange Offer is not consummated or a Shelf Registration
Statement with respect to the Notes is not declared effective on or prior to
November 18, 1997, (d) any required Exchange Offer Registration Statement or
Shelf Registration Statement is filed and declared effective but shall
thereafter either be withdrawn by the Company or becomes subject to an
effective stop order suspending the effectiveness of such registration
statement (except as specifically permitted in the Registration Rights
Agreement) without being succeeded immediately by an additional registration
statement filed and declared effective, or (e) the Company effects a Shelf
Registration Suspension for more than 60 days, whether or not consecutive,
within any period of 12 consecutive months (each such event referred to in
clauses (a) through (e), a "Registration Default") then, as liquidated damages
for such Registration Default, subject to certain limitations, special interest
("Special Interest"), in addition to stated interest on the Notes, shall accrue
on the Notes at a per annum rate of 0.50% from and including the day following
such Registration Default to but excluding the date on which the Registration
Default is cured or ceases as described below (such period being the
"Registration Default Period"); provided, that if the Exchange Offer
Registration Statement is not declared effective on or prior to September 4,
1997 and the Company shall request holders of Notes to provide the information
called for by the Registration Rights Agreement for inclusion in the Shelf
Registration Statement, then Notes owned by holders who do not deliver such
information to the Company when required pursuant to the Registration Rights
Agreement will not be entitled to any such increase in the interest rate for
any day after September 4, 1997. Special Interest will be paid in the same
manner as interest is paid on the Notes pursuant to the Indenture. Upon (1) the
filing of the Exchange Offer Registration Statement after July 6, 1997 as
described in clause (a) above, (2) the effectiveness of the Exchange Offer
Registration Statement after September 4, 1997 as described in clause (b)
above, (3) the consummation of the Exchange Offer or the effectiveness of the
Shelf Registration Statement, as the case may be, after November 18, 1997 as
described in clause (c) above, (4) removal of the suspension or stop order
referred to in clause (d) above or the filing and effectiveness of a new
registration statement in respect thereof, (5) cessation of the Shelf
Registration Suspension referred to in clause (e) above, or (6) expiration of
the period for which the Company is obligated to keep the Shelf Registration
Statement effective, Special Interest shall cease to accrue unless a new
Registration Default shall occur.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a form of which is
available upon request to the Company. See "Incorporation of Certain Documents
by Reference." In addition, the information set forth above concerning certain
interpretations of and positions taken by the staff of the Commission is not
intended to constitute legal advice and prospective investors should consult
their own legal advisors with respect to such matters.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. The Company recommends that each holder consult such holder's
own tax advisor as to the particular tax consequences of exchanging such
holder's Old Notes for Exchange Notes, including the applicability and effect
of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. Rather, the Exchange Notes
received by a holder will be
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treated as a continuation of the Old Notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
Old Notes for Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period of 180
days after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker- dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. For a period of 180 days after
consummation of the Exchange Offer, or such shorter period as will terminate
when all Old Notes acquired by broker-dealers for their own accounts as a
result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed in the Registration
Rights Agreement to indemnify such broker-dealers against certain liabilities,
including liabilities under the Securities Act.
TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES BY THE INITIAL PURCHASERS
The Old Notes were not registered under the Securities Act and may not
be offered or sold in the United States or to, or for the account or benefit
of, U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Notes were offered and
sold only in the United States to QIBs under Rule 144A under the Securities Act
and other Institutional Accredited Investors who, prior to their purchase of
Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements, in a private sale exempt from the registration
requirements of the Securities Act.
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LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby is
being passed upon for the Company by Gerald A. Morton, Vice President-Law and
Corporate Secretary of the Company. Mr. Morton owns approximately 1,669 shares
of the Company's Common Stock through the Company's tax advantaged savings plan
and options to purchase an aggregate of 28,000 shares of the Company's common
stock, which are or become exercisable in periodic installments through August
1, 2000.
EXPERTS
The consolidated financial statements of Pogo Producing Company as of
December 31, 1996 and 1995, and for the three years in the period ended December
31, 1996, incorporated by reference in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The estimates of oil and gas reserves set forth herein and in the
Annual Report, and the related estimates set forth herein and therein of
discounted present values of estimated future net revenues therefrom, are
extracted from the report of Ryder Scott attached as an exhibit to the Annual
Report. Such information is incorporated by reference herein in reliance on
the authority of said firm as experts with respect to matters contained in such
report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act . In accordance with the Exchange Act, the Company files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
following Regional Offices: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material also may be obtained at prescribed rates from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004. The Company's Common Stock is listed on The New
York Stock Exchange and the Pacific Stock Exchange. Consequently, such reports,
proxy statements and other information concerning the Company may be inspected
at the offices of The New York Stock Exchange, 20 Broad Street, New York, New
York 10005 and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104. In addition, the Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission
(http://www.sec.gov). While any Old Notes remain outstanding, the Company will
make available, upon request, to any holder and any prospective purchaser of
Old Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Corporate Secretary of the Company, 5 Greenway Plaza, Suite 2700, Houston,
Texas 77046.
This Prospectus constitutes part of a Registration Statement filed by
the Company with the Commission under the Securities Act. This Prospectus
omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby. Statements contained herein concerning the
provisions of contracts or other documents are not necessarily complete, and
each such statement is qualified in its entirety by reference to the copy of
the applicable contract or other document filed with the Commission. Copies of
the Registration Statement and the exhibits thereto are on file at the offices
of the Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the public reference
facilities of the Commission described above.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, EXCHANGE AGENT, THE INITIAL PURCHASERS
OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Private Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Selected Reserve and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 30
Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management and Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Exchange Offer; Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Transfer Restrictions on Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
================================================================================
================================================================================
$100,000,000
EXCHANGE OFFER
[POGO LOGO]
8 3/4% SENIOR SUBORDINATED
NOTES DUE 2007
---------------
PROSPECTUS
, 1997
================================================================================
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of another corporation or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of any such threatened, pending or completed action or suit if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and provided further that
(unless a court of competent jurisdiction otherwise provides) such person shall
not have been adjudged liable to the corporation. Any such indemnification may
be made only as authorized in each specific case upon a determination by the
shareholders or disinterested directors or by independent legal counsel in a
written opinion that indemnification is proper because the indemnitee has met
the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Company maintains policies insuring its and its subsidiaries' officers and
directors against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act of 1933, as amended.
Article X of the Restated Certificate of Incorporation of the
Company eliminates the personal liability of each director of the Company
to the Company and its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such director
occurring on or after September 30, 1986; provided, however, that such
provision does not eliminate or limit the liability of a director (i) for any
breach of such director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Title 8,
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which such director derived an improper personal benefit.
The Bylaws of the Company provide that the Company will
indemnify and hold harmless, to the fullest extent permitted by applicable law
as in effect as of the date of the adoption of the Bylaws or as it may
thereafter be amended, any person who was or is made or is threatened to be
made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that he, or a person for whom he is the legal representative,
is or was a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Bylaws further provide that the
Company will indemnify a person in connection with a proceeding initiated by
such person only if the proceeding was authorized by the Board of Directors of
the Company.
The Bylaws further provide that the Company will pay the expenses
incurred in defending any proceeding in advance of its final disposition,
provided, however, that the payment of expenses incurred by a director or
officer in his capacity as a director or officer (except with regard to service
to an employee benefit plan or non-profit organizations in advance of the final
disposition of the proceeding) will be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified.
The Company has placed in effect insurance which purports (a) to
insure it against certain costs of indemnification which may be incurred by it
pursuant to the aforementioned Bylaw provision or otherwise and (b) to insure
the officers and directors of the Company and of specified subsidiaries
against certain liabilities incurred by them in the discharge of their
functions as officers and directors except for liabilities arising from their
own malfeasance.
II-1
<PAGE> 95
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
The following instruments and documents are included as Exhibits to
this Registration Statement. Exhibits incorporated by reference are so
indicated by parenthetical information.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
4.1 -- Restated Certificate of Incorporation of Pogo Producing
Company (filed as Exhibit 3(a) to Pogo Producing Company's
Annual Report on Form 10-K for the year ended December 31,
1996 and included herein by reference (File No. 1-7792))
4.2 -- By-Laws of Pogo Producing Company, as amended and restated
through April 22, 1997 (filed as Exhibit 3(b) to Pogo
Producing Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and included herein by
reference (File No. 1-7792))
4.3** Indenture dated as of May 15, 1997 between Pogo Producing
Company and Fleet National Bank (now State Street Bank &
Trust Company as successor in interest under the Indenture),
as Trustee, which includes the form of the 8 3/4% Senior
Subordinated Note due 2007 as an exhibit thereto
4.4** -- Registration Rights Agreement dated May 22, 1997 among Pogo
Producing Company, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.
5.1** -- Opinion of Gerald A. Morton
12.1** -- Computation of ratio of earnings to fixed charges
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Ryder Scott Company Petroleum Engineers
23.3* -- Consent of Gerald A. Morton (contained in his opinion filed
as Exhibit 5)
24.1** -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee
99.1** -- Form of Letter of Transmittal
99.2** -- Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------------------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
II-2
<PAGE> 96
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement:
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described under Item 20 above, or
otherwise, the Company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless,
in the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of of Houston, the State of Texas on August 26, 1997.
POGO PRODUCING COMPANY
By: /s/ Paul G. Van Wagenen
------------------------------------------------
Paul G. Van Wagenen
Chairman of the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Paul G. Van Wagene Chairman of the Board, Presid August 26, 1997
- ------------------------- and Chief Executive Officer
Paul G. Van Wagenen (Principal Executive Officer
and Director)
August 26, 1997
/s/ John W. Elsenhans Vice President - Finance and
- ------------------------- Treasurer
John W. Elsenhans (Principal Finance Officer)
/s/ Thomas E. Hart Vice President and Controller August 26, 1997
- ------------------------- (Principal Accounting Officer)
Thomas E. Hart
* Director August 26, 1997
- -------------------------
Tobin Armstrong
* Director August 26, 1997
- -------------------------
Jack S. Blanton
* Director August 26, 1997
- -------------------------
W. M. Brumley, Jr.
* Director August 26, 1997
- -------------------------
John B. Carter, Jr.
* Director August 26, 1997
- -------------------------
William L. Fisher
* Director August 26, 1997
- -------------------------
William E. Gipson
* Director August 26, 1997
- -------------------------
Gerrit W. Gong
* Director August 26, 1997
- -------------------------
J. Stuart Hunt
* Director August 26, 1997
- -------------------------
Frederick A. Klingenstein
* Director August 26, 1997
- -------------------------
Nicholas R. Petry
* Director August 26, 1997
- -------------------------
Jack A. Vickers
*By: /s/ Thomas E. Hart
- -------------------------
Thomas E. Hart, Attorney-
in-Fact
</TABLE>
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
4.1 -- Restated Certificate of Incorporation of Pogo Producing
Company (filed as Exhibit 3(a) to Pogo Producing Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and included herein by reference (File No. 1-7792))
4.2 -- By-Laws of Pogo Producing Company, as amended and restated
through April 22, 1997 (filed as Exhibit 3(b) to Pogo Producing
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 and included herein by reference (File No.
1-7792))
4.3** -- Indenture dated as of May 15, 1997 between Pogo Producing
Company and Fleet National Bank (now State Street Bank &
Trust Company as successor in interest under the Indenture),as
Trustee, which includes the form of the 8 3/4% Senior
Subordinated Note due 2007 as an exhibit thereto
4.4** -- Registration Rights Agreement dated May 22, 1997 among Pogo
Producing Company, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Goldman Sachs & Co.
5.1** -- Opinion of Gerald A. Morton
12.1** -- Computation of ratio of earnings to fixed charges
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Ryder Scott Company Petroleum Engineers
23.3* -- Consent of Gerald A. Morton (contained in his opinion filed as Exhibit 5)
24.1** -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee
99.1** -- Form of Letter of Transmittal
99.2** -- Form of Notice of Guaranteed Delivery
</TABLE>
- -----------------------------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of our report dated
February 3, 1997 included in Pogo Producing Company's Annual Report on Form 10-K
for the year ended December 31, 1996, and to all references to our Firm included
in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Houston, Texas
August 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in this Registration
Statement on Form S-4 under the heading "Experts". We further consent to the
incorporation by reference of our estimates of reserves and present value of
future net reserves in such Registration Statement.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ Ryder Scott Company
Petroleum Engineers
Houston, Texas
August 26, 1997
