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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-7792
POGO PRODUCING COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 74-1659398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 GREENWAY PLAZA, P.O. BOX 2504
HOUSTON, TEXAS 77252-2504
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (713) 297-5000
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
<S> <C>
Title of each class: Name of each exchange on which registered:
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE JUNE 15, 2006
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock held by non-affiliates of the
registrant (treating all executive officers and directors of the registrant, for
this purpose, as if they may be affiliates of the registrant) was approximately
$311,300,000 as of February 22, 1999 (based on $10.00 per share, the last sale
price of the Common Stock as reported on the New York Stock Exchange Composite
Tape on such date).
40,135,311 shares of the registrant's Common Stock were outstanding as of
February 22, 1999.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement respecting the annual
meeting of shareholders to be held on April 27, 1999 (to be filed not later than
120 days after December 31, 1998) are incorporated by reference in Part III of
this Form 10-K.
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FORWARD LOOKING STATEMENTS
The statements included or incorporated by reference in this Report on Form
10-K for the year ended December 31, 1998 (this "Annual Report") include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements included herein or therein other than statements of
historical fact are forward-looking statements. When used herein or therein, the
words "anticipate," "estimate," "expect," "objective," "projection," "forecast,"
"goal," and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements include, without limitation, the
statements herein and therein regarding the timing of future events regarding
the operations of Pogo Producing Company (the "Company") both domestically and
in Thailand, and the statements set forth herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" regarding the Company's anticipated
future financial position and cash requirements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Annual Report and in other filings by the Company with the
Securities and Exchange Commission (the "Commission") including, without
limitation, in connection with such forward-looking statements. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of the risk
factors set forth below and other factors set forth in or incorporated by
reference in this Annual Report. These factors include:
- the cyclical nature of the oil and natural gas industries
- uncertainties associated with the United States and worldwide economies
- current and potential governmental regulatory actions in countries where
the Company owns an interest
- substantial competitor production increases resulting in oversupply and
declining prices
- the Company's ability to implement cost reductions
- the Company's ability to raise additional capital or sell assets
- operating interruptions (including leaks, explosions, fires, mechanical
failure, unscheduled downtime, transportation interruptions, and spills
and releases and other environmental risks)
- fluctuations in foreign currency exchange rates in areas of the world
where the Company owns an interest, particularly Southeast Asia
- covenant restrictions in the Company's indebtedness
- the impact of the Year 2000 issue
Many of those factors are beyond the Company's ability to control or
predict. Management cautions against putting undue reliance on forward-looking
statements or projecting any future results based on such statements or present
or prior earnings levels.
All subsequent written and oral forward-looking statements attributable to
the Company and persons acting on the Company's behalf are qualified in their
entirety by the cautionary statements contained in this section and elsewhere in
this Annual Report.
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CERTAIN DEFINITIONS
As used in this Annual Report, "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 of natural gas equivalent,
"MMcfe" means million cubic feet of natural gas equivalent and "Bcfe" means
billion cubic feet of natural gas 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 ("NGL"). References to "$"
and "dollars" refer to United States dollars. All estimates of reserves
contained in this Annual Report, unless otherwise noted, are reported on a "net"
basis. Information regarding production, acreage and numbers of wells are set
forth on a gross basis, unless otherwise noted.
3
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ITEM 1. BUSINESS
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, primarily in the Gulf of Thailand and in
Canada. As of December 31, 1998, the Company had interests in 105 lease blocks
offshore Louisiana and Texas, approximately 419,000 gross acres onshore in the
United States and Canada, approximately 847,000 gross acres offshore in the
Kingdom of Thailand and approximately 113,000 gross acres in the British North
Sea. On August 17, 1998, a wholly owned subsidiary of the Company merged with
and into Arch Petroleum Inc. ("Arch") in a stock-for-stock tax-free merger
accounted for as a purchase.
As of December 31, 1998, four significant operating areas, including the
Outer Continental Shelf area of the Gulf of Mexico offshore Louisiana and Texas
in water depths less than 600 feet (the "Shelf") and on the continental slope in
water depths ranging from 600 feet to approximately 4,500 feet (the "Continental
Slope"), the Permian Basin area in New Mexico and Block B8/32 Concession in the
Kingdom of Thailand (the "Thailand Concession), accounted for approximately 76%
of the Company's estimated proved natural gas reserves, approximately 97% of the
Company's estimated proved oil, condensate and natural gas liquids reserves,
approximately 78% of the Company's 1998 natural gas production and 94% of the
Company's 1998 oil, condensate and natural gas liquids production. Reserves, as
estimated by Ryder Scott, and production data, as estimated by the Company, for
the four significant operating areas are shown in the following table. The
percentages presented on the table are the percentage of the Company's total net
proved natural gas and liquids reserves, natural gas and liquids production and
total proved reserves, respectively.
SIGNIFICANT OPERATING AREAS
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<CAPTION>
1998 AVERAGE NET
NET PROVED RESERVES(A) DAILY PRODUCTION
------------------------------------------ ------------------------------------------
NATURAL GAS LIQUIDS(B) NATURAL GAS LIQUIDS(B)
-------------------- -------------------- -------------------- --------------------
MMCF % MBBLS % MCF % BBLS %
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC
Gulf of Mexico--Shelf.................... 90,579 20.6 13,711 20.3 76,630 48.2 9,915 54.5
Gulf of Mexico--Continental Slope........ 34,000 7.7 1,691 2.5 -- -- -- --
New Mexico............................... 43,202 9.8 16,226 24.0 10,667 6.7 4,631 25.4
INTERNATIONAL
Kingdom of Thailand...................... 168,389 38.3 33,811 50.1 36,774 23.1 2,561 14.1
--------- --- --------- --- --------- --- --------- ---
TOTAL...................................... 336,170 76.4 65,439 96.9 124,071 78.0 17,107 94.0
--------- --- --------- --- --------- --- --------- ---
--------- --- --------- --- --------- --- --------- ---
<CAPTION>
TOTAL
PROVED
RESERVES(A)
%
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DOMESTIC
Gulf of Mexico--Shelf.................... 20.4
Gulf of Mexico--Continental Slope........ 5.2
New Mexico............................... 16.6
INTERNATIONAL
Kingdom of Thailand...................... 43.9
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TOTAL...................................... 86.1
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---
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(a) Net proved reserves and total net proved reserves are each as of December
31, 1998.
(b) "Liquids," includes oil, condensate and NGL.
DOMESTIC OFFSHORE OPERATIONS
Historically, the Company's interests have been concentrated in the Gulf of
Mexico, where approximately 26% of the Company's proved reserves were located as
of December 31, 1998. During 1998, approximately 48% of the Company's natural
gas production and approximately 55% of its oil and condensate production was
from its domestic offshore properties, contributing approximately 53% of the
Company's consolidated oil and gas revenues. Although the Company's operations
were historically focused on the Shelf where it owns interests in 89 lease
blocks, the Company has recently expanded its exploration efforts further
offshore into the Continental Slope where the Company currently has interests in
16 lease blocks with water depths that range from 600 feet to approximately
4,400 feet.
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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 purchases and subsequent
activities, as of December 31, 1998, the Company owned interests in 97 federal
leases and 8 state leases offshore Louisiana and Texas. Federal leases generally
have primary terms of five, eight or ten years, depending on water depth, and
state leases generally have terms of three or five years, depending on location,
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 1998, the Company was successful in acquiring
interests in four lease blocks through federal Outer Continental Shelf oil and
gas lease sales and one lease block by assignment from a third party. As in the
case of prior sales, the extent to which the Company participates in future
bidding on federal or state offshore lease sales 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 1998 were approximately $68,000,000 (excluding approximately $5,000,000 of
net property acquisitions), or 21% lower than the Company's domestic offshore
capital and exploration expenditures of approximately $86,300,000 for 1997
(excluding approximately $900,000 of net property acquisitions) and 26% lower
than the Company's domestic offshore capital and exploration expenditures of
approximately $92,400,000 for 1996. The decrease in the Company's domestic
offshore capital and exploration expenditures for 1998, compared with 1997 and
1996, resulted primarily from the Company's decision to decrease its drilling
activity in light of poor oil and gas prices and a decrease in 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 the operator on all or a portion
of 27 of the 105 offshore leases in which it had an interest on December 31,
1998.
Platforms and related facilities 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. Platform costs vary depending on, among other factors, the number of
slots, water depth, currents, and sea floor conditions. Over the four years
ended December 31, 1998, the gross construction and installation cost of
production platforms and related facilities located on the Shelf in which the
Company shared a portion of the construction costs based on its ownership
interest in the development ranged from approximately $3,000,000 to
approximately $16,500,000. Wells, platforms and related facilities are typically
much more
5
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expensive on the Continental Slope. The Company is currently participating in
the construction of one platform, one sub-sea development and related facilities
on the Continental Slope at a total capital commitment of $204,045,000 dollars
($30,341,000 net to the Company's working interest), of which approximately 38%
has been incurred through December 31, 1998. The Company believes that future
development projects on the Continental Slope may require similar capital
commitments, each of which must be justified in the then current and anticipated
future product price environment. In order to better manage the risks of large
projects on the Continental Slope, the Company generally seeks to have a smaller
ownership interest in these lease blocks than it averages in shallower waters.
SIGNIFICANT DOMESTIC OFFSHORE OPERATING AREAS DURING 1998
OUTER CONTINENTAL SHELF. The Outer Continental Shelf 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. As of December 31, 1998, the
Company held interests in 89 blocks on the Shelf. The Company currently has 215
oil and gas wells producing from multiple reservoirs and horizons on the Shelf.
During 1998, the Company participated in the drilling of five wells on the
Shelf, the setting of one production platform and related facilities and the
upgrading of three platforms.
CONTINENTAL SLOPE. Since 1996 when the Company acquired its first interest
in a lease block in the Continental Slope, the Company has been increasingly
active in this area. As of December 31, 1998, the Company owns interests in 16
blocks in the Continental Slope and has interests in five wells that it has
drilled there, including three that were drilled in 1998. The Company is
currently participating in the construction of one platform and related
facilities at Viosca Knoll Blocks 780 and 823, and one subsea facility on Garden
Banks 367, on the Continental Slope.
ONSHORE OPERATIONS
The Company has onshore division staffs in Houston and Midland, Texas and
Calgary, Canada. 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, in the onshore Gulf Coast areas of South Texas, East
Texas and South Louisiana and in Alberta and British Columbia in Canada. The
Company conducts its onshore operations in the United States directly and
through its wholly owned subsidiary Arch. The Company conducts its operations in
Canada through its wholly-owned subsidiary, Pogo Canada Ltd. See "--Significant
Onshore Operating Areas During 1998."
LEASE ACQUISITIONS
Commencing in 1995 and continuing into 1998, the Company increased its
activities in the onshore Gulf Coast areas of East Texas and South Louisiana
through its participation in several large proprietary 3-D seismic surveys, in
connection with which the Company typically purchases an option to acquire an
interest in the acreage covered by the 3-D seismic survey. As it has in recent
years, in 1998 the Company also successfully participated in various onshore
federal, state and provincial lease sales and acquired interests in prospective
acreage from private individuals. As of December 31, 1998, the Company held
interests in approximately 303,000 gross (151,000 net) acres onshore in the
United States and 117,000 gross (51,000 net) acres in Canada, an increase of
approximately 76% from year end 1997. The increase in acreage is primarily
related to the Company's acquisition of Arch and, to a lesser extent, the
Company's successful participation in the lease sales and private property
acquisitions described above, that was partially offset by the sale of certain
properties that it no longer considered strategic and the expiration of leases
in the ordinary course of business.
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 389
6
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wells in the Permian Basin, West and Northwest Texas areas through December 31,
1998, including 32 wells in 1998. See "--Significant Domestic Onshore Operating
Areas During 1998."
In Southwest Louisiana, the Company participated in drilling 20 wells since
1996, including seven wells in 1998, to test various prospects, primarily in the
Hackberry and Yegua formations, almost all of which were identified on
proprietary 3-D seismic surveys that the Company and its industry partners have
acquired since 1995.
Onshore reserves as of December 31, 1998, accounted for approximately 31% of
the Company's total proved reserves. During 1998, approximately 29% of the
Company's natural gas production and 31% of its oil and condensate production
was from its onshore properties, contributing approximately 30% of the Company's
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 onshore capital and exploration expenditures were
approximately $48,800,000 (excluding approximately $133,100,000 of net property
acquisitions, including approximately $131,500,000 related to the acquisition of
Arch) for 1998, or 19% lower than the Company's onshore capital and exploration
expenditures of approximately $60,000,000 (excluding approximately $1,700,000 of
net property acquisitions) for 1997 and 4% higher than the Company's onshore
capital and exploration expenditures of approximately $47,000,000 (excluding
approximately $3,800,000 of net property acquisitions) for 1996. The decrease in
the Company's onshore capital and exploration expenditures for 1998, compared to
1997, resulted primarily from the Company's decision to curtail non-essential
drilling in light of poor oil and gas prices, that was not entirely offset by
capital and exploration expenditures in Canada where the Company acquired its
interest in Pogo Canada Ltd. in August 1998. The increase in capital and
exploration expenditures for 1998, compared to 1996, primarily related to
capital and exploration expenditures in Canada where the Company acquired an
interest during 1998 as part of the Arch acquisition.
SIGNIFICANT ONSHORE OPERATING AREAS DURING 1998
NEW MEXICO. The Company believes that during the past six 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 105,000 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 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.
LOPENO FIELD. The Company acquired its initial interest in the Lopeno Field
in 1983. The Lopeno Field is located within 40 miles of the border with Mexico,
in 1983. As of December 31, 1998, the Company had interests in 29 producing
wells in the Lopeno Field. The Lopeno Field produces from over 20 upper Wilcox
sandstone reservoirs ranging in depth up to 12,500 feet. In late 1998, the
Company decided to sell its interest in the Lopeno Field as part of its asset
rationalization efforts. The Company currently expects to sell its interest by
March 15, 1999, effective back to January 1, 1999. Proceeds from the sale will
be used to reduce the Company's total debt and for general corporate purposes.
INTERNATIONAL OPERATIONS
The Company has conducted international exploration activities since the
late 1970's in numerous oil and gas areas throughout the world. Currently, the
Company maintains an office in Bangkok, Thailand from which it directs field
operations on the Thailand Concession through its wholly owned subsidiary
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Thaipo Limited ("Thaipo"). Thaipo currently owns, directly or indirectly, a
46.34% working interest in the entire Thailand Concession. The remainder of the
working interest is owned, directly or indirectly by Thai Romo Ltd. (46.34%), a
subsidiary of Rutherford-Moran Oil Corporation ("RMOC"), and Palang Sophon
Limited ("Palang") (7.32%). RMOC has entered into an agreement to merge with,
and become, a wholly owned subsidiary of Chevron Corporation ("Chevron"). It is
the Company's understanding that Chevron will also acquire a majority of the
stock of Palang. Based on publicly available information and communications with
Chevron, RMOC and Palang, it is the Company's current understanding that
Chevron's merger with RMOC, and its acquisition of a majority interest in
Palang, will be consummated on or shortly after March 17, 1999. Following these
transactions, Chevron will own or control, directly or indirectly, 53.66% of the
working interests in the Thailand Concession. Thaipo is currently the operator
of the Thailand Concession, pursuant to the joint operating agreement governing
the Thailand Concession and as designated by the government of Thailand. Subject
to approval by the government of Thailand and the agreement of the parties to
the joint operating agreement, Thaipo has agreed to transfer operatorship to a
subsidiary of Chevron on or about September 30, 1999. In addition, Chevron has
agreed to lend funds to RMOC to cover its cash call obligations under the joint
operating agreement until Chevron's merger with RMOC is consummated. As of
December 31, 1998, the Company's proved reserves located in the Kingdom of
Thailand accounted for approximately 44% of the Company's total proved reserves.
During 1998, approximately 29% of the Company's natural gas production and 31%
of its oil and condensate production came from its operations on the Thailand
Concession, contributing approximately 17% of the Company's consolidated oil and
gas revenues.
EXPLORATION AND DEVELOPMENT
The Company's international capital and exploration expenditures were
approximately $107,400,000 for 1998, or 22% higher than the Company's
international capital and exploration expenditures of approximately $88,300,000
for 1997 (excluding approximately $28,600,000 of net property acquisitions) and
67% higher than the Company's international capital and exploration expenditures
of approximately $64,400,000 (excluding approximately $4,200,000 of net property
acquisitions) for 1996. The increase in the Company's international capital and
exploration expenditures for 1998, compared to 1997 and 1996, resulted primarily
from increased platform and facilities construction costs related to development
of the Benchamas Field and increased drilling activity in the Tantawan and
Benchamas Fields. Substantially all of the Company's international capital and
exploration expenditures for 1998 were related to the Company's license in the
Kingdom of Thailand. On December 1, 1998, the Company together with two joint
partners, were successful in obtaining a license from the United Kingdom
governing approximately 113,000 acres in the British sector of the North Sea.
Terms of the license provided for a minimum work commitment that will involve
the acquisition, processing and interpretation of 3-D seismic data over the
block. The initial exploratory term of this license expires on December 1, 2004,
unless otherwise extended or a production license is granted. In addition, the
Company continues to evaluate other international opportunities that are
consistent with the Company's international exploration strategy and expertise.
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 government of the Kingdom of Thailand. See "--Contractual
Terms Governing the Thailand Concession and Related Production." Platforms are
used to accommodate both development drilling and additional exploratory
drilling. Over the four years ended December 31, 1998, the gross cost of the
first five production platforms and related facilities in the Tantawan Field has
averaged approximately $20,000,000. The Company is currently participating in
the construction of platforms and related facilities for the Benchamas Field at
a total capital commitment of $267,470,000 dollars ($123,946,000 net to the
Company's working interest), of which approximately 67% has been incurred
through December 31, 1998. The Company and its joint venture partners have been
working to employ advanced platform facility design and advanced drilling and
completion techniques, including slimhole, batch and horizontal drilling, to
reduce the cost of developing the Thailand Concession. The Company believes that
future satellite platforms and related facilities may
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be installed for as little as approximately $13,000,000 per platform in the
future. 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 1998; Tantawan Field."
SIGNIFICANT INTERNATIONAL OPERATING AREAS DURING 1998
TANTAWAN FIELD. In August 1995, at the request of Thaipo and its joint
venture partners, the government of Thailand designated a portion of the
Thailand Concession comprising approximately 68,000 acres as the Tantawan
production area or the "Tantawan Field." Initial production from the Tantawan
Field commenced on February 1, 1997. Currently, there are 28 wells producing
from four platforms. The Company is currently planning to install a fifth
platform in the Tantawan Field from which production is expected to commence in
the first half of 1999.
Oil and gas production from the Tantawan Field is gathered through pipelines
from the platforms into a Floating Production Storage and Offloading system (an
"FPSO") named the "Tantawan Explorer." The FPSO 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 Petroleum Authority of Thailand ("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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
BENCHAMAS FIELD AND THE MALIWAN PRODUCTION AREA. In July 1997, the
government of Thailand designated another portion of the Thailand Concession
comprising approximately 102,000 acres as the Benchamas and Pakakrong production
area or the "Benchamas Field." In September 1997, the government of Thailand
designated an additional 91,000 acres of the Thailand Concession as the Maliwan
production area. Current development plans call for the staged development of
these fields, with the Benchamas Field to be brought on production first. The
Benchamas Field development plan contemplates the initial installation of three
production platforms, with natural gas and oil from these platforms delivered by
undersea pipeline to a central processing and compression platform where the
oil, condensate and natural gas will be processed and separated. The natural gas
will then be sold to PTT and delivered into export pipelines for transportation
to shore, while the oil and condensate produced from the field will be stored on
board a Floating Storage and Offloading system ("FSO"), known as the "Benchamas
Explorer," for sale and ultimate transfer to shore by oil tanker. The FSO will
be moored in the Benchamas Field. Its capacity will be approximately 1,400,000
Bbls of crude and condensate. The Benchamas Field's current development plan
calls for initial production to commence in the third quarter of 1999 with
production from the Maliwan production area to begin in late 2001.
OTHER AREAS. In addition to the above mentioned fields, Thaipo and its
joint venture partners have 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 673,650 acres of the Thailand Concession, including 221,650 acres
during the fourth quarter of 1997 over what is known as the Jarmjuree area.
Through February 1, 1999, Thaipo and its joint venture partners have drilled
eight wells on areas of the Thailand Concession that are not currently
designated as production areas. Interpretation of the data provided by these
wells and 3-D seismic data covering these areas is ongoing. Thaipo and its joint
venture partners also currently plan to drill additional exploration wells in
these areas during 1999.
CONTRACTUAL TERMS GOVERNING THE THAILAND CONCESSION AND RELATED PRODUCTION
The Thailand Concession was granted in August 1991. The exploratory term for
those portions of the Thailand Concession that have not yet been designated a
production area (comprising approximately 474,000 acres) expires July 31, 2000.
For those portions of the Thailand Concession that have been designated as
production areas, the initial production period term is 20 years, which is also
subject to
9
<PAGE>
extension, generally for a term of ten years. See also "--Miscellaneous; Sales."
Currently, the Tantawan, Maliwan, and Benchamas and Pakakrong areas have been
designated as production areas. Subject to governmental approval, other portions
of the Thailand Concession may be designated production areas in the future.
Production resulting from the Thailand Concession is subject to a royalty
ranging from 5% to 15% of oil and gas sales, plus certain fixed U.S. 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").
Thaipo and its joint venture partners have entered into a thirty-year Gas
Sales Agreement with PTT (the "Gas Sales Agreement"), governing gas production
from the Tantawan Field and anticipated gas production from the Benchamas Field.
The terms of the Gas Sales Agreement currently include a minimum daily contract
quantity ("DC") of 85 MMcf per day, which the Company currently anticipates will
continue until the Benchamas Field commences production, at which time the DC
will, subject to certain exceptions, be based on a percentage of the remaining
proved reserves, but in any event, will not be less than 125 MMcf per day. The
DC is the minimum daily volume that PTT has agreed to take, or pay for if not
taken, under the agreement. Likewise, Thaipo and its joint venture partners are
subject to certain penalties if they are unable to meet the DC, principal among
which is a decrease in sales price of up to 25% of the then current sales price.
As a result of declining production from existing wells in the Tantawan Field,
the need to shut-in existing wells while drilling additional wells from the same
platform, and the decision to emphasize oil and condensate production from the
Tantawan Field, commencing on October 1, 1998, the Company and its joint venture
partners are currently delivering less natural gas than is being nominated by
PTT under the Gas Sales Agreement. This could result in the Company receiving
only 75% of the current contract price on a portion of its future natural gas
sales to PTT. The Company is taking actions that it currently believes will
minimize the penalty that it will incur on future gas sales to PTT by increasing
production from the Tantawan Field. The contract sales price is subject to
automatic semi-annual adjustments based upon a formula which takes into account
changes in: Singapore fuel oil prices; the U.S. Bureau of Labor Statistics
Oilfield Machinery and Tool Index; the Thai wholesale producer price index; and
the U.S./Thai currency exchange rate. However, the Gas Sales Agreement provides
for adjustment on a more frequent basis in the event that certain indices and
factors on which the price is based fluctuate outside a given range. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations; Foreign Currency Transaction Gain (Loss)" and
"--Liquidity and Capital Resources; Other Matters; Southeast Asia Economic
Issues."
MISCELLANEOUS
OTHER ASSETS
The Company and a subsidiary, Pogo Offshore Pipeline Co., own interests in
eight pipelines (excluding field gathering pipelines) through which offshore
hydrocarbon production is transported. Through a wholly-owned subsidiary,
Saginaw Pipeline Company, L.C. ("Saginaw"), which the Company acquired in its
merger with Arch, the Company owns and operates the Saginaw pipeline, a six
inches in diameter pipeline that runs from just outside of Fort Worth, Texas to
Wichita Falls, Texas. Industrial Natural Gas, L.C., a subsidiary of Saginaw,
markets the sale and transmission of natural gas through the Saginaw pipeline.
In addition, the Company owns an approximately 19% 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.
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
10
<PAGE>
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 transport
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 Field). Thaipo and its joint
venture partners in the Tantawan Field signed a long-term gas sales contract
with PTT in November 1995 which has since been amended to include production
from the Benchamas Field. All oil and condensate production from the Tantawan
Field is initially stored aboard the FPSO and is then sold to various third
parties, including PTT, on a tanker load by tanker load basis at prices based on
then current world oil prices, typically with reference to the Malaysian Tapis
crude oil benchmark price. The buyer is responsible for sending a tanker to off
load the oil and condensate it has purchased. It is currently anticipated that
when the Benchamas Field commences production, crude oil and condensate
production from the Benchamas Field will be initially stored aboard the FSO and
a portion of such production will be sold under a long-term contract with a
single buyer and a portion will continue to be sold on a tanker load by tanker
load basis, similar to the way Tantawan Field crude is currently marketed. 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 oil and gas production is located in areas
where commercial production of economic discoveries can be rapidly effectuated.
Most of the Company's North American 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 price
that is then currently available. 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 Agreement with PTT for
production from the Tantawan and Benchamas Fields (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. Enron
Corp. and its affiliates and PTT, who purchased $29,539,000 (15% of the
Company's consolidated gross revenues) and $23,137,000 (12% of the Company's
consolidated gross revenues) of the Company's oil and gas production during
1998, respectively, were the Company's only customers to which sales exceeded
10% of its 1998 revenues. The oil and gas sold to Enron Corp. and its affiliates
was sold under a number of short term, generally month to month, contracts.
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. In the past, when natural gas
prices in the United States were low, the Company at times elected to curtail
certain quantities of its production. In the future, the Company may again elect
to curtail certain quantities of its natural gas production. Current low oil
prices continue to have a material adverse effect on the Company's cash flows
and, if sustained for a significant length, could have a material adverse effect
on the Company's operations and financial condition and may result in a further
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
11
<PAGE>
to limit the negative effect of price declines, such transactions could
effectively limit the Company's participation in price increases for the covered
period, which increases could be significant. As of December 31, 1998, the
Company was not a party to any natural gas futures contracts, crude oil swap
agreements or other commodity hedging arrangements. 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 material, 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.
Due to the recent decline in oil and gas prices, many of the Company's
partners, particularly the smaller ones, are experiencing liquidity and cash
flow problems. These problems may lead to their attempting to delay or slow down
the pace of drilling or project development in order to conserve cash, to a
point that the Company believes is detrimental to the project. In most cases,
the Company has the ability to influence the pace of development through joint
operating agreements. Some partners may be unwilling or unable to pay their
share of the costs of projects as they become due. At worst, a partner may
declare bankruptcy and refuse or be unable to pay its share of the costs of a
project. The Company would then be required to pay this partner's share of the
project costs. In most instances, the Company believes that it is contractually
protected from such an event through its ability to take over the non-paying
partner's share of the project and by applicable oil and gas lien laws and
bankruptcy laws. The Company believes that it would ultimately recover any sums
that it is owed by non-paying partners that do not meet their share of the costs
of a project in a timely fashion.
RISKS OF FOREIGN OPERATIONS
Ownership of property interests and production operations in Thailand and
Canada, 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations; Foreign Currency Transaction Gain
(Loss)," and "--Liquidity and Capital Resources; Other Matters; Southeast Asia
Economic Issues." 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
12
<PAGE>
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.
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 Company owns interests in developed and undeveloped oil and gas acreage
in various parts of the world. These ownership interests generally take the form
of "working interests" in oil and gas leases which have varying terms. In
addition, the Company holds certain other types of mineral interests, including
fee interests (which never expire) and royalty interests (which generally
terminate when the underlying mineral lease expires). The Company owns varying
fee and royalty interests in 10,800 gross acres in Texas and a royalty interest
in 5,000 gross acres (1,250 net acres) offshore Louisiana. The following table
shows the Company's interest in developed and undeveloped oil and gas acreage
under lease as of December 31, 1998:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE(A) ACREAGE(B)
-------------------- ---------------------
<S> <C> <C> <C> <C>
GROSS NET GROSS NET
--------- --------- ---------- ---------
Onshore
Louisiana..................................... 2,745 559 20,146 6,338
New Mexico.................................... 31,102 20,336 74,297 55,302
Texas......................................... 37,257 14,133 133,198 54,114
Canada........................................ 22,921 2,817 93,814 48,413
Other......................................... 3,400 334 478 56
--------- --------- ---------- ---------
Total Onshore............................... 97,425 38,179 321,933 164,223
--------- --------- ---------- ---------
Domestic Offshore
Louisiana (State)............................. 5,463 2,642 1,169 584
Louisiana (Federal)........................... 166,570 54,267 167,056 56,389
Texas (Federal)............................... 40,320 11,678 74,185 20,850
--------- --------- ---------- ---------
Total Domestic Offshore..................... 212,353 68,587 242,410 77,823
--------- --------- ---------- ---------
Total North America......................... 309,778 106,766 564,343 242,046
--------- --------- ---------- ---------
International
North Sea..................................... -- -- 112,729 45,091
Gulf of Thailand.............................. 260,407 120,682 473,733 219,530
--------- --------- ---------- ---------
Total International......................... 260,407 120,682 586,462 264,621
--------- --------- ---------- ---------
Total Company............................... 570,185 227,448 1,150,805 506,667
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
- ------------------------
(a) ("Developed acreage" consists of lease acres spaced or assignable to
production (including acreage held by aproduction) on which wells have been
drilled or completed to a point that would permit production of commercial)
quantities of oil or natural gas. "Developed acreage" in Thailand includes
all acreage designated as a production area by the Thai government, which
currently includes the Tantawan, Maliwan, Benchamas and Pakakrong production
areas.
13
<PAGE>
(b) ("Undeveloped acreage" includes acreage under lease or subject to lease or
purchase options that the Company bcurrently expects to exercise.
Approximately 9% of the Company's total domestic offshore net undeveloped
acreage is )under leases that have terms expiring in 1999 (unless otherwise
extended) and another approximately 12% of total domestic offshore net
undeveloped acreage will expire in 2000 (unless otherwise extended).
Approximately 11% of the Company's total onshore net undeveloped acreage is
under leases that have terms expiring in 1999 (unless otherwise extended)
and another approximately 14% of total onshore net undeveloped acreage will
expire in 2000 (unless otherwise extended). All of the Company's undeveloped
acreage in the Kingdom of Thailand must be relinquished to the Thai
government on July 31, 2000, unless designated as a production area or
unless the exploration term is extended. See "--International Operations;
Contractual Terms Governing the Thailand Concession and Related Production."
PRODUCTIVE WELLS AND DRILLING ACTIVITY
The following table shows the Company's interest in productive oil and
natural gas wells as of December 31, 1998. For purposes of this table
"productive wells" are defined as wells producing hydrocarbons and 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 currently installed production facilities).
This table does not include exploratory or developmental wells which have
located commercial quantities of oil or natural gas but which are not capable of
commercial production without the installation of material production facilities
or which, for a variety of reasons, the Company does not currently believe will
be placed on production.
<TABLE>
<CAPTION>
NATURAL GAS
OIL WELLS(A) WELLS(A)
-------------------- ----------------------
GROSS NET GROSS NET
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Offshore United States........................... 125 34.2 90 27.1
Onshore (U.S. and Canada)........................ 901 454.4 189 75.7
Kingdom of Thailand.............................. -- -- 28 13.1
--------- --------- --- ---------
Total........................................ 1,026 488.6 307 115.9
--------- --------- --- ---------
--------- --------- --- ---------
</TABLE>
- ------------------------
(a) One or more completions in the same bore hole are counted as one well. The
data in the above table includes five gross (.6 net) oil wells and 45 gross
(20.4 net) natural gas wells with multiple completions.
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
14
<PAGE>
hydrocarbons. A well is considered a dry hole upon reporting of permanent
abandonment to the appropriate agency.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross Wells:
Offshore United States
Exploratory.................................... 5.0 1.0 4.0 1.0 4.0 2.0
Development.................................... 2.0 -- 12.0 3.0 17.0 3.0
Onshore United States and Canada
Exploratory.................................... 9.0 4.0 18.0 12.0 12.0 4.0
Development.................................... 32.0 1.0 50.0 3.0 39.0 1.0
Offshore Kingdom of Thailand
Exploratory.................................... 12.0 -- 18.0 1.0 7.0 --
Development.................................... 12.0 -- 16.0 -- 16.0 --
----- --- ----- --------- --- ---
Total........................................ 72.0 6.0 118.0 20.0 95.0 10.0
----- --- ----- --------- --- ---
----- --- ----- --------- --- ---
Net Wells:
Offshore United States
Exploratory.................................... 1.07 .25 1.21 .25 1.7 1.5
Development.................................... .80 -- 4.15 1.05 4.9 1.5
Onshore United States and Canada
Exploratory.................................... 5.08 2.19 11.27 7.40 6.5 0.9
Development.................................... 22.61 .34 30.18 1.41 24.4 0.7
Onshore Kingdom of Thailand
Exploratory.................................... 5.56 -- 8.34 .46 2.4 --
Development.................................... 5.56 -- 5.11 -- 7.4 --
----- --- ----- --------- --- ---
Total........................................ 40.68 2.78 60.26 10.57 47.3 4.6
----- --- ----- --------- --- ---
----- --- ----- --------- --- ---
</TABLE>
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Located in the United States and Canada
Natural Gas (Mcf per day)...................................... 122,246 147,200 107,700
--------- --------- ---------
--------- --------- ---------
Liquid Hydrocarbons (Bbls per day)
Crude Oil and Condensate..................................... 13,214 13,712 11,968
Natural Gas Liquids(a)....................................... 2,421 2,923 2,173
--------- --------- ---------
Total North American Liquid Hydrocarbons................... 15,635 16,635 14,141
--------- --------- ---------
--------- --------- ---------
Located in the Kingdom of Thailand
Natural Gas (Mcf per day)...................................... 36,774 34,500 --
--------- --------- ---------
--------- --------- ---------
Liquid Hydrocarbons (Bbls per day)
Crude Oil and Condensate..................................... 2,561 2,216 --
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) NGL production sales includes sales attributable to both the Company's
leasehold and plant ownership.
15
<PAGE>
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; Sales" and
"--Miscellaneous; Competition and Market Conditions."
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Sales Prices:
Located in the United States and Canada
Natural Gas (per Mcf)........................................... $ 2.00 $ 2.50 $ 2.40
Crude Oil and Condensate (per Bbl).............................. $ 12.97 $ 19.49 $ 22.12
Natural Gas Liquids (per Bbl)................................... $ 10.52 $ 12.89 $ 14.92
Located in the Kingdom of Thailand
Natural Gas (per Mcf)........................................... $ 1.72 $ 1.93 --
Crude Oil and Condensate (per Bbl).............................. $ 13.17 $ 18.60 --
Production (lifting) Costs(a):
Located in the United States and Canada
Natural Gas, Crude Oil, Condensate and Natural Gas Liquids (per
Mcfe)......................................................... $ .61 $ .49 $ .53
Located in the Kingdom of Thailand
Natural Gas, Crude Oil and Condensate (per Mcfe)(b)............. $ 1.10 $ 1.12 --
</TABLE>
- ------------------------
(a) Production costs were converted to common units of measure on the basis of
relative energy content. Such production acosts exclude all depletion and
amortization associated with property and equipment.
(b) The major contributing factor to lifting costs are lease operating expenses.
A substantial portion of the Company's blease operating expenses in the
Kingdom of Thailand relate to lease payments made by a subsidiary of the
Company in connection with its bareboat charter of the FPSO, which amounted
to $11,122,000 net to the Company during 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources; Future Capital Requirements; Other Material Long-Term
Commitments."
RESERVES
The following table sets forth information as to the Company's net proved
and proved developed reserves as of December 31, 1998, 1997, and 1996, 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 Petroleum Engineers ("Ryder Scott"), the Company's
independent
16
<PAGE>
petroleum engineers, in accordance with criteria prescribed by the Securities
and Exchange Commission ("SEC").
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Total Proved Reserves:
Oil, condensate, and natural gas liquids (MBbls)
Located in the United States and Canada.................................. 33,699 29,382 28,270
Located in the Kingdom of Thailand....................................... 33,811 28,783 21,332
---------- ---------- ----------
Total Company.......................................................... 67,510 58,165 49,602
---------- ---------- ----------
---------- ---------- ----------
Natural Gas (MMcf)
Located in the United States and Canada.................................. 271,780 216,720 215,946
Located in the Kingdom of Thailand....................................... 168,389 184,768 144,998
---------- ---------- ----------
Total Company.......................................................... 440,169 401,488 360,944
---------- ---------- ----------
---------- ---------- ----------
Present value of estimated future net revenues, before income taxes (in
thousands)(a)
Located in the United States and Canada.................................. $ 294,629 $ 406,161 $ 773,127
Located in the Kingdom of Thailand....................................... 200,597 56,620 181,418
---------- ---------- ----------
Total Company.......................................................... $ 495,226 $ 462,781 $ 954,545
---------- ---------- ----------
---------- ---------- ----------
Total Developed Reserves:
Oil, condensate, and natural gas liquids (MBbls)
Located in the United States and Canada.................................. 29,070 26,168 25,898
Located in the Kingdom of Thailand....................................... 4,298 6,982 5,192
---------- ---------- ----------
Total Company.......................................................... 33,368 33,150 31,090
---------- ---------- ----------
---------- ---------- ----------
Natural Gas (MMcf)
Located in the United States and Canada.................................. 184,630 179,972 192,034
Located in the Kingdom of Thailand....................................... 40,424 59,760 45,998
---------- ---------- ----------
Total Company.......................................................... 225,054 239,732 238,032
---------- ---------- ----------
---------- ---------- ----------
Present value of estimated future net revenues, before income taxes (in
thousands)(a)
Located in the United States and Canada.................................. $ 242,574 $ 377,530 $ 710,871
Located in the Kingdom of Thailand....................................... 28,244 36,692 69,062
---------- ---------- ----------
Total Company.......................................................... $ 270,818 $ 414,222 $ 779,933
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(a) The Company believes, for the reasons set forth in succeeding paragraphs,
that the present value of estimated future anet revenues set forth in the
Annual Report and calculated in accordance with SEC 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. See the discussion on the following pages for the prices used in
making these calculations.
Natural gas liquids comprised approximately 6% of the Company's total proved
liquids reserves and approximately 11% of the Company's proved developed liquids
reserves as of December 31, 1998. 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.
17
<PAGE>
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 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 non-associated, 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, 1998 were used, including
current market prices, contract prices and fixed and determinable price
escalations where applicable. In accordance with SEC 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, 1998 were used
and
18
<PAGE>
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 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, 1998, in accordance with SEC guidelines. In computing
future revenues from liquids attributable to the Company's interests in the
Kingdom of Thailand, a price was used which the Company believes approximates
the price that the Company would have received for its production from the
Thailand Concession based upon the world market price for Tapis benchmark crude
on December 31, 1998, 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 any provisions for
U.S. or Thai corporate income or other taxes.
In accordance with SEC guidelines, the prices used by the Company to
calculate the present value of estimated future revenues are determined on a
well or field by field basis, as applicable, as described above and were held
constant over the productive life of the reserves. The initial weighted average
prices used by Ryder Scott were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Initial Weighted Average Price (in U.S. dollars):
Oil, condensate, and natural gas liquids (per Bbl)
Located in the United States and Canada...................... $ 10.45 $ 16.60 $ 24.06
Located in the Kingdom of Thailand........................... $ 12.68 $ 16.00 $ 24.56
Natural Gas (per Mcf)
Located in the United States and Canada...................... $ 2.01 $ 2.30 $ 3.93
Located in the Kingdom of Thailand........................... $ 1.81 $ 1.83 $ 2.09
</TABLE>
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 SEC 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 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 1998. 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.
19
<PAGE>
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 SEC, 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; with respect to reserves located in Canada, with the Alberta
Energy Utilities Board and, with respect to reserves located in Thailand, the
Kingdom of Thailand's Department of Mineral Resources and PTT, which the Company
considers a quasi-governmental authority. 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 in
accordance with SEC guidelines 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 1998,
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 SEC; the Alberta Energy Utilities Board for Canadian Reserves; and,
with respect to reserves relating to the Company's properties located in
Thailand, the Kingdom of Thailand's Department of Mineral Resources and PTT.
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.
20
<PAGE>
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. Oil and gas
lessees are subject to liability for the costs of clean-up of pollution
resulting from a lessee's operations, and may also be subject to 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 regulations. 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 Bbls (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 ranges 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 affect the
Company. The impact, however, should not be any more adverse to the Company than
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 and
Canadian federal, state, provincial 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,
21
<PAGE>
provincial and local initiatives to further regulate the disposal of oil and gas
wastes are also pending in certain states and Canadian provinces, 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 and gas operations, many of the costs
attributable to environmental control facilities would have been incurred absent
environmental regulations as prudent, safe oilfield practice. During 1998, the
Company incurred capital expenditures of approximately $4,600,000 for
environmental control facilities, primarily relating to the installation of
certain environmental control facilities on four platforms installed in the Gulf
of Thailand and one platform in the Gulf of Mexico, and the drilling of three
salt water disposal wells. The Company budgeted approximately $171,000 for
expenditures involving environmental control facilities during 1999, including,
among other things, environmental control equipment for two platforms in the
Gulf of Thailand.
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 Minerals Management Service of the Department of the Interior (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.
Recently the MMS and various state and municipal authorities have attempted
to collect alleged underpayment of royalties from various integrated oil
companies in connection with sale transactions between exploration and
production affiliates and pipeline affiliates of the same company. The Company
has not been named in any of these collection efforts, a fact that the Company
believes is primarily due to its never having sold any oil or gas production
from one of its affiliates to another. The Company does not believe that it has
any material liability for underpayment of royalty in connection with affiliate
transactions, including those described above.
22
<PAGE>
The FERC has recently embarked on wide-ranging regulatory initiatives
relating to gas transportation rates and services, including the availability of
market-based and other alternative rate mechanisms to pipelines for transmission
and storage services. In addition, the FERC has announced and implemented 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. 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.
These orders have been generally upheld 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 December 31, 1998, the Company and its subsidiaries had 185 full-time
employees, including 24 in its Bangkok, Thailand office and seven in its
Calgary, Canada 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.
ITEM 2. PROPERTIES.
The information appearing in Item 1 of this Annual Report is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various other legal proceedings consisting of
routine litigation incidental to its businesses, but believes that any potential
liabilities resulting from these proceedings are adequately covered by insurance
or are otherwise immaterial at this time. See "Business--Government Regulation;
Other Laws and Regulations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not Applicable.
23
<PAGE>
ITEM S-K 401(B). EXECUTIVE OFFICERS OF REGISTRANT.
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 February 15, 1999 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, President and Chief 53 1991
Executive Officer
Stuart P. Burbach............................... Executive Vice President--Exploration 46 1998
Kenneth R. Good................................. Executive Vice President 61 1998
Jerry A. Cooper................................. Senior Vice President and Western Division 50 1998
Manager
R. Phillip Laney................................ Senior Vice President and Manager of Worldwide 58 1998
New Ventures
John O. McCoy, Jr............................... Senior Vice President and Chief Administrative 47 1998
Officer
J. D. McGregor.................................. Senior Vice President--Sales 54 1998
Bruce E. Archinal............................... Vice President and Onshore Division Manager 46 1997
David R. Beathard............................... Vice President--Engineering 40 1997
Stephen R. Brunner.............................. Vice President--Operations 40 1997
Frank Davis III................................. Vice President--Land 52 1997
John W. Elsenhans............................... Vice President and Chief Financial Officer 46 1998
Thomas E. Hart.................................. Vice President and Controller 56 1988
Ronald B. Manning............................... Vice President and General Counsel 45 1995
Gerald A. Morton................................ Vice President--Law and Corporate Secretary 40 1997
</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. Burbach served as
Vice President and Offshore Division Manager since rejoining the Company in
1991; Mr. Good, who joined the Company in 1977, served as Corporate Senior Vice
President of the Company since 1996 and prior thereto served as the Company's
Senior Vice President--Land and Budgets since 1991; Mr. Cooper, who joined the
Company in 1979, served as Vice President and Western Division Manager for the
Company since 1991; Mr. Laney, who joined the Company in 1977, served as Vice
President and International Exploration Manager for the Company since 1991; Mr.
McCoy, who joined the Company in 1978, served as Vice President and Chief
Administrative Officer of the Company since 1989; Mr. McGregor, who joined the
Company in 1981, served as Vice President--Sales since 1988; Mr. Archinal, who
joined the Company in 1982, served as the Company's Onshore Division Manager
since 1994 and prior thereto served as Offshore Division Exploration Manager for
the Company since 1991; Mr. Beathard, who joined the Company in 1982, served as
Manager of Petroleum Engineering for the Company since 1991; Mr. Brunner served
as Resident Manager of the Company's Thailand operations since 1995, prior to
which he was an Operations Manager for the Company since joining in 1994 and
prior thereto held various positions in the energy industry, the most recent of
which was as Operations Manager for Zilkha Energy since 1991; Mr. Davis, who
joined the Company in 1978, served as Land Manager for the Company since 1991;
Mr. Elsenhans, who joined the Company in 1991, served as Vice President--
Finance and Treasurer for the Company since 1995, and prior thereto was
Director, Corporate Finance for the Company since 1991; Mr. Hart was Controller
for the Company since joining the Company in 1977; Mr. Manning, who joined the
Company in 1987, was Corporate Secretary and an Associate General Counsel for
the Company since 1990; and Mr. Morton was an Associate General Counsel for the
Company since 1993.
24
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS.
The following table shows the range of low and high sales prices of the
Company's Common Stock (the "Common Stock") on the New York Stock Exchange
composite tape where the Common Stock trades under the symbol PPP. The Common
Stock is also listed on the Pacific Stock Exchange.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1997
1st Quarter.............................................. 33 3/8 49 7/8
2nd Quarter.............................................. 33 1/2 41 3/8
3rd Quarter.............................................. 37 7/8 45 3/8
4th Quarter.............................................. 27 44 9/16
1998
1st Quarter.............................................. 26 1/2 34
2nd Quarter.............................................. 21 1/2 34 11/16
3rd Quarter.............................................. 11 5/8 25 7/8
4th Quarter.............................................. 9 13/16 17 1/8
</TABLE>
As of February 22, 1999, there were 3,287 holders of record of the Company's
Common Stock.
In each of 1997 and 1998, the Company paid four quarterly dividends of $0.03
per share on its Common Stock. However, the declaration and payment 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.
Pursuant to the Company's revolving credit agreement with its banks under
which the Company has borrowed funds, and the Indentures relating to the
Company's 8 3/4% Senior Subordinated Notes due 2007 (the "2007 Notes") and
10 3/8% Senior Subordinated Notes due 2009 (the "2009 Notes"), the Company may
not, subject to certain exceptions, pay any dividends on its capital stock or
make any other distributions on shares of its capital stock (other than
dividends or distributions payable solely in shares of such capital stock) or
apply any funds, property or assets to the purchase, redemption, sinking fund or
other retirement of its capital stock, if the aggregate amount of all such
dividends, purchases, and redemptions would exceed an amount determined based on
the consolidated income of the Company and its consolidated subsidiaries plus
the proceeds of the issuance of capital stock from and after a specified date
set forth in each respective agreement or, in the case of the revolving credit
agreement, if the net worth of the Company is negative. As of February 1, 1999,
$15,000,000 was available for dividends under this limitation in the Indenture
relating to the 2009 Notes, the agreement currently having the most restrictive
covenants.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AND PRODUCTION
DATA)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenues:
Crude oil and condensate........................... $ 74,703 $ 112,603 $ 96,908 $ 76,557 $ 65,141
Natural gas........................................ 116,148 158,500 94,589 72,032 99,093
Natural gas liquids................................ 9,303 13,748 11,867 8,097 9,189
---------- ---------- ---------- ---------- ----------
Oil and gas revenues............................... 200,154 284,851 203,364 156,686 173,423
Pipeline sales and other........................... 2,649 1,449 613 873 185
---------- ---------- ---------- ---------- ----------
Total............................................ $ 202,803 $ 286,300 $ 203,977 $ 157,559 $ 173,608
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item.............. $ (43,098) $ 37,116 $ 33,581 $ 9,230 $ 27,374
Extraordinary losses................................. -- -- (821) -- (307)
---------- ---------- ---------- ---------- ----------
Net income (loss).................................... $ (43,098) $ 37,116 $ 32,760 $ 9,230 $ 27,067
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share data:
Income (loss) before extraordinary item--
Basic............................................ $ (1.14) $ 1.11 $ 1.01 $ 0.28 $ 0.84
Diluted.......................................... $ (1.14) $ 1.06 $ 0.97 $ 0.28 $ 0.82
Cash dividends..................................... $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.06
Price range of common stock:
High............................................. $ 34.69 $ 49.88 $ 48.38 $ 29.00 $ 24.25
Low.............................................. $ 9.81 $ 27.00 $ 24.38 $ 16.00 $ 15.63
Weighted average number of common shares
outstanding........................................ 37,902 33,421 33,203 32,893 32,663
Longterm debt at year end............................ $ 434,947 $ 348,179 $ 246,230 $ 163,249 $ 149,249
Shareholders' equity at year end..................... $ 249,660 $ 146,106 $ 107,282 $ 71,708 $ 64,037
Total assets at year end............................. $ 862,396 $ 676,617 $ 479,242 $ 338,177 $ 298,826
PRODUCTION (SALES) DATA
Net daily average and weighted average price:
Natural gas (Mcf per day).......................... 159,000 181,700 107,700 121,000 144,800
Price (per Mcf).................................. $ 2.00 $ 2.39 $ 2.40 $ 1.63 $ 1.88
Crude oil-condensate (Bbl per day)................. 15,775 15,927 11,968 11,786 11,100
Price (per Bbl).................................. $ 12.97 $ 19.37 $ 22.12 $ 17.80 $ 16.08
Natural gas liquids (Bbl per day).................. 2,422 2,923 2,173 1,998 2,222
Price (per Bbl).................................. $ 10.52 $ 12.89 $ 14.92 $ 11.10 $ 11.33
CAPITAL EXPENDITURES
Oil and gas:
Domestic Offshore--
Exploration...................................... $ 20,200 $ 18,700 $ 16,800 $ 13,300 $ 2,800
Development...................................... 42,500 59,800 73,900 17,800 44,100
Purchase of reserves............................. 5,000 900 -- -- 32,600
Onshore North America--
Exploration...................................... 16,500 18,100 10,400 8,800 6,800
Development...................................... 28,100 38,400 27,800 22,400 23,700
Purchase of reserves............................. 133,100 1,700 -- 7,900 --
Kingdom of Thailand--
Exploration...................................... 11,600 21,700 8,500 5,500 5,100
Development...................................... 95,500 62,500 54,700 24,400 --
Purchase of reserves............................. -- 29,300 -- 4,200 --
---------- ---------- ---------- ---------- ----------
Total oil and gas.................................. 352,500 251,100 192,100 104,300 115,100
Other................................................ 6,300 4,000 1,600 500 1,200
---------- ---------- ---------- ---------- ----------
Total.............................................. $ 358,800 $ 255,100 $ 193,700 $ 104,800 $ 116,300
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On August 17, 1998, a wholly owned subsidiary of the Company merged with and
into Arch Petroleum Inc. ("Arch") in a stock-for-stock tax-free merger accounted
for as a purchase. In connection with the merger, the Company paid off
$51,749,000 of Arch's existing bank debt and production payment obligations. The
Company also exchanged $5,000,000 of Arch's existing convertible subordinated
notes, 727,273 shares of Arch preferred stock (having a liquidation preference
of $20,000,000) and 17,321,804 shares of Arch common stock for approximately
2,500,000 shares of Common Stock.
RESULTS OF OPERATIONS
NET INCOME (LOSS)
The Company reported a net loss for 1998 of $43,098,000 or $1.14 per share,
compared to net income for 1997 of $37,116,000 or $1.11 per share ($40,198,000
or $1.06 per share on a diluted basis) and net income for 1996 of $32,760,000 or
$0.99 per share ($35,843,000 or $0.95 per share on a diluted basis). Among other
items affecting the net loss for 1998 were non-recurring expenses totaling
approximately $2,285,000 ($1,485,000 or $0.04 per share on an after-tax basis)
related to the Company's acquisition of Arch and impairments to its oil and gas
properties of $30,813,000, primarily resulting from poor reservoir performance
and persistent low oil and gas prices. The Company recorded an extraordinary
loss of $821,000 during the second quarter of 1996 related to the early
retirement of the Company's 8% Convertible Subordinated Debentures, due 2005
with the proceeds from the Company's issuance on June 18, 1996, of its 5 1/2%
Convertible Subordinated Notes, due 2006 (the "2006 Notes").
Earnings per common share are based on the weighted average number of common
shares outstanding for 1998 of 37,902,000, compared to 33,421,000 (38,064,000 on
a diluted basis) for 1997 and 33,203,000 (37,920,000 on a diluted basis) for
1996. The increase in the weighted average number of common shares outstanding
for 1998, compared to 1997, resulted primarily from the issuance of 3,882,023
shares of its common stock upon the conversion of the Company's 5 1/2%
Convertible Subordinated Notes due 2004 (the "2004 Notes") prior to their being
redeemed on March 16, 1998, the issuance as of August 17, 1998 of approximately
2,500,000 shares of common stock to former holders of Arch capital stock and
convertible debt securities in connection with the Company's acquisition of Arch
and, to a lesser extent, the issuance of common stock upon the exercise of stock
options pursuant to the Company's stock option plans. The increase in weighted
average number of common shares outstanding for 1997, compared to 1996, resulted
primarily from the issuance of common stock upon the exercise of stock options
pursuant to the Company's stock option plans. The earnings per share computation
on a diluted basis in 1998 is identical to the basic earnings per share
computation because there were no securities of the Company that were dilutive
during the period. The earnings per share computation on a diluted basis in 1997
and 1996 primarily reflect additional shares of common stock issuable upon the
assumed conversion of the 2004 Notes and the elimination of related interest
requirements, as adjusted for applicable federal income taxes and, to a lesser
extent, the assumed exercise of options to purchase common shares. In addition,
the number of common shares outstanding in the diluted computation is adjusted,
in accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards ("SFAS") No. 128, to include dilutive shares that
are assumed to have been issued by the Company in connection with options
exercised during the year, less treasury shares that are assumed to have been
purchased by the Company from the option proceeds. SFAS No. 128 was adopted by
the Company in 1997, resulting in a restatement of the earnings per share
calculations for 1997 and 1996, and all preceding years.
TOTAL REVENUES
The Company's total revenues for 1998 were $202,803,000, a decrease of
approximately 29% from total revenues of $286,300,000 for 1997, and a decrease
of approximately 1% from total revenues of $203,977,000 for 1996. The decrease
in the Company's total revenues for 1998, compared to 1997, resulted primarily
from the substantial decrease in oil and gas revenues, that was partially offset
by an increase in pipeline sales related to the Saginaw pipeline, which was
acquired as part of the Arch acquisition, in the
27
<PAGE>
third quarter of 1998. The decrease in the Company's total revenues for 1998,
compared to 1996, resulted primarily from the decrease in oil and gas revenues
that were nearly offset by the revenues generated by the Saginaw pipeline.
OIL AND GAS REVENUES
The Company's oil and gas revenues for 1998 were $200,154,000, a decrease of
approximately 30% from oil and gas revenues of $284,851,000 for 1997, and a
decrease of approximately 2% from oil and gas revenues of $203,364,000 for 1996.
The following table reflects an analysis of variances in the Company's oil and
gas revenues (expressed in thousands) between 1998 and the previous two years:
<TABLE>
<CAPTION>
1998 COMPARED TO
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Increase (decrease) in oil and gas revenues resulting from variances
in:
Natural gas--
Price............................................................. $ (25,802) $ (15,728)
Production........................................................ (16,550) 37,287
---------- ----------
(42,352) 21,559
Crude oil and condensate--
Price............................................................. (37,178) (40,077)
Production........................................................ (722) 17,872
---------- ----------
(37,900) (22,205)
---------- ----------
Natural Gas Liquids................................................. (4,445) (2,564)
---------- ----------
Increase (decrease) in oil and gas revenues....................... $ (84,697) $ (3,210)
---------- ----------
---------- ----------
</TABLE>
28
<PAGE>
The decrease in the Company's oil and gas revenues in 1998, compared to
1997, is related to declines in the average price that the Company received for
its natural gas and oil, condensate and NGL ("liquid hydrocarbons") production
volumes and, to a lesser extent, declines in such production volumes. The
decrease in the Company's oil and gas revenues in 1998, compared to 1996, is
related to declines in the average price that the Company received for its
natural gas and liquid hydrocarbon production volumes, that more than offset
substantial increases in natural gas and liquid hydrocarbon production volumes.
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1998
TO TO
1998 1997 1997 1996 1996
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Comparison of Increases (Decreases) in:
NATURAL GAS--
Average prices
North America............................................ $ 2.09 $ 2.50 (16%) $ 2.40 (13%)
Kingdom of Thailand (Thai baht)(a)....................... 70 60 17% N/A N/A
Company-wide average price............................. $ 2.00 $ 2.39 (16%) $ 2.40 (17%)
Average daily production volumes (MMcf per day)
North America............................................ 122.2 147.2 (17%) 107.7 13%
Kingdom of Thailand (a).................................. 36.8 34.5 7% N/A N/A
--------- --------- ---------
Company-wide average daily production.................. 159.0 181.7 (12%) 107.7 48%
--------- --------- ---------
--------- --------- ---------
CRUDE OIL AND CONDENSATE--
Average prices
North America............................................ $ 12.94 $ 19.49 (34%) $ 22.12 (42%)
Kingdom of Thailand(a)................................... $ 13.17 $ 18.60 (29%) N/A N/A
Company-wide average price............................. $ 12.97 $ 19.37 (33%) $ 22.12 (41%)
Average daily production volumes (Bbls per day)
North America............................................ 13,214 13,711 (4%) 11,968 10%
Kingdom of Thailand (a).................................. 2,561 2,216 16% N/A N/A
--------- --------- ---------
Company-wide average daily production.................. 15,775 15,927 (1%) 11,968 32%
--------- --------- ---------
--------- --------- ---------
TOTAL LIQUID HYDROCARBONS--
Company-wide average daily production
(Bbls per day)........................................... 18,197 18,851 (3%) 14,141 29%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Production from the Tantawan Field commenced in February 1997, with a
start-up phase which extended through March 15, 1997. Consequently, no
production figures are presented for 1996 and all Thailand production
figures for 1997 reflect only nine and a half months of full production.
NATURAL GAS
THAILAND PRICES. The price that the Company receives under the Gas Sales
Agreement for its natural gas production from the Thailand Concession normally
adjusts on a semi-annual basis. However, the Gas Sales Agreement provides for
adjustment on a more frequent basis in the event that certain indices and
factors on which the price is based fluctuate outside a given range. See
"Business--International Operations; Contractual Terms Governing the Thailand
Concession and Related Production." Due to the volatility of the Thai baht and
the current economic difficulties in the Kingdom of Thailand and throughout
Southeast Asia, the price that the Company receives under the Gas Sales
Agreement adjusted several times during 1998, and almost monthly in the latter
half of 1997. 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. See ";Foreign Currency Transaction Gain (Loss)," "--Liquidity
and Capital Resources; Other Matters; Southeast Asia Economic Issues" and
"Business--International Operations; Contractual Terms Governing the Thailand
Concession."
29
<PAGE>
PRODUCTION. The decrease in the Company's natural gas production during
1998, compared to 1997, was related in large measure to decreased production
from the Company's East Cameron Block 334 "E" platform, and to a lesser extent,
four periods in the second half of 1998 during which most of the Company's
offshore production was shut-in as a precautionary measure due to hurricanes in
the Gulf of Mexico and natural production declines, that was partially offset by
increased production from the Company's onshore properties located in South
Texas and South Louisiana. The increase in the Company's average natural gas
production for 1998, compared to 1996, was related in large measure to the
commencement of production from the Tantawan Field in the first quarter of 1997,
and, to a lesser extent, production from the Company's East Cameron Block 334
"E" platform, which commenced production in April 1997, and production from
properties that the Company acquired in its acquisition of Arch, that was only
partially offset by the anticipated natural decline in deliverability from
certain of the Company's properties. Commencing on October 1, 1998, the Company
and its joint venture partners in the Thailand Concession have been delivering
less natural gas than is being nominated by PTT under the Gas Sales Agreement.
This could result in the Company receiving only 75% of the current contract
price on a portion of its future natural gas sales to PTT. The Company is taking
actions that it currently believes will minimize the penalty that it will incur
on future gas sales to PTT by, among other things, increasing production from
the Tantawan Field. As of December 31, 1998, the Company was not a party to any
future natural gas sales contracts.
CRUDE OIL AND CONDENSATE
THAILAND PRICES. Since the inception of production from the Tantawan Field,
crude oil and condensate has been stored on the 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 receives for its crude oil and condensate production from Thailand are
based on world benchmark prices, which are denominated in dollars. In addition,
the Company is generally paid for its crude oil and condensate production from
Thailand in U.S. dollars.
PRODUCTION. The decrease in the Company's crude oil and condensate
production during 1998, compared to 1997, resulted primarily from a decrease in
condensate production from the Company's East Cameron Block 334 "E" platform,
which was in part due to damage sustained in a marine accident at the crude oil
and condensate pipeline from the platform, that was only partially offset by
increased production from a full year's worth of production from the Tantawan
Field and the Company's ongoing development drilling and workover programs in
the offshore and onshore Gulf of Mexico regions. The increase in the Company's
average crude oil and condensate production for 1998, compared to 1996, was
related in large measure to the commencement of production from the Tantawan
Field in the first quarter of 1997 and, to a lesser extent, condensate
production from the Company's East Cameron Block 334 "E" platform, which
commenced production in April 1997 and production from properties that the
Company acquired in its acquisition of Arch, that was only partially offset by
the anticipated natural decline in deliverability from certain of the Company's
properties. As of December 31, 1998, the Company was not a party to any crude
oil swaps or futures contracts.
NGL PRODUCTION. The Company's oil and gas revenues, and its total liquid
hydrocarbon production, reflect the production and sale by the Company of NGL,
which are liquid products that are extracted from natural gas production. The
decrease in NGL revenues for 1998, compared with 1997, primarily related to a
decrease in the average price that the Company received for its NGL and, to a
lesser extent, a decrease in the Company's NGL production volumes. The decrease
in NGL revenues in 1998, compared with 1996, primarily related to a decrease in
price that the Company received for its NGL production, that was only partially
offset by an increase in the Company's NGL production.
30
<PAGE>
COSTS AND EXPENSES
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1998 TO 1997 1996 1998 TO 1996
-------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Comparison of Increases (Decreases) in:
LEASE OPERATING EXPENSES
North America........................... $ 50,300,000 $ 43,934,000 14% $ 37,628,000 34%
Kingdom of Thailand(a).................. $ 20,913,000 $ 19,567,000 7% N/A N/A
-------------- -------------- --------------
Total Lease Operating Expenses........ $ 71,213,000 $ 63,501,000 12% $ 37,628,000 89%
-------------- -------------- --------------
-------------- -------------- --------------
GENERAL AND ADMINISTRATIVE EXPENSES....... $ 26,356,000 $ 21,412,000 23% $ 18,028,000 46%
EXPLORATION EXPENSES...................... $ 9,802,000 $ 10,530,000 (7%) $ 16,777,000 (42%)
DRY HOLE AND IMPAIRMENT EXPENSES.......... $ 41,736,000 $ 9,631,000 333% $ 8,579,000 386%
DEPRECIATION, DEPLETION AND AMORTIZATION
(DD&A) EXPENSES......................... $ 110,916,000 $ 103,157,000 8% $ 61,857,000 79%
DD&A rate............................... $ 1.12 $ 0.95 18% $ 0.87 29%
Mcfe produced........................... 97,894,000 107,605,000 (9%) 70,472,000 39%
INTEREST--
Charges................................. $ 24,682,000 $ 21,886,000 13% $ 13,203,000 87%
Capitalized Interest Expense............ $ 9,381,000 $ 6,175,000 52% $ 4,244,000 121%
FOREIGN CURRENCY TRANSACTION GAIN
(LOSS).................................. $ 953,000 $ (7,604,000) N/A -- N/A
INCOME TAX BENEFIT (EXPENSE).............. $ 27,751,000 $ (18,091,000) N/A $ (18,800,000) N/A
</TABLE>
- ------------------------
(a) Production from the Tantawan Field commenced in February 1997, with a
start-up phase which extended through March 15, 1997. No lease operating
expenses were incurred in Thailand prior to commencement of production.
LEASE OPERATING EXPENSES.
The increase in North American lease operating expenses for 1998, compared
to 1997, were affected by $2,142,000 in expenses related to purchasing natural
gas for transportation and subsequent resale on the Saginaw pipeline system
acquired in the merger with Arch, a non-recurring maintenance project on the
Company's East Cameron 334 "E" platform during the first quarter of 1998 and by
operating expenses related to the Saginaw pipeline system and other Arch
properties for which no corresponding expenses were recorded during 1997. In
addition, lease operating expenses for 1997 were reduced by a $1,793,000 in
refunds in connection with the Company's audit of a joint venture partner and
settlement of a dispute with a vendor. The increase in lease operating expenses
in the Kingdom of Thailand for 1998, compared to 1997, was primarily related to
the fact that prior to the commencement of production in the Tantawan Field on
February 1, 1997, no lease operating expenses were incurred by the Company in
Thailand. A substantial portion of the Company's lease operating expenses in the
Kingdom of Thailand relate to lease payments made by Tantawan Services, L.L.C.,
in connection with its bareboat charter of the FPSO, which amounted to
$11,122,000 and $10,200,000 (net to the Company's interest) for 1998 and 1997,
respectively. See "--Liquidity and Capital Resources; Capital Requirements;
Other Material Long-Term Commitments." In addition to the reasons discussed
above, North American lease operating expenses for 1998, compared to 1996, also
increased due to a shortage of qualified offshore service contractors, which
permitted such contractors to increase the costs of their services significantly
during 1997, increased expenses related to the leasing of certain equipment in
the Gulf of Mexico, 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 also contributed to
the increase.
31
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
The increase in general and administrative expenses for 1998, compared with
1997 and 1996, was related to a number of non-recurring expenses arising in
connection with the Company's acquisition of Arch totaling approximately
$2,285,000, that included severance payments to former officers and employees of
Arch, as well as an increase in the size of the Company's work force and normal
salary and concomitant benefit expense adjustments.
EXPLORATION EXPENSES
Exploration expenses consist primarily of rental payments required under oil
and gas leases to hold non-producing properties ("delay rentals") and geological
and geophysical costs which are expensed as incurred. The decreases in
exploration expenses for 1998, compared to 1997 and 1996, resulted primarily
from decreased geophysical activity by the Company in most of its operational
areas except Canada, where the Company participated in a significant 3-D survey
during 1998, and a decrease in delay rental payments.
DRY HOLE AND IMPAIRMENT EXPENSES
Dry hole and impairment expenses relate to costs of unsuccessful wells
drilled, along with impairments resulting from the application of SFAS No. 121
due to decreases in expected reserves from producing wells. The increase in dry
hole and impairment expenses for 1998, compared with 1997 and 1996, was
principally related to the dry hole cost of the Company's Mustang Island Block
A-51 well, and impairment expenses related a decline in reserves at the
Company's East Cameron Block 334/335 Field and its Keystone Field located in
Winkler County, Texas (which the Company sold at year-end 1998) and
disappointing reservoir performance at the Company's South Pass Block 78 Field.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES
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. Proved properties
are reviewed whenever events or changes in circumstances indicate that the value
of such property on the Company's books may not be recoverable. Unproved
properties are reviewed quarterly to determine if there has been impairment of
the carrying value, with any such impairment charged to expense in the period.
Proved oil and gas properties are reviewed when circumstances suggest the need
for such a review and, if required, he proved properties are written down to
their estimated fair value. Estimated fair value includes the estimated present
value of all reasonably expected future production, prices, and costs. As a
result of poor reservoir performance and persistent low oil and gas prices, the
Company performed such a review in 1998 and expensed $30,813,000 related to its
domestic oil and gas properties which is included in the Consolidated Statements
of Income as dry hole and impairment expense. 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 DD&A expense 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 basis
using the units of production method. The Company generally creates cost centers
on a field by field basis for oil and gas activities in the Gulf of Mexico and
Gulf of Thailand. Generally, the Company establishes cost centers on the basis
of an oil or gas trend or play for its oil and gas activities onshore in the
United States and Canada. The increase in the Company's DD&A expenses for 1998,
compared to 1997, resulted primarily from an increase in the Company's composite
rate, that was not entirely offset by a decline in the Company's natural gas and
liquid hydrocarbon production. The increase in the Company's DD&A expenses for
1998, compared to 1996, resulted primarily from an increase in the Company's
natural gas and liquid hydrocarbon production and, to a lesser extent, an
increase in the Company's composite DD&A rate.
32
<PAGE>
The increase in the composite DD&A rate for all of the Company's producing
fields for 1998, compared to 1997 and 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. Management currently
anticipates that this trend will continue for the foreseeable future, resulting
in generally increasing DD&A rates.
INTEREST
INTEREST CHARGES. The increase in the Company's interest charges for 1998,
compared to 1997 and 1996, resulted primarily from an increase in the average
amount of the Company's outstanding debt and, to a lesser extent, increased
average interest rates on the debt outstanding (resulting primarily from the
issuance of the 2007 Notes on May 22, 1997, which bear interest at an 8 3/4%
annual interest rate). As of December 31, 1998, the Company was not a party to
any interest rate swap agreements. Management currently expects the average
interest rate on its outstanding debt to continue to increase due to the
issuance of the 2009 Notes on January 15, 1999, which bear interest at a 10 3/8%
interest rate.
CAPITALIZED INTEREST. The increase in capitalized interest for 1998,
compared to 1997 and 1996, resulted primarily from an increase in the amount of
capital expenditures subject to interest capitalization during 1998
($137,956,000) compared to 1997 ($96,530,000) and 1996 ($68,740,000), and from
an increase in the computed rate that the Company uses to apply on such capital
expenditures to arrive at the total amount of capitalized interest. A
substantial percentage of the Company's capitalized interest expense during the
latter half of 1997 and 1998 resulted from capitalization of interest related to
capital expenditures for the development of the Benchamas Field in the Gulf of
Thailand and, to a lesser extent, several development projects in the Gulf of
Mexico.
FOREIGN CURRENCY TRANSACTION GAIN (LOSS)
The foreign currency transaction gain and loss each resulted primarily from
the fluctuation against the U.S. dollar of cash and other monetary assets and
liabilities denominated in Thai baht that were on the Company's subsidiary's
financial statements during the respective periods. 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" program
arrangement. This led to a substantial decline in value of the Thai baht
compared to the U.S. dollar, resulting in the foreign currency transaction
losses during 1997. During 1998, the value of the Thai baht has generally
strengthened against the U.S. dollar, resulting in corresponding foreign
currency transaction gains. However, the Company cannot predict what the Thai
baht to dollar exchange rate may be in the future. Moreover, it is anticipated
that this exchange rate will remain volatile. As of December 31, 1998, the
Company was not a party to any financial instrument that was intended to
constitute a foreign currency hedging arrangement.
INCOME TAX BENEFIT (EXPENSE)
The Company's income tax benefit for 1998, compared to its income tax
expenses for 1997 and 1996, resulted primarily from a pre-tax loss resulting
from substantially lower revenues in the United States and the tax benefit of
accrued foreign losses from the Company's operations in the Kingdom of Thailand.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The Company's Consolidated Statement of Cash Flows for 1998 reflects net
cash provided by operating activities of $70,929,000. In addition to net cash
provided by operating activities, the Company received net proceeds of
$1,034,000 from the exercise of stock options, $7,164,000 from the sale of
certain non-strategic properties and tubular stock, and had net borrowings of
$136,447,000 under its Credit
33
<PAGE>
Agreement and other senior debt facilities. In addition, on January 15, 1999,
the Company consummated the offering of $150,000,000 of its 2009 Notes.
During 1998, the Company invested $201,946,000 of such cash flow in capital
projects, retired a production payment obligation for $15,246,000 related to the
Arch acquisition, spent $2,961,000 to purchase proved reserves, paid $4,531,000
($0.03 per share for each quarter of 1998) in cash dividends to holders of the
Company's common stock, paid $2,635,000 in debt issuance expenses and paid a net
amount of $621,000 in miscellaneous other expenditures. As of December 31, 1998,
the Company's cash and cash investments were $7,959,000 and its long-term debt
stood at $434,947,000.
FUTURE CAPITAL REQUIREMENTS
The Company's capital and exploration budget for 1999, 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 $170,000,000. The Company
currently anticipates that its available cash and cash investments, cash
provided by operating activities, funds available under its Credit Agreement and
uncommitted credit lines and amounts that the Company currently believes that it
can obtain from external sources including the issuance of new debt and
convertible preferred securities, or asset sales, will be sufficient to fund the
Company's ongoing operating, interest and general and administrative expenses,
any currently anticipated costs associated with the Company's projects during
1999, and future dividend payments at current levels (including a dividend
payment of $0.03 per share to be paid on February 26, 1999 to shareholders of
record on February 12, 1999). Subject to favorable market conditions and other
factors, the Company also currently intends to issue convertible preferred
equity securities during 1999 to assist in funding its future capital and
exploration plans. The declaration of future dividends on the Company's common
stock will depend upon, among other things, the Company's future earnings and
financial condition, liquidity and capital requirements, its ability to pay
dividends under certain covenants contained in its debt instruments, the general
economic and regulatory climate and other factors deemed relevant by the
Company's Board of Directors.
OTHER MATERIAL LONG-TERM COMMITMENTS
As of February 9, 1996, Tantawan Services, L.L.C. ("TS"), a company that is
currently a wholly owned subsidiary of the Company, entered into a Bareboat
Charter Agreement (the "Charter") with Tantawan Production B.V. for the charter
of the FPSO for use in the Tantawan Field. See "Business--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. 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 negative pledge 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%). The Charter
currently provides for an estimated charter hire commitment of $24,000,000 per
year ($11,122,000 net to Thaipo) for the first ten years and a decreasing amount
thereafter.
As of August 24, 1998, Thaipo and its joint venture partners (collectively,
the "Charterers") entered into a Bareboat Charter Agreement (the "BCA") with
Watertight Shipping B.V. for the charter of the FSO. See
"Business--International Operations." The term of the BCA is for a period of ten
years commencing on the date that the FSO is ready to begin operations in the
Benchamas Field. In addition, the Charterers have a purchase option on the FSO
throughout the term of the BCA. The Charterers have also contracted with another
company, Tanker Pacific (Thailand) Co. Ltd, to operate the FSO on a fixed fee
basis throughout the initial term of the BCA. Performance of both the BCA and
the agreement to operate the FSO are non-recourse to the Company. However the
obligations of each joint venturer are full recourse to each joint venturer, but
the obligations are several, meaning that each joint venturer's obligations are
limited to its percentage interest in the Thailand Concession. Collectively, the
BCA and the operating
34
<PAGE>
agreement currently provide for an estimated expense of chartering and operating
the FSO of $11,253,000 per year ($5,215,000 net to Thaipo), which will commence
after the FSO is installed in the Benchamas Field in late May or June of this
year.
CAPITAL STRUCTURE
CREDIT AGREEMENT AND UNCOMMITTED CREDIT LINES. Effective August 1, 1997, the
Company entered into an amended and restated Credit Agreement, which was amended
most recently on December 21, 1998. The Credit Agreement provides for a
$200,000,000 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
domestic, Canadian and Thai properties. Generally, the borrowing base is
determined semi-annually by the lenders in accordance with the Credit Agreement,
based on the lenders' usual and customary criteria for oil and gas transactions.
As of February 1, 1999, the Company's total borrowing base was set at
$140,000,000, which amount cannot be reduced until after April 30, 1999.
However, due to limitations on total indebtedness under the Credit Agreement,
the Company is currently limited to borrowing only $135,000,000 under the Credit
Agreement and its other senior debt arrangements. 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 (including a total
indebtedness limit of $500,000,000), 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 bear interest at a rate based upon the percentage of the
borrowing base that is being utilized, ranging from a base (prime) rate or LIBOR
plus 1.25% to a base rate plus 0.25% or LIBOR plus 2.0%, at the Company's
option. Borrowings under the Credit Agreement currently bear interest at a base
rate or LIBOR plus 1.75%, at the Company's option. A commitment fee on the
unborrowed amount under the Credit Agreement is also charged and is based upon
the percentage of the borrowing base that is being utilized, ranging from 0.25%
to 0.375%. The commitment fee is currently 0.375% per annum on the unborrowed
amount under the Credit Agreement. As of February 15, 1999, there was
$102,000,000 outstanding under the Credit Agreement.
As of February 15, 1999, the Company is a party to separate letter
agreements with two banks under which each bank may provide an uncommitted money
market line of credit. One of the agreements provides for a $20,000,000 line of
credit, and the other provides for a $10,000,000 line of credit. Both lines of
credit are on an as available or as offered basis and neither bank has any
obligation to make any advances under its line of credit. Although loans made
under each letter agreement 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. Each letter agreement permits 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 both lines of credit and under the banker's
acceptances discussed below. Further, the 2007 Notes and the 2009 Notes also
restrict the incurrence of additional senior indebtedness. See "; 2007 Notes"
and "; 2009 Notes." As of December 31, 1998, there was $4,000,000 outstanding
under one of the lines of credit at an interest rate of 6.1%
BANKER'S ACCEPTANCES. On June 3, 1998, the Company entered into a Master
Banker's Acceptance Agreement under which one of the Company's lenders has
offered to accept up to $20,000,000 in bank drafts from the Company. The
banker's drafts are available on an uncommitted basis and the bank has no
obligation to accept the Company's request for drafts. Drafts drawn under this
agreement are for a maximum term of 182 days; however, 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 the Credit Agreement.
Under its Credit Agreement, the Company is currently limited to incurring a
maximum of $20,000,000 of additional senior debt, which would include banker's
acceptances as well as debt incurred
35
<PAGE>
under the lines of credit discussed previously. Further, the 2007 Notes and the
2009 Notes offered also restrict the incurrence of additional senior
indebtedness. See "; 2007 Notes" and "; 2009 Notes." The Master Banker's
Acceptance Agreement permits either party to terminate the letter agreement at
any time upon five business days notice. As of December 31, 1998, bank drafts in
the principal amount of $10,947,000 bearing interest at an average rate of 5.9%
were outstanding under this agreement.
2009 NOTES. On January 15, 1999, the Company issued $150,000,000 principal
amount of 2009 Notes. The proceeds from the issuance of the 2009 Notes were used
to repay amounts outstanding under the Credit Agreement. The 2009 Notes bear
interest at a rate of 10 3/8%, payable semi-annually in arrears on February 15
and August 15 of each year, commencing August 15, 1999. The 2009 Notes are
general unsecured senior subordinated obligations of the Company, are
subordinated in right of payment to the Company's senior indebtedness, which
currently includes the Company's obligations under the Credit Agreement, its
unsecured credit lines and its banker's acceptances, are equal in right of
payment to the 2007 Notes, but are senior in right of payment to the Company's
subordinated indebtedness, which currently includes the 2006 Notes. The Company,
at its option, may redeem the 2009 Notes in whole or in part, at any time on or
after February 15, 2004, at a redemption price of 105.188% of their principal
value and decreasing percentages thereafter. No sinking fund payments are
required on the 2009 Notes. The 2009 Notes are redeemable at the option of any
holder, upon the occurrence of a change of control (as defined in the indenture
governing the 2009 Notes), at 101% of their principal amount. The indenture
governing the 2009 Notes also imposes certain covenants on the Company that are
substantially identical to the covenants contained in the indenture governing
the 2007 Notes, 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.
2007 NOTES. On May 22, 1997, the Company issued $100,000,000 principal
amount of 2007 Notes. The 2007 Notes bear interest at a rate of 8 3/4%, payable
semi-annually in arrears on May 15 and November 15 of each year. The 2007 Notes
are general unsecured senior subordinated obligations of the Company, are
subordinated in right of payment to the Company's senior indebtedness, which
currently includes the Company's obligations under the Credit Agreement, its
unsecured credit lines and its banker's acceptances, are equal in right of
payment to the 2009 Notes, but are senior in right of payment to the Company's
subordinated indebtedness, which currently includes the 2006 Notes. The Company,
at its option, may redeem the 2007 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 2007 Notes. The 2007 Notes are redeemable at the option of any holder, upon
the occurrence of a change of control (as defined in the indenture governing the
2007 Notes), at 101% of their principal amount. The indenture governing the 2007
Notes also imposes certain covenants on the Company that are substantially
identical to the covenants contained in the indenture governing the 2009 Notes,
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.
2006 NOTES. The outstanding principal amount of 2006 Notes was $115,000,000
as of December 31, 1998. 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 bear interest at a rate of 5 1/2% and 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 any 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.
36
<PAGE>
2004 NOTES. The Company's 2004 Notes were called for redemption on March
16, 1998, at a price equal to 103.30% of their principal amount. Prior thereto,
holders of all but $95,000 principal amount of the 2004 Notes chose to convert
their 2004 Notes into Common Stock at a conversion price of $22.188 per common
share, rather than receive cash for their 2004 Notes resulting in the issuance
of 3,879,726 shares of Common Stock.
OTHER MATTERS
INFLATION. 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 U.S. 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 U.S. dollar due to inflation, such effect is not currently
considered significant.
SOUTHEAST ASIA ECONOMIC ISSUES. A substantial portion of the Company's oil
and gas operations are conducted in Southeast Asia, and a substantial portion of
its natural gas and liquid hydrocarbon production is sold there. Southeast Asia
in general, and the Kingdom of Thailand in particular, have experienced severe
economic difficulties which have been characterized by sharply reduced economic
activity, illiquidity, highly volatile foreign currency exchange rates and
unstable stock markets. The government of the Kingdom of Thailand and other
governments in the region are currently acting to address these issues. However,
the economic difficulties currently being experienced in Thailand, together with
the volatility of the Thai baht against the U.S. dollar, will continue to have a
material impact on the Company's operations in the Kingdom of Thailand, together
with the prices that the company receives for its oil and natural gas production
there. See "--Results of Operations; Oil and Gas Revenues" and "--Results of
Operations; Foreign Currency Transaction Gain (Loss)."
All of the Company's current natural gas production from the Thailand
Concession is committed under a long-term Gas Sales Agreement to PTT at a price
denominated in Thai baht which is determined in accordance with a formula that
is intended to ameliorate, at least in part, any decline in the purchasing power
of the Thai baht against the U.S. dollar. See "Business--International
Operations; Contractual Terms Governing the Thailand Concession" and
"Business--Miscellaneous; Sales." Although the Company currently believes that
PTT will honor its commitments under the Gas Sales Agreement, a failure by PTT
to honor such commitments could have a material adverse effect on the Company.
The Company's crude oil and condensate production from the Thailand
Concession is currently sold on a tanker load by tanker load basis. Prices that
the Company receives for such production are based on world benchmark prices,
which are denominated in U.S. dollars, and are typically paid in U.S. dollars.
See "Business--International Operations; Contractual Terms Governing the
Thailand Concession and Related Production" and "Business--Miscellaneous;
Sales." The Company believes that the current economic difficulties in Southeast
Asia have resulted in a decreased demand for petroleum products in the region,
which has contributed to the recent general decline in crude oil and condensate
prices throughout the world. This price decline has had an adverse effect on all
oil and gas companies that sell their production on the world spot markets,
including the Company, without regard to where their respective production is
located.
YEAR 2000 READINESS DISCLOSURE. Many computer software systems, as well as
certain hardware and equipment using date-sensitive data, were structured to use
a two-digit date field meaning that they may not be able to properly recognize
dates in the year 2000. The Company is addressing this issue through a process
that entails evaluation of the Company's critical software and, to the extent
possible, its hardware and equipment to identify and assess Year 2000 issues and
to remediate, replace or establish alternative procedures addressing non-Year
2000 compliant systems, hardware and equipment.
The Company has substantially completed an inventory of its systems and
equipment including computer systems and business applications. Based upon this
review, the Company currently believes that all of its critical software and
computer hardware systems are either Year 2000 compliant or will be within the
next six months. The Company continues to inventory its equipment and facilities
to determine if they
37
<PAGE>
contain embedded date-sensitive technology. If problems are discovered,
remediation, replacement or alternative procedures for non-compliant equipment
and facilities will be undertaken on a business priority basis. This process
will continue and, depending upon the equipment and facilities, is scheduled for
completion during the first three quarters of 1999. As of December 31, 1998, the
Company had incurred approximately $50,000 in expenses related to its Year 2000
compliance efforts. These costs are currently being expensed as they are
incurred. However, in certain instances the Company may determine that replacing
existing equipment may be more efficient, particularly where additional
functionality is available. These replacements may be capitalized and therefore
would reduce the estimated 1999 expenses associated with the Year 2000 issue.
The Company currently expects total out-of-pocket costs to become Year 2000
compliant to be less than $1,000,000. The Company currently expects that such
costs will not have a material adverse effect on the Company's financial
condition, operations or liquidity.
The foregoing timetable and assessment of costs to become Year 2000
compliant reflect management's current best estimates. These estimates are based
on many assumptions, including assumptions about the cost, availability and
ability of resources to locate, remediate and modify affected systems, equipment
and facilities. Based upon its activities to date, the Company does not
currently believe that these factors will cause results to differ significantly
from those estimated. However, the Company cannot reasonably estimate the
potential impact on its financial condition and operations if key third parties
including, among others, suppliers, contractors, joint venture partners,
financial institutions, customers and governments do not become Year 2000
compliant on a timely basis. The Company is contacting many of these third
parties to determine whether they will be able to resolve in a timely fashion
their Year 2000 issues as they may affect the Company.
In the event that the Company is unable to complete the remediation or
replacement of its critical systems, facilities and equipment, establish
alternative procedures in a timely manner, or if those with whom the Company
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on the Company's liquidity and
results of operations. At this time, the potential effect in the event the
Company and/or third parties are unable to timely resolve their Year 2000
problems is not determinable; however, the Company currently believes that it
will be able to resolve its own Year 2000 issues in a timely manner.
The disclosure set forth in this section is provided pursuant to Securities
Act Release No. 33-7558. As such it is protected as a forward-looking statement
under the Private Securities Litigation Reform Act of 1995. See "Forward-Looking
Statements." This disclosure is also subject to protection under the Year 2000
Information and Readiness Disclosure Act of 1998, Public Law 105-271, as a "Year
2000 Statement" and "Year 2000 Readiness Disclosure" as defined therein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk, including adverse changes in
commodity prices, interest rates and foreign currency exchange rates as
discussed below.
COMMODITY PRICE RISK
The Company produces, purchases and sells natural gas, crude oil, condensate
and NGLs. As a result, the Company's financial results can be significantly
affected as these commodity prices fluctuate widely in response to changing
market forces. In the past, the Company has made limited use of a variety of
derivative financial instruments only for non-trading purposes as a hedging
strategy to manage commodity prices associated with oil and gas sales and to
reduce the impact of commodity price fluctuations. See "Business--Competition
and Market Conditions." As discussed earlier, the Company was not party to any
derivative financial instruments during 1998.
INTEREST RATE RISK
From time to time, the Company has entered into various financial
instruments, such as interest rate swaps, to manage the impact of changes in
interest rates. Currently, the Company has no open interest rate
38
<PAGE>
swap or interest rate lock agreements. Therefore, the Company's exposure to
changes in interest rates primarily results from its short-term and long-term
debt with both fixed and floating interest rates. The following table presents
principal or notional amounts (stated in thousands) and related average interest
rates by year of maturity for the Company's debt obligations and their indicated
fair market value at December 31, 1998:
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL
----- --------- ---------- --------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities--Long-Term Debt:
Variable Rate.......................... $ 0 $ 32,992 $ 120,971 $ 65,984 $ 0 $ 0 $ 219,947
Average Interest Rate.................. -- 7.3% 7.3% 7.3% -- -- 7.3%
Fixed Rate............................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 215,000 $ 215,000
Average Interest Rate.................. -- -- -- -- -- 7.0% 7.0%
<CAPTION>
VALUE
----------
<S> <C>
Liabilities--Long-Term Debt:
Variable Rate.......................... $ 219,947
Average Interest Rate.................. --
Fixed Rate............................. $ 172,637
Average Interest Rate.................. --
</TABLE>
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company conducts business in Thai baht and the Canadian dollar and is
therefore subject to foreign currency exchange rate risk on cash flows related
to sales, expenses, financing and investing transactions. The Company conducts a
substantial portion of its oil and gas production and sales in Southeast Asia.
Southeast Asia in general, and the Kingdom of Thailand in particular, have
experienced severe economic difficulties, including sharply reduced economic
activity, illiquidity, highly volatile foreign currency exchange rates and
unstable stock markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations; Foreign Currency
Transaction Gain (Loss") and "--Liquidity and Capital Resources; Other Matters;
Southeast Asia Economic Issues." However, the economic difficulties in Thailand
and the volatility of the Thai baht against the U.S. dollar will continue to
have a material impact on the Company's Thailand operations and prices that the
Company receives for its oil and gas production there. Although the Company's
sales to PTT under the Gas Sales Agreement are denominated in baht, because
predominantly all of the Company's crude oil sales and its capital and most
other expenditures in the Kingdom of Thailand are dominated in U.S. dollars, the
U.S. dollar is the functional currency for the Company's operations in the
Kingdom of Thailand.
Exposure from market rate fluctuations related to activities in Canada,
where the Company's functional currency is the Canadian dollar, is not material
at this time.
39
<PAGE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANNUAL REPORT ON FORM 10K
FOR THE YEAR ENDED DECEMBER 31, 1998
POGO PRODUCING COMPANY AND SUBSIDIARIES
HOUSTON, TEXAS
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Pogo Producing Company:
We have audited the accompanying consolidated balance sheets of Pogo
Producing Company (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pogo Producing Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1999
41
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Oil and gas................................................................ $ 200,154 $ 284,851 $ 203,364
Pipeline sales and other................................................... 2,649 1,449 613
---------- ---------- ----------
Total.................................................................... 202,803 286,300 203,977
---------- ---------- ----------
Operating Costs and Expenses:
Lease operating............................................................ 71,213 63,501 37,628
General and administrative................................................. 26,356 21,412 18,028
Exploration................................................................ 9,802 10,530 16,777
Dry hole and impairment.................................................... 41,736 9,631 8,579
Depreciation, depletion and amortization................................... 110,916 103,157 61,857
---------- ---------- ----------
Total.................................................................... 260,023 208,231 142,869
---------- ---------- ----------
Operating Income (Loss)...................................................... (57,220) 78,069 61,108
Interest:
Charges.................................................................... (24,682) (21,886) (13,203)
Income..................................................................... 719 453 232
Capitalized................................................................ 9,381 6,175 4,244
Foreign Currency Transaction Gain (Loss)................................... 953 (7,604) --
---------- ---------- ----------
Income (Loss) Before Taxes and Extraordinary Item............................ (70,849) 55,207 52,381
---------- ---------- ----------
Income Tax Benefit (Expense)................................................. 27,751 (18,091) (18,800)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item...................................... (43,098) 37,116 33,581
Extraordinary Loss on Early Extinguishment of Debt, net of taxes............. -- -- (821)
---------- ---------- ----------
Net Income (Loss)............................................................ $ (43,098) $ 37,116 $ 32,760
---------- ---------- ----------
---------- ---------- ----------
Earnings per Share:
Basic
Before extraordinary item................................................ $ (1.14) $ 1.11 $ 1.01
Extraordinary item....................................................... -- -- (0.02)
---------- ---------- ----------
Net income (Loss)............................................................ $ (1.14) $ 1.11 $ 0.99
---------- ---------- ----------
---------- ---------- ----------
Diluted
Before extraordinary item................................................ $ (1.14) $ 1.06 $ 0.97
Extraordinary item....................................................... -- -- (0.02)
---------- ---------- ----------
Net income (Loss)........................................................ $ (1.14) $ 1.06 $ 0.95
---------- ---------- ----------
---------- ---------- ----------
Dividends per Common Share................................................... $ 0.12 $ 0.12 $ 0.12
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
42
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- -----------
(EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash investments............................................................ $ 7,959 $ 19,646
Accounts receivable.................................................................. 24,054 39,540
Other receivables.................................................................... 38,977 46,951
Inventory--product................................................................... 969 713
Inventories--tubulars................................................................ 10,594 8,334
Other................................................................................ 2,814 4,087
----------- -----------
Total current assets............................................................... 85,367 119,271
----------- -----------
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized.................................................. 1,485,125 1,321,817
Unevaluated properties and properties under development, not being amortized....... 215,244 110,231
Other, at cost....................................................................... 17,915 12,619
----------- -----------
1,718,284 1,444,667
Less--accumulated depreciation, depletion, and amortization, including $6,862 and
$6,004 respectively, applicable to other property.................................. 992,759 917,363
----------- -----------
725,525 527,304
----------- -----------
Foreign Taxes Receivable............................................................... 23,482 12,025
Debt Issue Expenses.................................................................... 7,727 7,200
Other.................................................................................. 20,295 10,817
----------- -----------
$ 862,396 $ 676,617
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable--operating activities............................................... $ 12,197 $ 13,639
Accounts payable--investing activities............................................... 90,102 90,833
Accrued interest payable............................................................. 3,226 3,130
Accrued payroll and related benefits................................................. 1,952 1,938
Other................................................................................ 2 632
----------- -----------
Total current liabilities.......................................................... 107,479 110,172
Long-Term Debt......................................................................... 434,947 348,179
Deferred Federal Income Tax............................................................ 53,869 57,502
Deferred Credits....................................................................... 16,441 14,658
----------- -----------
Total liabilities.................................................................. 612,736 530,511
----------- -----------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized................................. -- --
Common stock, $1 par; 100,000,000 shares authorized, and 40,136,254 and 33,552,702
shares issued, respectively........................................................ 40,136 33,553
Additional capital................................................................... 290,655 144,848
Retained earnings (deficit).......................................................... (79,600) (31,971)
Treasury stock (15,575 shares) and other, at cost.................................... (1,531) (324)
----------- -----------
Total shareholders' equity......................................................... 249,660 146,106
----------- -----------
$ 862,396 $ 676,617
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
43
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................................................ $ 222,433 $ 272,004 $ 195,931
Federal income taxes received............................................... -- 7,037 --
Operating, exploration, and general and administrative expenses paid........ (116,272) (86,445) (74,512)
Interest paid............................................................... (26,221) (20,713) (12,960)
Federal income taxes paid................................................... -- (19,500) (12,500)
Value added taxes paid...................................................... (6,161) (1,630) (1,344)
Other....................................................................... (2,850) (21) (1,717)
---------- ---------- ----------
Net cash provided by operating activities................................. 70,929 150,732 92,898
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures........................................................ (201,946) (197,326) (172,032)
Purchase of proved reserves................................................. (2,961) (31,234) --
Proceeds from the sale of property and tubular stock........................ 7,164 387 100
---------- ---------- ----------
Net cash used in investing activities..................................... (197,743) (228,173) (171,932)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of new debt.......................................... -- 100,000 115,000
Borrowings under senior debt agreements..................................... 449,947 502,000 208,000
Payments under senior debt agreements....................................... (313,500) (500,000) (201,000)
Proceeds from exercise of stock options..................................... 1,034 3,874 3,378
Payment of cash dividends on common stock................................... (4,531) (4,012) (3,979)
Debt issue expenses paid.................................................... (2,635) (3,165) (3,116)
Purchase of 8% debentures due 2005.......................................... -- -- (40,699)
Principal payment of production payment obligation.......................... (15,246) -- --
Other....................................................................... (621) -- --
---------- ---------- ----------
Net cash provided by financing activities................................. 114,448 98,697 77,584
---------- ---------- ----------
Effect of exchange rate changes on cash....................................... 679 (4,664) 23
---------- ---------- ----------
Net increase (decrease) in cash and cash investments.......................... (11,687) 16,592 (1,427)
Cash and cash investments at the beginning of the year........................ 19,646 3,054 4,481
---------- ---------- ----------
Cash and cash investments at the end of the year.............................. $ 7,959 $ 19,646 $ 3,054
---------- ---------- ----------
---------- ---------- ----------
Reconciliation of net income to net cash provided by operating activities:
Net income (loss)........................................................... $ (43,098) $ 37,116 $ 32,760
Adjustments to reconcile net income to net cash provided by operating
activities
Extraordinary losses on early extinguishments of debt, net of taxes....... -- -- 821
Foreign currency transaction (gain) loss.................................. (953) 7,604 --
(Gains) losses on sales................................................... 92 (1,100) 165
Depreciation, depletion and amortization.................................. 110,916 103,157 61,857
Dry hole and impairment................................................... 41,736 9,631 8,579
Interest capitalized...................................................... (9,381) (6,175) (4,244)
(Decrease) increase in deferred income taxes.............................. (24,250) 12,999 7,175
Change in assets and liabilities:
(Increase) decrease in accounts receivable.............................. 15,307 (12,483) (8,211)
Increase in inventory product........................................... (259) (713) --
(Increase) decrease in other current assets............................. 1,258 (6,470) 81
Increase in other assets................................................ (20,551) (7,418) (5,228)
Increase (decrease) in accounts payable................................. (1,122) 8,998 (2,079)
Increase in accrued interest payable.................................... 95 1,173 243
Increase in accrued payroll and related benefits........................ 14 448 251
Increase (decrease) in other current liabilities........................ (637) 469 60
Increase in deferred credits............................................ 1,762 3,496 668
---------- ---------- ----------
Net cash provided by operating activities..................................... $ 70,929 $ 150,732 $ 92,898
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
44
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED TREASURY
SHARES COMMON ADDITIONAL EARNINGS STOCK AND SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL (DEFICIT) OTHER EQUITY
----------- ----------- ----------- ----------- ----------- -------------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............ 32,991,397 $ 33,007 $ 132,881 $ (93,856) $ (324) $ 71,708
Net income.............................. -- -- -- 32,760 -- 32,760
Foreign currency translation gain....... -- -- -- -- 23 23
Exercise of stock options............... 274,714 274 4,924 -- -- 5,198
Shares issued in connection with the
Long-Term Incentive Plan.............. 5,896 6 246 -- -- 252
Shares issued in connection with the
conversion of--
8% Debentures....................... 32,898 33 1,267 -- -- 1,300
2004 Notes.......................... 901 1 19 -- -- 20
Dividends ($0.12 per common share)...... -- -- -- (3,979) -- (3,979)
----------- ----------- ----------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1996............ 33,305,806 33,321 139,337 (65,075) (301) 107,282
Net income.............................. -- -- -- 37,116 -- 37,116
Foreign currency translation loss....... -- -- -- -- (23) (23)
Exercise of stock options............... 229,024 230 5,461 -- -- 5,691
Shares issued in connection with the
conversion of 2004 Notes.............. 2,297 2 50 -- -- 52
Dividends ($0.12 per common share)...... -- -- -- (4,012) -- (4,012)
----------- ----------- ----------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1997............ 33,537,127 33,553 144,848 (31,971) (324) 146,106
Net loss................................ -- -- -- (43,098) -- (43,098)
Foreign currency translation loss....... -- -- -- -- (1,207) (1,207)
Exercise of stock options............... 147,240 147 1,835 -- -- 1,982
Shares issued in connection with the
conversion of 2004 Notes.............. 3,879,726 3,880 80,712 -- -- 84,592
Shares issued for common stock of
acquired company...................... 1,665,491 1,665 38,818 -- -- 40,483
Shares issued for exchangeable
convertible preferred stock of
acquired company...................... 699,273 699 19,301 -- -- 20,000
Shares issued for convertible debt of
acquired company...................... 174,818 175 4,825 -- -- 5,000
Shares issued as compensation........... 17,004 17 316 -- -- 333
Dividends ($0.12 per common share)...... -- -- -- (4,531) -- (4,531)
----------- ----------- ----------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1998............ 40,120,679 $ 40,136 $ 290,655 $ (79,600) $ (1,531) $ 249,660
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
45
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Pogo Producing Company was incorporated in 1970. Pogo Producing Company and
its subsidiaries (the "Company") are engaged in oil and gas exploration,
development and production activities on its properties located offshore in the
Gulf of Mexico and onshore in the United States and Canada and internationally
in the Gulf of Thailand and the United Kingdom. The Company has interests in 105
lease blocks offshore Louisiana and Texas, approximately 303,000 gross acres
onshore in the United States, approximately 117,000 gross acres onshore in
Canada, approximately 734,000 gross acres offshore in the Kingdom of Thailand
and two lease blocks in the United Kingdom North Sea totaling approximately
113,000 gross acres.
ACQUISITION
In August 1998, a wholly-owned subsidiary of the Company merged with Arch
Petroleum Inc. ("Arch") in a tax-free, stock for stock transaction, accounted
for as a purchase, through which Arch became a wholly owned subsidiary of the
Company.
The merger agreement provided for a fixed exchange ratio of one share of the
Company's common stock for each 10.4 shares of Arch common stock. In addition,
holders of Arch preferred stock received one share of the Company's common stock
for each 1.04 shares of Arch preferred stock held. As a result, approximately
2,500,000 shares of the Company's common stock (valued at approximately $64.8
million) were issued in exchange for Arch preferred and common stock and its
convertible debt. The value of the approximately 2,500,000 shares of the
Company's common stock in excess of the book value of the net assets acquired
(approximately $52.9 million) has been allocated to oil and gas properties and
is being amortized using the units of production method over the life of the oil
and gas reserves acquired. Expenses related to the acquisition of approximately
$2,285,000 ($1,485,000 after taxes) have been expensed. Under the purchase
method of accounting for the acquisition, the Arch results of operations are
included in the consolidated results of operations from August 17, 1998, the
date of acquisition, through December 31, 1998.
The following summary presents unaudited pro forma consolidated results of
operations as if the acquisition had occurred at the beginning of each period
presented. The pro forma results are for illustrative purposes only and are not
necessarily indicative of the operating results that would have occurred had the
acquisition been consummated at that date, nor are they necessarily indicative
of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues............................................................................... $ 217,915 $ 366,803
Net income (loss)...................................................................... $ (48,369) $ 36,691
Earnings (loss) per share:
Basic................................................................................ $ (1.22) $ 1.02
Diluted.............................................................................. $ (1.22) $ 0.98
</TABLE>
46
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of these financial statements requires the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Depreciation, depletion and amortization of oil and gas
properties and the impairment of oil and gas properties are determined using
estimates of proved oil and gas reserves. 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. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pogo Producing
Company and its subsidiary and affiliated companies, after elimination of all
significant intercompany transactions. Majority owned subsidiaries are fully
consolidated. Minority owned subsidiaries or affiliates are pro rata
consolidated in the same manner as the Company, and the oil and gas industry
generally, accounts for its operating or working interest in oil and gas joint
ventures.
PRIOR-YEAR RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform with the
current year presentation.
FOREIGN CURRENCY
The U.S. dollar is the functional currency for all areas of operations of
the Company except Canada. Accordingly, monetary assets and liabilities and
items of income and expense denominated in a foreign currency are remeasured to
U.S. dollars at the rate of exchange in effect at the end of each month and the
resulting gains or losses on foreign currency transactions are included in the
consolidated statements of income for the period. The Canadian dollar is the
functional currency for the Company's Canadian operations. Accordingly, monetary
assets and liabilities and items of income and expense denominated in Canadian
dollars are translated to U.S. dollars at the rate of exchange in effect at the
end of each month and the resulting gains or losses on Canadian currency
transactions are included in the consolidated statement of shareholders' equity
for the period.
INVENTORY--PRODUCT
Crude oil and condensate from the Company's Tantawan field located in the
Kingdom of Thailand is produced into a floating production, storage and off
loading ("FPSO") system and sold periodically as an economic barge quantity is
accumulated. The product inventory at December 31, 1998 consists of
approximately 90,000 barrels of crude oil and condensate, net to the Company's
interest, and is carried at its estimated net realizable value of $10.76 per
barrel.
INVENTORIES--TUBULARS
Tubular Inventories consist primarily of goods used in the Company's
operations and are stated at the lower of average cost or market value.
47
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST CAPITALIZED
Interest costs related to financing major oil and gas projects in progress
are capitalized until the projects are evaluated or until production commences
if the projects are evaluated as successful.
EARNINGS PER SHARE
Earnings (loss) per common share (basic earnings per share) are based on the
weighted average number of shares of common stock outstanding during the
periods. Earnings (loss) per common share and potential common share (diluted
earnings per share) consider the effect of dilutive securities as set out below
in thousands, except per share amounts.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998
----------------------------------
INCOME SHARES PER SHARE
---------- --------- -----------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE................................. $ (43,098) 37,902 $ (1.14)
---------- --------- -----------
---------- --------- -----------
Antidilutive securities:
Shares assumed not issued from options to purchase common shares as the
exercise prices are above the average market price for the period or the
effect of the assumed exercise would be antidilutive.................... -- 2,464 $ 19.37
Interest expense incurred, net of taxes, and shares not issued related to
the assumed non-conversion at $42.185 per share of the 2006 Notes....... $ 4,111 2,726 $ 1.51
Interest expense avoided, net of taxes, and shares issued from the assumed
conversion at $22.188 per share of the 2004 Notes....................... $ 478 594 $ 0.80
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
-----------------------------------
INCOME SHARES PER SHARE
----------- --------- -----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE..................................................... $ 37,116 33,421 $ 1.11
Effect of potential dilutive securities:
Shares assumed issued from the exercise of options to purchase common
shares, net of treasury shares assumed purchased from the proceeds, at
the average market price for the period.................................. -- 758 --
Interest expense avoided, net of taxes, and shares issued from the assumed
conversion at $22.188 per share of the 2004 Notes........................ 3,082 3,885 --
----------- --------- -----------
DILUTED EARNINGS PER SHARE................................................... $ 40,198 38,064 $ 1.06
----------- --------- -----------
----------- --------- -----------
Antidilutive securities:
Shares assumed not issued from options to purchase common shares as the
exercise prices are above the average market price for the period........ -- 471 $ 40.82
Interest expense incurred, net of taxes, and shares not issued related to
the assumed non-conversion at $42.185 per share of the 2006 Notes........ $ 4,111 2,726 $ 1.51
</TABLE>
48
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996
-----------------------------------
INCOME(A) SHARES PER SHARE
----------- --------- -----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE..................................................... $ 33,581 33,203 $ 1.01
Effect of potential dilutive securities:
Shares issued from the assumed exercise of options to purchase common
shares, net of treasury shares assumed purchased from the proceeds, at
the average market price for the period.................................. -- 831 --
Interest expense avoided, net of taxes, and shares issued from the assumed
conversion at $22.188 per share of the 2004 Notes........................ 3,083 3,886 --
----------- --------- -----------
DILUTED EARNINGS PER SHARE................................................... $ 36,664 37,920 $ 0.97
----------- --------- -----------
----------- --------- -----------
Antidilutive securities:
Shares assumed not issued from options to purchase common shares as the
exercise prices are above the average market price for the period........ -- 20 $ 40.94
Interest expense incurred, net of taxes, and shares not issued related to
the assumed non-conversion at $39.50 per share of the 8% Debentures,
retired on June 28, 1996................................................. $ 1,179 521 $ 2.26
Interest expense incurred, net of taxes, and shares not issued related to
the assumed non-conversion at $42.185 per share of the 2006 Notes........ $ 2,238 1,472 $ 1.52
</TABLE>
- ------------------------
(a) Computed on income before extraordinary item
PRODUCTION IMBALANCES
Owners of an oil and gas property often take more or less production from a
property than entitled to based on their ownership percentages in the property.
This results in a condition known in the industry as a production imbalance. The
Company follows the "take" (cash) method of accounting for production
imbalances. Under this method, the Company recognizes revenues on production as
it is taken and delivered to its purchasers. The Company's crude oil imbalances
are not significant. At December 31, 1998, the Company had taken approximately
2,680 MMcf of natural gas less than it was entitled to based on its interest in
those properties, and approximately 2,363 MMcf more than its entitlement on
other properties placing the Company at year-end in a net under-delivered
position of approximately 317 MMcf of natural gas based on its working interest
ownership in the properties.
OIL AND GAS ACTIVITIES AND DEPRECIATION, DEPLETION AND AMORTIZATION
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under the successful efforts method, lease acquisition costs
and all development costs are capitalized. Proved properties are reviewed
whenever events or changes in circumstances indicate that the value of such
property on the Company's books may not be recoverable. Unproved properties are
reviewed quarterly to determine if there has been impairment of the carrying
value, with any such impairment charged to expense in the period. Proved oil and
gas properties are reviewed when circumstances suggest the need for such a
review and, if required, the proved properties are written down to their
estimated fair value. Estimated fair value includes the estimated present value
of all reasonably expected future production, prices, and costs. As a result of
poor reservoir performance and persistent low oil and gas prices, the Company
performed such a review in 1998 and expensed $30,813,000 related to its domestic
oil and gas properties which is included in the Consolidated Statements of
Income as dry hole and impairment expense. Exploratory drilling costs are
capitalized until the results are determined. If proved reserves are
49
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
not discovered, the exploratory drilling costs are expensed. Other exploratory
costs are expensed as incurred. The provision for depreciation, depletion and
amortization is based on the capitalized costs as determined above, plus future
costs to abandon offshore wells and platforms, and is on a cost center by cost
center basis using the units of production method. The Company generally creates
cost centers on a field by field basis for oil and gas activities in the Gulf of
Mexico and the Gulf of Thailand. Generally, the Company establishes cost centers
on the basis of an oil or gas trend or play for its onshore oil and gas
activities.
In connection with the Company's ongoing asset rationalization process, the
Company has designated certain domestic oil and gas properties to be disposed of
during 1999. At the time of designation, no impairment loss was indicated. The
carrying amount of the properties at December 31, 1998 was $29,637,000, and they
contributed $7,253,000, $7,563,000 and $2,013,000 to operating income in 1998,
1997 and 1996, respectively.
Other properties are depreciated using a straight-line method in amounts
which in the opinion of management are adequate to allocate the cost of the
properties over their estimated useful lives.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of cash flows, the Company considers all highly liquid
investments with a maturity date of three months or less to be cash equivalents.
Significant transactions may occur which do not directly affect cash balances
and as such will not be disclosed in the Consolidated Statements of Cash Flows.
Certain such noncash transactions are disclosed in the Consolidated Statements
of Shareholders' Equity relating to shares issued in connection with the
Long-Term Incentive Plan and the conversion of debentures into Common Stock in
1997 and 1998 and the acquisition of Arch in 1998.
COMMITMENTS AND CONTINGENCIES
The Company has commitments for operating leases for office space in
Houston, Midland, Calgary and Bangkok and commitments for an operating lease and
operating expenses related to an FPSO and FSO in the Gulf of Thailand. Rental
expense for office space was $1,545,000 in 1998, $1,440,000 in 1997, and
$1,054,000 in 1996. Expenses for the FPSO lease and related operating costs were
$15,864,000 in 1998 and $14,809,000 in 1997. Expenses for the FSO lease and
related operating costs are currently expected to commence in May or June of
1999, with total expenses for the floating storage and offloading system ("FSO")
estimated to be approximately $3,077,000 for 1999 and $5,215,000 in the year
2000 and each year thereafter. Future minimum office and FPSO lease expenses and
related FPSO operating expense payments (in thousands of dollars) at December
31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 19,042
2000............................................................... 21,187
2001............................................................... 19,968
2002............................................................... 19,771
2003............................................................... 19,778
Thereafter......................................................... 89,630
</TABLE>
50
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) INCOME TAXES
The components of income (loss) before income taxes for each of the three
years in the period ended December 31, 1998, are as follows (expressed in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States............................................ $ (57,112) $ 62,953 $ 56,380
Foreign.................................................. (13,737) (7,746) (3,999)
---------- ---------- ----------
Total.................................................. $ (70,849) $ 55,207 $ 52,381
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of federal income tax expense (benefit) for each of the three
years in the period ended December 31, 1998, are as follows (expressed in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
United States, current...................................... $ -- $ 16,000 $ 12,500
United States, deferred (a)................................. (20,750) 5,964 7,162
Foreign, deferred........................................... (7,001) (3,873) (862)
---------- --------- ---------
Total..................................................... $ (27,751) $ 18,091 $ 18,800
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------------
(a) Excludes $443,000 of deferred tax benefit on extraordinary loss of
$1,264,000 in 1996.
Total federal income tax expense (benefit) for each of the three years in
the period ended December 31, 1998, differs from the amounts computed by
applying the statutory federal income tax rate to income before taxes as follows
(expressed as a percent of pre-tax income):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory income tax rate........................... (35.0)% 35.0% 35.0%
Increases (reductions) resulting from:
Statutory depletion in excess of tax basis................ (0.4) (0.2) (0.2)
Foreign taxes............................................. (3.8) (2.1) 1.1
Other..................................................... -- 0.1 --
----------- ----- -----
(39.2)% 32.8% 35.9%
----------- ----- -----
----------- ----- -----
</TABLE>
Deferred income taxes are determined based upon the differences between the
financial statement and tax basis of the Company's assets and liabilities using
enacted tax rates in effect for the years in which the differences are expected
to reverse. Deferred tax assets are recognized if it is more likely than not
that
51
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) INCOME TAXES (CONTINUED)
the future tax benefit will be realized. The principal components of the
Company's deferred income tax assets and liabilities include the following at
December 31, 1998 and 1997 (expressed in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Intangible drilling costs, capitalized and amortized for financial statement purposes
and deducted for income tax purposes................................................ $ 235,034 $ 204,218
Charges to property and equipment, expensed for financial statement purposes, and
capitalized and amortized for income tax purposes................................... 29,013 12,203
Interest charges, capitalized and amortized for financial statement purposes and
deducted for income tax purposes.................................................... 20,874 19,762
----------- -----------
284,921 236,183
Deferred tax asset:
Differences in depletion and depreciation rates used for tangible assets for financial
and income tax purposes............................................................. (224,271) (178,681)
Net operating loss carryforwards and other ............................................. (6,781) --
----------- -----------
(231,052) (178,681)
----------- -----------
Net deferred tax liability.............................................................. $ 53,869 $ 57,502
----------- -----------
----------- -----------
</TABLE>
(3) LONG-TERM DEBT
Long-term debt and the amount due within one year at December 31, 1998 and
1997, consists of the following (dollars expressed in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Senior debt--
Bank revolving credit agreement:
LIBO Rate based loans, borrowings at December 31, 1998 and 1997, at average interest
rates of 7.4% and 6.5%, respectively................................................ $ 205,000 $ 47,000
Uncommitted credit lines with banks, borrowing at December 31, 1998, at an average
interest rate of 6.1%................................................................. 4,000 --
Banker's acceptance loans, borrowings at an average interest rate of 5.9%............... 10,947 --
---------- ----------
Total senior debt......................................................................... 219,947 47,000
---------- ----------
Subordinated debt--
8 3/4% Senior subordinated notes, due 2007.............................................. 100,000 100,000
5 1/2% Convertible subordinated notes, due 2006......................................... 115,000 115,000
5 1/2% Convertible subordinated notes, due 2004......................................... -- 86,179
---------- ----------
Total subordinated debt................................................................... 215,000 301,179
---------- ----------
Total debt................................................................................ 434,947 348,179
---------- ----------
Amount due within one year................................................................ -- --
---------- ----------
Long-term debt............................................................................ $ 434,947 $ 348,179
---------- ----------
---------- ----------
</TABLE>
52
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LONG-TERM DEBT (CONTINUED)
Effective August 1, 1997, the Company entered into an amended and restated
bank revolving credit agreement (the "Credit Agreement"), which was amended,
most recently on December 21, 1998. The Credit Agreement provides for a
$200,000,000 revolving/term credit facility which will be fully revolving until
July 1, 2000, after which the balance will be due in eight quarterly
installments, commencing on October 31, 2000. The amount that may be borrowed
under the Credit Agreement may not exceed a borrowing base which is composed of
domestic, Canadian and Thai properties. Generally, the borrowing base is
determined semi-annually by the lenders in accordance with the Credit Agreement,
based on the lenders' usual and customary criteria for oil and gas transactions.
As of February 1, 1999, the Company's total borrowing base was set at
$140,000,000, which amount cannot be reduced until after April 30, 1999. 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
(including a total indebtedness limit of $500,000,000), 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 bear interest at a rate based upon the
percentage of the borrowing base that is being utilized, ranging from a base
(prime) rate or LIBOR plus 1.25% to a base rate plus 0.25% or LIBOR plus 2.0%,
at the Company's option. Borrowings under the Credit Agreement currently bear
interest at a base rate or LIBOR plus 1.75%, at the Company's option. A
commitment fee on the unborrowed amount under the Credit Agreement is also
charged and is based upon the percentage of the borrowing base that is being
utilized, ranging from 0.25% to 0.375%. The commitment fee is currently 0.375%
per annum on the unborrowed amount under the Credit Agreement. Due to
limitations on total indebtedness under the Credit Agreement, as of February 1,
1999, the Company may borrow up to $135,000,000 under the Credit Agreement and
its other senior debt arrangements.
As of December 31, 1998, the Company is a party to separate letter
agreements with two banks under which one of the banks may provide a $10,000,000
uncommitted money market line of credit and the other bank may provide a
$20,000,000 uncommitted money market line of credit. Each line of credit is on
an as available or offered basis and neither bank has an obligation to make any
advances under its line of credit. Although loans made under these letter
agreements are for a maximum of 30 days, they are reflected as long-term debt on
the Company's balance sheet because the Company has the ability and intent to
reborrow such amounts under its Credit Agreement. Both letter agreements permit
either party to terminate such letter agreements at any time. Under the 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 and under the banker's acceptances discussed below.
On June 3, 1998, the Company entered into a Master Banker's Acceptance
Agreement under which one of the Company's lenders has offered to accept up to
$20,000,000 in bank drafts from the Company. The banker's drafts are available
on an uncommitted basis and the bank has no obligation to accept the Company's
request for drafts. Drafts drawn under this agreement are for a maximum term of
182 days; however, 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 the Credit Agreement. The Master Banker's Acceptance Agreement
permits either party to terminate the letter agreement at any time upon five
business days notice.
On May 22, 1997, the Company issued $100,000,000 of 8 3/4% Senior
Subordinated Notes, due 2007 (the "2007 Notes"). The 2007 Notes bear interest at
a rate of 8 3/4%, payable semi-annually in arrears on May 15 and November 15 of
each year. The 2007 Notes are general unsecured senior subordinated
53
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LONG-TERM DEBT (CONTINUED)
obligations of the Company and are subordinated in right of payment to the
Company's senior indebtedness, which currently includes the Company's
obligations under the Credit Agreement, its unsecured credit lines, and its
banker's acceptances, are equal in right of payment to the 2009 Notes (defined
below) but are senior in right of payment to its subordinated indebtedness,
which currently includes the 2006 Notes. The Company, at its option, may redeem
the 2007 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 2007 Notes. The 2007
Notes are redeemable at the option of any holder, upon the occurrence of a
change of control (as defined in the indenture governing the 2007 Notes), at
101% of their principal amount. The indenture governing the 2007 Notes also
imposes certain covenants on the Company that are substantially identical to the
covenants contained in the indenture governing the 2009 Notes, 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.
The 5 1/2% Convertible Subordinated Notes, due 2006 (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% and decreasing percentages thereafter. No
sinking fund is provided. The 2006 Notes are redeemable at the option of the
holder, upon the occurrence of a repurchase event (a change in control and other
circumstances, as defined), at 100% of the principal amount.
On February 12, 1998, the Company announced its intent to redeem the 5 1/2%
Convertible Subordinated Notes, due 2004 (the "2004 Notes") on March 16, 1998,
at 103.3% of their principal amount plus accrued interest. Holders of
$86,084,000 principal amount of the 2004 Notes elected to convert their notes
into 3,879,726 common shares at $22.188 per share plus $640 in cash for
fractional shares. The value of the shares issued was credited to common stock
and additional capital less unamortized debt issue expense applicable to the
2004 Notes. The remaining $95,000 principal amount of the 2004 Notes were
redeemed for $98,135 representing 103.3% of the principal amount of such 2004
Notes.
Current maturities and sinking fund requirements during the next five years
in connection with the above long-term debt are none in 1999, $32,992,000 in
2000, $120,971,000 in 2001, $65,984,000 in 2002 and none in 2003. All of the
current maturities reflected above are related to the retirement of the
Company's bank debt. The Company has established a history of refinancing its
senior debt before scheduled maturity payments commence and expects to do so
again before the amortization of senior debt commences in 2000.
On January 15, 1999, the Company issued $150,000,000 of 10 3/8% Senior
Subordinated Notes, due 2009 (the "2009 Notes"). The proceeds from the issuance
of the 2009 Notes were used to repay amounts outstanding under the Company's
Credit Agreement. The 2009 Notes bear interest at a rate of 10 3/8%, payable
semi-annually in arrears on February 15 and August 15 of each year, commencing
August 15, 1999. The 2009 Notes are generally unsecured senior subordinated
obligations of the Company and are subordinated in right of payment to the
Company's senior indebtedness, which currently includes the Company's
obligations under the Credit Agreement, its unsecured credit lines and bankers
acceptances, are equal in right of payment to the 2007 Notes, but are senior in
right of payment to its subordinated indebtedness, which includes the 2006
Notes. The Company, at its option, may redeem the 2009 Notes in whole or in
part, at any time on or after February 15, 2004, at a redemption price of
105.188% of their principal value and decreasing percentages thereafter. No
sinking fund payments are required on the 2009
54
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LONG-TERM DEBT (CONTINUED)
Notes. The 2009 Notes are redeemable at the option of any holder, upon the
occurrence of a change in control (as defined in the indenture governing the
2009 Notes), at 101% of their principal amount. The indenture governing the 2009
Notes also imposes certain covenants on the Company that are substantially
identical to the covenants contained in the indenture governing the 2007 Notes.
As of February 1, 1999, $15,000,000 was available for dividends under this
limitation, which is currently the Company's most restrictive such covenant.
(4) GEOGRAPHIC SEGMENT REPORTING
The Company's long-lived assets and revenues by segment and geographic area
are as follows:
<TABLE>
<CAPTION>
TOTAL OIL AND
COMPANY GAS PIPELINES OTHER
---------- ---------- ----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-Lived Assets:
As of December 31, 1998:
United States.................................................... $ 502,787 $ 493,633 $ 4,992 $ 4,162
Kingdom of Thailand.............................................. 209,552 207,756 -- 1,796
Canada........................................................... 13,186 13,083 -- 103
---------- ---------- ----------- -----------
Total............................................................ $ 725,525 $ 714,472 $ 4,992 $ 6,061
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
As of December 31, 1997:
United States.................................................... $ 365,142 $ 360,440 $ 243 $ 4,459
Kingdom of Thailand.............................................. 162,162 160,249 -- 1,913
---------- ---------- ----------- -----------
Total............................................................ $ 527,304 $ 520,689 $ 243 $ 6,372
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Revenues:
For the year ended December 31, 1998
United States.................................................... $ 165,873 $ 163,438 $ 2,431 $ 4
Kingdom of Thailand.............................................. 35,649 35,445 -- 204
Canada........................................................... 1,281 1,271 -- 10
---------- ---------- ----------- -----------
Total............................................................ $ 202,803 $ 200,154 $ 2,431 $ 218
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
For the year ended December 31, 1997
United States.................................................... $ 246,965 $ 245,458 $ -- $ 1,507
Kingdom of Thailand.............................................. 39,335 39,393 -- (58)
---------- ---------- ----------- -----------
Total............................................................ $ 286,300 $ 284,851 $ -- $ 1,449
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
For the year ended December 31, 1996
United States.................................................... $ 203,966 $ 203,364 $ -- $ 602
Kingdom of Thailand.............................................. 11 -- -- 11
---------- ---------- ----------- -----------
Total............................................................ $ 203,977 $ 203,364 $ -- $ 613
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
55
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SALES TO MAJOR CUSTOMERS
The Company is an oil and gas exploration and production company that
generally sells its oil and gas to numerous customers on a month-to-month basis.
Sales to the following customers exceeded 10% of revenues during any one of the
three years indicated (expressed in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Enron Corp. and affiliates................................... $ 29,539 $ 57,965 $ 58,101
Petroleum Authority of Thailand (PTT)........................ $ 23,137 $ 30,108 $ --
Coastal Gas Marketing Company................................ $ -- $ -- $ 18,376
</TABLE>
(6) CREDIT RISK
Substantially all of the Company's accounts receivable at December 31, 1998
and 1997, result from oil and gas sales and joint interest billings to other
companies in the oil and gas industry. This concentration of customers and joint
interest owners may impact the Company's overall credit risk, either positively
or negatively, in that these entities may be similarly affected by industry-wide
changes in economic or other conditions. Such receivables are generally not
collateralized. Historically, credit losses incurred by the Company on
receivables have not been material. No material credit losses were experienced
during 1998 or 1997.
A substantial portion of the Company's oil and gas operations are conducted
in Southeast Asia, and a substantial portion of its natural gas and liquids
hydrocarbon production are sold there. In the last two years, Southeast Asia in
general, and the Kingdom of Thailand in particular, have experienced severe
economic difficulties which have been characterized by sharply reduced economic
activity, illiquidity, highly volatile foreign currency exchange rates and
unstable stock markets. The government of the Kingdom of Thailand and other
governments in the region are currently acting to address these issues. However,
the economic difficulties currently being experienced in Thailand, together with
the volatility of the Thai Baht against the U.S. dollar, will continue to have a
material impact on the Company's operations in the Kingdom of Thailand together
with the prices that the Company receives for its oil and natural gas production
there.
All of the Company's current natural gas production from its Thailand
operations are committed under a long-term Gas Sales Agreement to PTT at a price
denominated in Thai Baht. The Company's crude oil and condensate production from
its Thailand operations is currently sold on a tanker load by tanker load basis.
Prices that the Company receives for such crude oil production are based on
world benchmark prices, which are denominated in U.S. dollars and are generally
expected on future crude oil sales to be paid in U.S. dollars. The Company
believes that the current economic difficulties in Southeast Asia have resulted
in a decreased demand for petroleum products in the region, which has
contributed to the recent general decline in crude oil and condensate prices
throughout the world.
(7) EMPLOYEE BENEFITS
The Company has a tax-advantaged savings plan in which all U.S. salaried
employees may participate. Under such plan, a participating employee may
allocate up to 10% of his salary, up to a maximum allowed by law ($10,000 for
1999), and the Company will then match the employee's contribution on a dollar
for dollar basis up to 6% of the employee's salary. Funds contributed by the
employee and the matching funds contributed by the Company are held in trust by
a bank trustee in six separate funds. Amounts contributed by the employee and
earnings and accretions thereon may be used to purchase shares of Common Stock,
invest in a money market fund or invest in four stock, bond, or blended stock
and bond mutual funds according to instructions from the employee. Matching
funds contributed to the savings plan by the
56
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFITS (CONTINUED)
Company are invested only in Common Stock. The Company contributed $701,000 to
the savings plan in 1998, $588,000 in 1997, and $471,000 in 1996.
A trusteed retirement plan has been adopted by the Company for its U.S.
salaried employees. The benefits are based on years of service and the
employee's average compensation for five consecutive years within the final ten
years of service which produce the highest average compensation. The Company
makes annual contributions to the plan in the amount of retirement plan cost
accrued or the maximum amount which can be deducted for federal income tax
purposes. Although the Company has no obligation to do so, the Company currently
provides full medical benefits to its retired U.S. employees and dependents. For
current employees, the Company assumes all or a portion of post retirement
medical and term life insurance costs based on the employee's age and length of
service with the Company. The post retirement medical plan has no assets and is
currently funded by the Company on a pay-as-you-go basis. The Company adopted
Statement of Financial Accounting Standards No. 132, "Employer's Disclosures
about
57
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFITS (CONTINUED)
Pensions and Other Post Retirement Benefits," in 1998. This statement changes
the disclosure requirements, but not the method of measurement or recognition of
these obligations. The following table sets forth the plans' status (in
thousands of dollars) as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
POST RETIREMENT
RETIREMENT PLAN BENEFITS
---------------------- --------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........ $ 11,220 $ 9,350 $ 6,906 $ 5,895
Service cost................................. 938 746 418 459
Interest cost................................ 843 707 374 427
Participant contributions.................... -- -- 4 1
Benefits paid................................ (2,099) (539) (191) (207)
Actuarial (gain) or loss..................... 2,947 956 (1,227) 331
---------- ---------- --------- ---------
Benefit obligation at end of year.............. 13,849 11,220 6,284 6,906
---------- ---------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year......................................... 31,312 24,181 -- --
Actual return on plan assets................. 8,439 7,893 -- --
Employer contributions....................... -- -- 187 206
Participant contributions.................... -- -- 4 1
Benefits paid................................ (2,099) (539) (191) (207)
Administrative expenses...................... (248) (223) -- --
---------- ---------- --------- ---------
Fair value of plan assets at end of year....... 37,404 31,312 -- --
---------- ---------- --------- ---------
RECONCILIATION OF FUNDED STATUS
Funded status.................................. 23,555 20,092 (6,284) (6,906)
Unrecognized actuarial gain.................... (14,670) (13,134) (1,742) (641)
Unrecognized transition (asset) or
obligation................................... (233) (336) 2,132 2,435
Unrecognized past service cost................. (257) (300) -- --
---------- ---------- --------- ---------
Prepaid (accrued) benefit cost at year-end..... $ 8,395 $ 6,322 $ (5,894) $ (5,112)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Discount rate.................................. 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets................. 9.50% 8.50% -- --
Rate of compensation increase.................. 4.75% 4.89% -- --
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................... $ 938 $ 746 $ 418 $ 459
Interest cost.................................. 843 707 374 427
Expected return on plan assets................. (2,926) (2,286) -- --
Amortization of prior service cost............. (43) (43) -- --
Amortization of transition obligation.......... (104) (104) 305 305
Recognized actuarial gain...................... (781) (628) (127) (26)
---------- ---------- --------- ---------
$ (2,073) $ (1,608) $ 970 $ 1,165
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
58
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFITS (CONTINUED)
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate is assumed
to decrease gradually to 5% for 2003 and remain at that level thereafter.
The accumulated post retirement benefit obligation at December 31 is
attributable to the following groups (in thousands of dollars):
<TABLE>
<CAPTION>
POST RETIREMENT
BENEFITS
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Retirees and beneficiaries................................................. $ 1,456 $ 1,951
Dependents of retirees..................................................... 1,147 978
Fully eligible active employees............................................ 578 802
Active employees, not fully eligible....................................... 3,103 3,175
--------- ---------
$ 6,284 $ 6,906
--------- ---------
--------- ---------
</TABLE>
Assumed health care cost trends have a significant effect on the amount
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (in thousands of
dollars):
<TABLE>
<CAPTION>
ONE PERCENTAGE POINT
------------------------
INCREASE DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components for 1998......... $ 157 $ (124)
Effect on year-end 1998 postretirement benefit obligation................ 1,028 (836)
</TABLE>
(8) STOCK OPTION PLANS
The Company's stock option plans authorize the granting of options to key
employees and non-employee directors at prices equivalent to the market value at
the date of grant. Options generally become exercisable in three annual
installments commencing one year after the date of grant and, if not exercised,
expire 10 years from the date of grant. The Company accounts for employee
stock-based compensation using the intrinsic value method and since the exercise
price of the options granted is equal to the quoted market price of the
Company's stock at the grant date, no compensation cost has been recognized for
its stock options plans. Had compensation costs been determined based on fair
value at the grant dates for awards made in 1998, 1997 and 1996, the Company's
net income and earnings per share
59
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTION PLANS (CONTINUED)
would have been reduced to the pro forma amounts indicated below (in thousands
of dollars, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $ (43,098) $ 37,116 $ 32,760
Pro forma................................................. $ (44,602) $ 34,220 $ 31,194
Earnings (loss) per share:
As reported Basic......................................... $ (1.14) $ 1.11 $ 0.99
As reported Diluted....................................... $ (1.20) $ 1.06 $ 0.95
Pro forma Basic........................................... $ (1.14) $ 1.04 $ 0.94
Pro forma Diluted......................................... $ (1.20) $ 0.99 $ 0.91
</TABLE>
The fair value of grants was estimated on the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions
used in 1998, 1997 and 1996, respectively: risk free interest rates of 5.31%,
6.10% and 6.25%, expected volatility of 35.58%, 34.63% and 39.15%, dividend
yields of 0.64%, 0.29% and 0.34%, and an expected life of the options of 4 years
in each of the years 1998, 1997 and 1996.
60
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTION PLANS (CONTINUED)
A summary of the status of the Company's plans as of December 31, 1998, 1997
and 1996, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
---------- -----------
<S> <C> <C>
Outstanding, December 31, 1995............................................................. 1,575,401 $ 14.56
Granted in 1996.......................................................................... 406,500 $ 34.59
Exercised in 1996........................................................................ (274,714) $ 12.30
----------
Outstanding, December 31, 1996............................................................. 1,707,187 $ 19.70
----------
----------
Exercisable, December 31, 1996............................................................. 1,077,658 $ 14.31
----------
----------
Available for grant, December 31, 1996..................................................... 1,313,393
----------
----------
Weighted average fair value of options granted during 1996................................. $ 13.56
Outstanding, December 31, 1996............................................................. 1,707,187 $ 19.70
Granted in 1997.......................................................................... 480,400 $ 40.49
Exercised in 1997........................................................................ (229,024) $ 16.83
----------
Outstanding, December 31, 1997............................................................. 1,958,563 $ 25.13
----------
----------
Exercisable, December 31, 1997............................................................. 1,196,803 $ 18.15
----------
----------
Available for grant, December 31, 1997..................................................... 832,993
----------
----------
Weighted average fair value of options granted during 1997................................. $ 14.63
Outstanding, December 31, 1997............................................................. 1,958,563 $ 19.70
Granted in 1998.......................................................................... 985,659 $ 19.62
Exercised in 1998........................................................................ (145,317) $ 6.87
Cancelled in 1998........................................................................ (334,748) $ 37.13
----------
Outstanding, December 31, 1998............................................................. 2,464,157 $ 19.37
----------
----------
Exercisable, December 31, 1998............................................................. 1,223,484 $ 19.00
----------
----------
Available for grant, December 31, 1998..................................................... 682,082
----------
----------
Weighted average fair value of options granted during 1998................................. $ 5.35
</TABLE>
61
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -----------------------
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
OPTION PRICES OUTSTANDING (DAYS) PRICE EXERCISABLE PRICE
- ------------------ ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 5.56 to $8.06 317,361 742 $ 6.84 317,361 $ 6.84
$ 12.31 4,000 3,531 $ 12.31 -- --
$ 15.13 to $19.56 1,057,625 3,025 $ 18.25 244,262 $ 16.74
$ 20.28 to $24.81 868,638 2,649 $ 21.39 479,738 $ 22.16
$ 25.38 to $29.06 49,962 3,386 $ 25.72 45,321 $ 25.39
$ 30.23 to $33.94 30,962 2,709 $ 33.75 20,321 $ 33.81
$ 35.13 to $36.00 53,109 2,656 $ 35.97 51,314 $ 35.98
$ 40.62 to $44.00 82,500 3,084 $ 41.00 65,167 $ 41.05
----------- ----------
Total 2,464,157 2,597 $ 19.37 1,223,484 $ 19.00
----------- ----------
----------- ----------
</TABLE>
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND CASH INVESTMENTS
Fair value is carrying value as no cash equivalents or cash investments are
included in the balances as of December 31, 1998 and 1997.
DEBT
<TABLE>
<CAPTION>
INSTRUMENT BASIS OF FAIR VALUE ESTIMATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Bank revolving credit agreement......................... Fair value is carrying value as of December 31, 1998 and
1997 based on the market value interest rates.
Uncommitted credit lines with banks and banker's
acceptance loans...................................... Fair value is carrying value as of December 31, 1998
based on the market value interest rates.
2007 Notes.............................................. Fair value is 94% and 102.5%, of carrying value as of
December 31, 1998 and 1997, respectively, based on
quoted market values.
2006 Notes.............................................. Fair value is 68.38% and 93.5%, of carrying value as of
December 31, 1998 and 1997, respectively, based on
quoted market values.
2004 Notes.............................................. Fair value is 140.38% of carrying value as of December
31, 1997 based on quoted market value.
</TABLE>
62
<PAGE>
POGO PRODUCING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 1998 and 1997, (in thousands of dollars) are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash investments.................................... $ 7,959 $ 7,959 $ 19,646 $ 19,646
Debt:
Bank revolving credit agreement............................ (205,000) (205,000) (47,000) (47,000)
Uncommitted credit lines with banks........................ (4,000) (4,000) -- --
Banker's acceptance loans.................................. (10,947) (10,947) -- --
2007 Notes................................................. (100,000) (94,000) (100,000) (102,500)
2006 Notes................................................. (115,000) (78,637) (115,000) (107,525)
2004 Notes................................................. -- -- (86,179) (120,978)
</TABLE>
The Company occasionally enters into forward and futures contracts to
minimize the impact of oil and gas price fluctuations. However, the Company does
not consider its forward and futures contracts to be financial instruments since
these contracts require or permit settlement by the delivery of the underlying
commodity. Gains and losses on these activities are recognized in revenues when
the hedged production occurs. No such contracts were outstanding as of December
31, 1998 or 1997.
(10) COMPREHENSIVE INCOME
During 1998, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). Currently there are no significant amounts to be included
in the computation of comprehensive income of the Company, as defined, that are
required to be disclosed under the provisions of SFAS 130. The Company did
report a foreign currency translation loss of $1,207,000 in 1998 which is
reflected as a reduction of shareholders' equity and represents less than 2% of
the Company's reported pretax loss for 1998. As such, total comprehensive income
(loss) and net income (loss) are materially the same for each of the three years
in the period ended December 31, 1998.
(11) IMPACT OF SFAS 133--
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair market value
and that changes in the derivative's fair market value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for the Company in 2000 but early adoption is allowed. The Company has
not yet quantified the impacts of adopting SFAS 133 or determined the timing or
method of adoption. However, SFAS 133 could increase volatility in earnings and
other comprehensive income should the Company enter into transactions covered by
this pronouncement.
63
<PAGE>
UNAUDITED SUPPLEMENTARY FINANCIAL DATA
OIL AND GAS PRODUCING ACTIVITIES
The results of operations from oil and gas producing activities excludes
non-oil and gas revenues, general and administrative expenses, interest charges,
interest income and interest capitalized. Income tax (expense) or benefit was
determined by applying the statutory rates to pre-tax operating results with
adjustments for permanent differences.
<TABLE>
<CAPTION>
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
----------- ---------- ----------- ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
-----------------------------------------------
Revenues.......................................................... $ 200,154 $ 163,438 $ 35,445 $ 1,271
Lease operating expense........................................... (68,883) (47,294) (20,913) (676)
Exploration expense............................................... (9,802) (8,835) (289) (678)
Dry hole and impairment expense................................... (41,736) (41,736) -- --
Depreciation, depletion and amortization expense.................. (109,288) (85,969) (22,753) (566)
----------- ---------- ----------- ---------
Pre-tax operating results......................................... (29,555) (20,396) (8,510) (649)
Income tax benefit................................................ 11,916 7,401 4,255 260
----------- ---------- ----------- ---------
Operating results................................................. $ (17,639) $ (12,995) $ (4,255) $ (389)
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
1997
-----------------------------------------------
Revenues.......................................................... $ 284,851 $ 245,458 $ 39,393 $ --
Lease operating expense........................................... (63,501) (43,934) (19,567) --
Exploration expense............................................... (10,530) (6,242) (4,288) --
Dry hole and impairment expense................................... (9,631) (9,631) -- --
Depreciation, depletion and amortization expense.................. (101,273) (84,443) (16,830) --
----------- ---------- ----------- ---------
Pre-tax operating results......................................... 99,916 101,208 (1,292) --
Income tax (expense) benefit...................................... (30,353) (32,390) 2,037 --
----------- ---------- ----------- ---------
Operating results................................................. $ 69,563 $ 68,818 $ 745 $ --
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
1996
-----------------------------------------------
Revenues.......................................................... $ 204,142 $ 204,131 $ 11 $ --
Lease operating expense........................................... (37,628) (37,628) -- --
Exploration expense............................................... (16,777) (14,247) (2,530) --
Dry hole and impairment expense................................... (8,579) (8,834) 255 --
Depreciation, depletion and amortization expense.................. (61,033) (60,932) (101) --
----------- ---------- ----------- ---------
Pre-tax operating results......................................... 80,125 82,490 (2,365) --
Income tax (expense) benefit...................................... (27,905) (28,767) 862 --
----------- ---------- ----------- ---------
Operating results................................................. $ 52,220 $ 53,723 $ (1,503) $ --
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
</TABLE>
64
<PAGE>
UNAUDITED SUPPLEMENTARY FINANCIAL DATA--(CONTINUED)
The following table sets forth the Company's costs incurred (expressed in
thousands) for oil and gas producing activities during the years indicated.
<TABLE>
<CAPTION>
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Costs incurred
(capitalized unless otherwise indicated):
1998:
Property acquisition..................................... $ 149,903 $ 144,031 $ -- $ 5,872
Exploration
Capitalized............................................ 36,465 24,685 11,631 149
Expensed............................................... 9,802 8,831 293 678
Development.............................................. 156,718 64,052 89,365 3,301
Interest................................................. 9,381 3,209 6,172 --
---------- ---------- ----------- ---------
$ 362,269 $ 244,808 $ 107,461 $ 10,000
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Provision for depreciation, depletion and amortization..... $ 109,288 $ 85,969 $ 22,753 $ 566
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
1997:
Property acquisition..................................... $ 43,109 $ 14,492 $ 28,617 $ --
Exploration
Capitalized............................................ 45,203 24,016 21,187 --
Expensed............................................... 10,530 6,242 4,288 --
Development.............................................. 156,764 95,768 60,996 --
Interest................................................. 6,079 3,331 2,748 --
---------- ---------- ----------- ---------
$ 261,685 $ 143,849 $ 117,836 $ --
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Provision for depreciation, depletion and amortization..... $ 101,273 $ 84,443 $ 16,830 $ --
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
1996:
Property acquisition..................................... $ 5,927 $ 5,927 $ -- $ --
Exploration
Capitalized............................................ 28,968 20,651 8,317 --
Expensed............................................... 16,777 14,258 2,519 --
Development.............................................. 153,028 99,464 53,564 --
Interest................................................. 4,244 4,244 -- --
---------- ---------- ----------- ---------
$ 208,944 $ 144,544 $ 64,400 $ --
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Provision for depreciation, depletion and amortization..... $ 61,033 $ 60,932 $ 101 $ --
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
</TABLE>
The following information regarding estimates of the Company's proved oil
and gas reserves, which are located offshore in United States waters of the Gulf
of Mexico, onshore in the United States and Canada and offshore in the Kingdom
of Thailand is based on reports prepared by Ryder Scott Company Petroleum
Engineers. The definitions and assumptions that serve as the basis for the
discussions under the caption "Item 1, Business--Exploration and Production
Data--Reserves" should be referred to in connection with the following
information.
65
<PAGE>
UNAUDITED SUPPLEMENTARY FINANCIAL DATA--(CONTINUED)
ESTIMATES OF PROVED RESERVES
<TABLE>
<CAPTION>
OIL, CONDENSATE AND NATURAL GAS LIQUIDS (BBLS.)
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Proved Reserves as of December 31, 1995....................... 45,182,002 26,185,010 18,996,992 --
Revisions of previous estimates............................. (499,595) 3,374,647 (3,874,242) --
Extensions, discoveries and other additions................. 9,810,363 3,601,333 6,209,030 --
Estimated 1996 production................................... (4,890,588) (4,890,588) -- --
----------- ----------- ----------- ---------
Proved Reserves as of December 31, 1996....................... 49,602,182 28,270,402 21,331,780 --
Revisions of previous estimates............................. 1,033,664 2,194,936 (1,161,272) --
Extensions, discoveries and other additions................. 9,316,407 4,649,856 4,666,551 --
Purchase of properties...................................... 5,175,501 409,428 4,766,073 --
Sale of properties.......................................... (6,155) (6,155) -- --
Estimated 1997 production................................... (6,957,246) (6,136,957) (820,289) --
----------- ----------- ----------- ---------
Proved Reserves as of December 31, 1997....................... 58,164,353 29,381,510 28,782,843 --
Revisions of previous estimates............................. (263,410) 1,316,467 (1,417,472) (162,405)
Extensions, discoveries and other additions................. 10,111,879 2,767,537 7,341,791 2,551
Purchase of properties...................................... 6,226,804 5,496,985 -- 729,819
Sale of properties.......................................... (28,024) (28,024) -- --
Estimated 1998 production................................... (6,702,038) (5,724,933) (896,200) (80,905)
----------- ----------- ----------- ---------
Proved Reserves as of December 31, 1998....................... 67,509,564 33,209,542 33,810,962 489,060
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
Proved Developed Reserves as of:
December 31, 1995........................................... 22,487,608 22,487,608 -- --
December 31, 1996........................................... 31,090,407 25,898,414 5,191,993 --
December 31, 1997........................................... 33,149,612 26,167,519 6,982,093 --
December 31, 1998........................................... 33,368,347 28,581,175 4,298,112 489,060
</TABLE>
<TABLE>
<CAPTION>
NATURAL GAS (MMCF)
<S> <C> <C> <C> <C>
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
--------- --------- ----------- ---------
Proved Reserves as of December 31, 1995................ 328,061 196,454 131,607 --
Revisions of previous estimates...................... (30,034) 3,022 (33,056) --
Extensions, discoveries and other additions.......... 102,039 55,592 46,447 --
Estimated 1996 production............................ (39,122) (39,122) -- --
--------- --------- ----------- ---------
Proved Reserves as of December 31, 1996................ 360,944 215,946 144,998 --
Revisions of previous estimates...................... (16,860) (5,582) (11,278) --
Extensions, discoveries and other additions.......... 92,063 49,651 42,412 --
Purchase of properties............................... 30,319 8,919 21,400 --
Sale of properties................................... (1,864) (1,864) -- --
Estimated 1997 production............................ (63,114) (50,350) (12,764) --
--------- --------- ----------- ---------
Proved Reserves as of December 31, 1997................ 401,488 216,720 184,768 --
Revisions of previous estimates...................... (13,376) 7,391 (17,943) (2,824)
Extensions, discoveries and other additions.......... 70,649 55,859 14,418 372
Purchase of properties............................... 38,689 32,259 -- 6,430
Sale of properties................................... (2,738) (2,738) -- --
Estimated 1998 production............................ (54,543) (41,136) (12,854) (553)
--------- --------- ----------- ---------
Proved Reserves as of December 31, 1998................ 440,169 268,355 168,389 3,425
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Proved Developed Reserves as of:
December 31, 1995.................................... 164,679 164,679 -- --
December 31, 1996.................................... 238,032 192,034 45,998 --
December 31, 1997.................................... 239,732 179,972 59,760 --
December 31, 1998.................................... 225,054 181,205 40,424 3,425
</TABLE>
66
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES--UNAUDITED
<TABLE>
<CAPTION>
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
------------ ------------ ----------- ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
--------------------------------------------------
Future gross revenues......................................... $ 1,624,242 $ 880,743 $ 732,942 $ 10,557
Future production costs:
Lease operating expense..................................... (540,332) (281,421) (255,252) (3,659)
Future development and abandonment costs...................... (331,607) (167,724) (163,680) (203)
------------ ------------ ----------- ---------
Future net cash flows before income taxes..................... 752,303 431,598 314,010 6,695
Discount at 10% per annum..................................... (257,077) (142,293) (113,413) (1,371)
------------ ------------ ----------- ---------
Discounted future net cash flow before income taxes........... 495,226 289,305 200,597 5,324
Future income taxes, net of discount at 10% per annum......... (72,505) (22,494) (52,132) 2,121
------------ ------------ ----------- ---------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves..................... $ 422,721 $ 266,811 $ 148,465 $ 7,445
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
1997
--------------------------------------------------
Future gross revenues......................................... $ 1,801,254 $ 1,002,609 $ 798,645 $ --
Future production costs:
Lease operating expense..................................... (604,665) (269,505) (335,160) --
Future development and abandonment costs...................... (401,970) (155,179) (246,791) --
------------ ------------ ----------- ---------
Future net cash flows before income taxes..................... 794,619 577,925 216,694 --
Discount at 10% per annum..................................... (331,838) (171,764) (160,074) --
------------ ------------ ----------- ---------
Discounted future net cash flow before income taxes........... 462,781 406,161 56,620 --
Future income taxes, net of discount at 10% per annum......... (113,316) (93,386) (19,930) --
------------ ------------ ----------- ---------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves..................... $ 349,465 $ 312,775 $ 36,690 $ --
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
1996
--------------------------------------------------
Future gross revenues......................................... $ 2,318,113 $ 1,491,057 $ 827,056 $ --
Future production costs:
Lease operating expense..................................... (504,899) (259,501) (245,398) --
Future development and abandonment costs...................... (310,839) (126,086) (184,753) --
------------ ------------ ----------- ---------
Future net cash flows before income taxes..................... 1,502,375 1,105,470 396,905 --
Discount at 10% per annum..................................... (547,830) (332,343) (215,487) --
------------ ------------ ----------- ---------
Discounted future net cash flow before income taxes........... 954,545 773,127 181,418 --
Future income taxes, net of discount at 10% per annum......... (268,505) (212,906) (55,599) --
------------ ------------ ----------- ---------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves..................... $ 686,040 $ 560,221 $ 125,819 $ --
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
</TABLE>
67
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES--UNAUDITED--CONTINUED
The standardized measure of discounted future net cash flows from the
production of proved reserves is developed as follows:
1. Estimates are made of quantities of proved reserves and the future
periods in which they are expected to be produced based on year end economic
conditions.
2. The estimated future gross revenues from proved reserves are priced on
the basis of year end prices, except in those instances where fixed and
determinable natural gas price escalations are covered by contracts.
3. The future gross revenue streams are reduced by estimated future costs
to develop and to produce the proved reserves, as well as certain abandonment
costs based on year end cost estimates, and the estimated effect of future
income taxes. These cost estimates are subject to some uncertainty, particularly
those estimates relating to the Company's properties located in the Kingdom of
Thailand.
The standardized measure of discounted future net cash flows does not
purport to present the fair market value of the Company's oil and gas reserves.
An estimate of fair value would also take into account, among other things, the
recovery of reserves in excess of proved reserves, anticipated future changes in
prices and costs, a discount factor more representative of the time value of
money and the risks inherent in reserve estimates.
The following are the principal sources of change in the standardized
measure of discounted future net cash flows. All amounts are related to changes
in reserves located in the United States,the Kingdom of Thailand, and Canada, as
noted.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND CANADA
----------- ----------- ----------- ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance................................................ $ 349,465 $ 312,775 $ 36,690 $ --
Revisions to prior years' proved reserves:
Net changes in prices and production costs..................... (165,355) (151,407) (13,948) --
Net changes due to revisions in quantity estimates............. 5,592 13,681 (8,089) --
Net changes in estimates of future development costs........... (10,777) (43,419) 32,642 --
Accretion of discount.......................................... 46,278 40,616 5,662 --
Changes in production rate and other........................... 1,649 (6,485) 7,539 595
----------- ----------- ----------- ---------
Total revisions.............................................. (122,613) (147,014) 23,806 595
New field discoveries and extensions, net of future production
and development costs.......................................... 101,142 55,418 45,338 386
Purchases of properties.......................................... 46,907 41,969 -- 4,938
Sales of properties.............................................. (17,158) (17,158) -- --
Sales of oil and gas produced, net of production costs........... (131,271) (116,144) (14,532) (595)
Previously estimated development costs incurred.................. 155,438 66,073 89,365 --
Net change in income taxes....................................... 40,811 70,892 (32,202) 2,121
----------- ----------- ----------- ---------
Net change in standardized measure of discounted future net
cash flows................................................. 73,256 (45,964) 111,775 7,445
----------- ----------- ----------- ---------
Ending balance................................................... $ 422,721 $ 266,811 $ 148,465 $ 7,445
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
68
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES--UNAUDITED--CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND
----------- ----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................................................... $ 686,040 $ 560,221 $ 125,819
Revisions to prior years' proved reserves:
Net changes in prices and production costs............................... (473,086) (344,493) (128,593)
Net changes due to revisions in quantity estimates....................... (18,624) 9,619 (28,243)
Net changes in estimates of future development costs..................... (83,170) (75,649) (7,521)
Accretion of discount.................................................... 95,455 77,313 18,142
Changes in production rate and other..................................... (31,132) (4,518) (26,614)
----------- ----------- -----------
Total revisions........................................................ (510,557) (337,728) (172,829)
New field discoveries and extensions, net of future production and
development costs........................................................ 79,258 76,687 2,571
Purchase of properties..................................................... 10,189 5,899 4,290
Sales of properties........................................................ (6,069) (6,069) --
Sales of oil and gas produced, net of production costs..................... (221,350) (201,524) (19,826)
Previously estimated development costs incurred............................ 156,764 95,768 60,996
Net change in income taxes................................................. 155,190 119,521 35,669
----------- ----------- -----------
Net change in standardized measure of discounted future net cash
flows................................................................ (336,575) (247,446) (89,129)
----------- ----------- -----------
Ending balance............................................................. $ 349,465 $ 312,775 $ 36,690
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------
TOTAL UNITED KINGDOM OF
COMPANY STATES THAILAND
----------- ----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................................................... $ 377,145 $ 295,981 $ 81,164
Revisions to prior years' proved reserves:
Net changes in prices and production costs............................... 304,233 289,182 15,051
Net changes due to revisions in quantity estimates....................... 6,717 53,708 (46,991)
Net changes in estimates of future development costs..................... (132,685) (79,791) (52,894)
Accretion of discount.................................................... 53,248 40,085 13,163
Changes in production rate and other..................................... (72,474) (38,593) (33,881)
----------- ----------- -----------
Total revisions........................................................ 159,039 264,591 (105,552)
New field discoveries and extensions, net of future production and
development costs........................................................ 275,738 173,962 101,776
Sales of properties........................................................ (165,736) (165,736) --
Previously estimated development costs incurred............................ 153,028 99,464 53,564
Net change in income taxes................................................. (113,174) (108,041) (5,133)
----------- ----------- -----------
Net change in standardized measure of discounted future net cash
flows................................................................ 308,895 264,240 44,655
----------- ----------- -----------
Ending balance............................................................. $ 686,040 $ 560,221 $ 125,819
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
69
<PAGE>
QUARTERLY RESULTS--UNAUDITED
Summaries of the Company's results of operations by quarter for the years
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- --------- ----------
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1998
Revenues............................................................. $ 60,730 $ 52,663 $ 46,179 $ 43,231
Gross profit (loss) (a).............................................. $ 8,621 $ 4,758 $ (3,908) $ (40,335)
Net income (loss).................................................... $ 184 $ (2,668) $ (8,322) $ (32,292)(b)
Earnings (loss) per share (c):
Basic.............................................................. $ 0.01 $ (0.07) $ (0.22) $ (0.80)
Diluted............................................................ $ 0.01 $ (0.07) $ (0.22) $ (0.80)
1997
Revenues............................................................. $ 61,314 $ 76,740 $ 77,177 $ 71,069
Gross profit (a)..................................................... $ 27,776 $ 23,953 $ 27,648 $ 20,104
Net income........................................................... $ 12,818 $ 9,174 $ 7,386 $ 7,738
Earnings per share (c):
Basic.............................................................. $ 0.38 $ 0.27 $ 0.22 $ 0.23
Diluted............................................................ $ 0.36 $ 0.26 $ 0.21 $ 0.22
</TABLE>
- ------------------------
(a) Represents revenues less lease operating, exploration, dry hole and
impairment, and depreciation depletion and amortization expenses.
(b) The net loss for the fourth quarter of 1998 includes an impairment charge of
approximately $24,500,000 resulting from poor reservoir performance and
persistent low oil and gas prices.
(c) The sum of the individual quarterly earnings (loss) per share may not agree
with year-to-date earnings (loss) per share as each quarterly computation is
based on the weighted average number of common shares outstanding during
that period.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
Not applicable.
70
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding nominees and continuing directors in the Company's
definitive Proxy Statement for its annual meeting to be held on April 27, 1999,
to be filed within 120 days of December 31, 1998 pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the Company's "1999 Proxy
Statement"), is incorporated herein by reference. See also Item S-K 401(b)
appearing in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information regarding executive compensation in the Company's 1999 Proxy
Statement, other than the information regarding the Compensation Committee
Report on Executive Compensation, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information regarding ownership of the Company securities by management
and certain other beneficial owners in the Company's 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain relationships and related transactions
with management in the Company's 1999 Proxy Statement in incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Supplementary Data, Financial Statement
Schedules and Exhibits
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
1. Financial Statements and Supplementary Data:
Report of Independent Public Accountants........................................... 41
Consolidated statements of income.................................................. 42
Consolidated balance sheets........................................................ 43
Consolidated statements of cash flows.............................................. 44
Consolidated statements of shareholders' equity.................................... 45
Notes to consolidated financial statements......................................... 46
Unaudited supplementary financial data............................................. 64
2. Financial Statement Schedules:
</TABLE>
All Financial Statement Schedules have been omitted because they are not
required, are not applicable or the information required has been included
elsewhere herein.
71
<PAGE>
3. Exhibits:
<TABLE>
<C> <C> <S>
*3.1 -- Restated Certificate of Incorporation of Pogo Producing Company. (Exhibit 3(a),
Annual Report on Form 10-K for the year ended December 31, 1997, File No.
1-7792).
*3.2 -- Certificate of Designation, Preferences and Rights of Preferred Stock of Pogo
Producing Company, dated March 25, 1987. (Exhibit 3(a)(1), Annual Report on Form
10-K for the year ended December 31, 1987, File No. 0-5468).
*3.3 -- Bylaws of Pogo Producing Company, as amended and restated through January 27, 1998
(Exhibit 3(b), Annual Report on Form 10-K for the year ended December 31,
1998,File No. 1-7792).
*4.1 -- Amended and Restated Credit Agreement dated as of August 1, 1997 among Pogo
Producing Company, certain commercial lending institutions, Bank of Montreal as
the Agent and Banque Paribas as the Co-Agent. (Exhibit 4(a), Quarterly Report on
Form 10-Q for the quarter ended, June 30, 1997, File No. 1-7792).
* 4.2 -- First Amendment dated as of December 21, 1998, to Amended and Restated Credit
Agreement dated as of August 1, 1997 among Pogo Producing Company, certain
commercial lending institutions, Bank of Montreal as the Agent and Banque
Paribas as the Co-Agent. (Exhibit 4.1, Amendment No. 1 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File No. 1-7792).
*4.3 -- Indenture dated as of June 15, 1996 to Fleet National Bank, as Trustee. (Exhibit
4(f), Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File
No. 001-7792).
*4.4 -- 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 (Exhibit 4.3, Registration Statement on Form
S-4, filed July 2, 1997, File No. 333-30613).
*4.5 -- Indenture dated as of January 15,1999 between Pogo Producing Company and State
Street Bank & Trust Company as Trustee (Exhibit 4.2, Registration Statement on
Form S-4, filed February 10, 1999, File No. 333-72129).
*4.6 -- Purchase Agreement dated January 12,1999 between Pogo Producing Company and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
Goldman, Sachs & Co. (Exhibit 4.1, Registration Statement on Form S-4, filed
February 10, 1999, File No. 333-72129).
*4.7 -- Registration Rights Agreement dated January 15,1999 among Pogo Producing Company
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
Goldman, Sachs & Co. (Exhibit 4.3, Registration Statement on Form S-4, filed
February 10, 1999, File No. 333-72129).
*4.8 -- Rights Agreement dated as of April 26, 1994 between Pogo Producing Company and
Harris Trust Company of New York, as Rights Agent. (Exhibit 4, Current Report on
Form 8-K filed April 26, 1994, File No. 1-7792).
*4.9 -- Certificate of Designations of Series A Junior Participating Preferred Stock of
Pogo Producing Company dated April 26, 1994. (Exhibit 4(d), Registration
Statement on Form S-8 filed August 9, 1994, File No. 33-54969).
Pogo Producing Company agrees to furnish to the Commission upon request a copy of
any agreement defining the rights of holders of long-term debt of Pogo Producing
Company and all its subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed under which the total amount of
securities authorized does not exceed 10% of the total assets of Pogo Producing
Company and its subsidiaries on a consolidated basis.
</TABLE>
72
<PAGE>
<TABLE>
<C> <C> <S>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (COMPRISING EXHIBITS 10.1 THROUGH
10.25, INCLUSIVE)
*10.1 -- 1989 Incentive and Nonqualified Stock Option Plan of Pogo Producing Company, as
amended and restated effective January 25, 1994. (Exhibit 99, Definitive Proxy
Statement on Schedule 14A, filed March 22, 1994, File No. 1-7792).
*10.2 -- Form of Stock Option Agreement under 1989 Incentive and Nonqualified Stock Option
Plan, as amended and restated effective January 22, 1991. (Exhibit 10(d)(1),
Annual Report on Form 10-K for the year ended December 31, 1991, File No.
0-5468).
*10.3 -- Form of Director Stock Option Agreement under 1989 Incentive and Nonqualified
Stock Option Plan as amended and restated effective January 22, 1991. (Exhibit
10(d)(2), Annual Report on Form 10-K for the year ended December 31, 1991, File
No. 0-5468).
*10.4 -- 1995 Long-Term Incentive Plan. (Exhibit 4(c), Registration Statement on Form S-8
filed May 22, 1996, File No. 333-04233).
10.5 -- 1998 Long-Term Incentive Plan.
*10.6 -- Executive Employment Agreement by and between Pogo Producing Company and Stuart P.
Burbach, dated February 1, 1996. (Exhibit 10(f)(1), Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 001-7792).
10.7 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and Stuart P. Burbach, dated effective February 1, 1999.
*10.8 -- Executive Employment Agreement by and between Pogo Producing Company and Jerry A.
Cooper, dated February 1, 1996. (Exhibit 10(f)(2), Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 001-7792).
10.9 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and Jerry A. Cooper, dated effective February 1, 1999.
*10.10 -- Executive Employment Agreement by and between Pogo Producing Company and Kenneth
R. Good, dated February 1, 1996. (Exhibit 10(f)(3), Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 001-7792).
10.11 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and Kenneth R. Good, dated effective February 1, 1999.
*10.12 -- Executive Employment Agreement by and between Pogo Producing Company and R.
Phillip Laney, dated February 1, 1996. (Exhibit 10(f)(4), Annual Report on Form
10-K for the year ended December 31, 1995, File No. 001-7792).
10.13 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and R. Phillip Laney, dated effective February 1, 1999.
*10.14 -- Executive Employment Agreement by and between Pogo Producing Company and John O.
McCoy, Jr., dated February 1, 1996. (Exhibit 10(f)(5), Annual Report on Form
10-K for the year ended December 31, 1995, File No. 001-7792).
10.15 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and John O. McCoy, Jr., dated effective February 1, 1999.
*10.16 -- Executive Employment Agreement by and between Pogo Producing Company and Paul G.
Van Wagenen, dated February 1, 1996. (Exhibit 10(f)(6), Annual Report on Form
10-K for the year ended December 31, 1995, File No. 001-7792).
10.17 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and Paul G. Van Wagenen, dated effective February 1, 1999.
*10.18 -- Executive Employment Agreement by and between Pogo Producing Company and Bruce E.
Archinal, dated as of February 1, 1998 (Exhibit 10(c)(7)(i), Annual Report on
Form 10-K for the year ended December 31, 1997, File No. 001-7792).
</TABLE>
73
<PAGE>
<TABLE>
<C> <C> <S>
10.19 -- Extension Agreement to Continue Executive Employment Agreement by and between Pogo
Producing Company and Bruce E. Archinal, dated effective February 1, 1999.
10.20 -- Executive Employment Agreement by and between Pogo Producing Company and David R.
Beathard, dated as of February 1, 1999.
10.21 -- Executive Employment Agreement by and between Pogo Producing Company and Stephen
R. Brunner, dated as of February 1, 1999.
10.22 -- Executive Employment Agreement by and between Pogo Producing Company and J. D.
McGregor, dated as of February 1, 1999.
10.23 -- Executive Employment Agreement by and between Pogo Producing Company and Gerald A.
Morton, dated as of February 1, 1999.
*10.24 -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Kenneth
R. Good, dated March 2, 1995. (Exhibit 10(g)(1), Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 001-7792).
*10.25 -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Paul G.
Van Wagenen, dated March 2, 1995. (Exhibit 10(g)(2), Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 001-7792).
10.26 -- Amended and Restated Bareboat Charter Agreement by and between Tantawan Services,
L.L.C. and Tantawan Production B.V., dated as of February 9,1996.
10.27 -- Bareboat Charter Agreement by and between Thaipo Limited, Thai Romo Limited,
Palang Sophon Limited, B8/32 Partners Limited and Watertight Shipping B.V. dated
as of August 24, 1998.
*10.28 -- Gas Sales Agreement dated November 7, 1995, among The Petroleum Authority of
Thailand, Thaipo, Limited, Thai Romo Ltd. and The Sophonpanich Co., Ltd.
(Exhibit 10(k), Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, File No. 001-7792).
*10.29 -- The First Amendment to the Gas Sales Agreement dated November 12, 1997, among The
Petroleum Authority of Thailand, B8/32 Partners Limited, Thaipo, Limited, Thai
Romo Limited and Palang Sophon Limited (Exhibit 10(g)(ii), Annual Report on Form
10-K for the year ended December 31, 1998, File No. 001-7792).
21 -- List of Subsidiaries of Pogo Producing Company.
23.1 -- Consent of Independent Public Accountants.
23.2 -- Consent of Independent Petroleum Engineers.
24 -- Powers of Attorney from each Director of Pogo Producing Company whose signature is
affixed to this Form 10-K for the year ended December 31, 1998.
27 -- Financial Data Schedule.
</TABLE>
* Asterisk indicates exhibits incorporated by reference as shown.
(b) Reports on Form 8-K
None
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
POGO PRODUCING COMPANY
(REGISTRANT)
By: /s/ PAUL G. VAN WAGENEN
-----------------------------------------
Paul G. Van Wagenen
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Date: February 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on February 26, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ --------------------------
<S> <C>
/s/ PAUL G. VAN WAGENEN
- ------------------------------
Paul G. Van Wagenen Principal Executive
CHAIRMAN OF THE BOARD, Officer and Director
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
/s/ JOHN W. ELSENHANS
- ------------------------------
John W. Elsenhans Principal Financial
VICE PRESIDENT AND CHIEF Officer
FINANCIAL OFFICER
/s/ THOMAS E. HART
- ------------------------------ Principal Accounting
Thomas E. Hart Officer
VICE PRESIDENT AND CONTROLLER
JERRY M. ARMSTRONG*
- ------------------------------ Director
Jerry M. Armstrong
TOBIN ARMSTRONG*
- ------------------------------ Director
Tobin Armstrong
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ --------------------------
<S> <C>
JACK S. BLANTON*
- ------------------------------ Director
Jack S. Blanton
W. M. BRUMLEY, JR.*
- ------------------------------ Director
W. M. Brumley, Jr.
JOHN B. CARTER, JR.*
- ------------------------------ Director
John B. Carter, Jr.
WILLIAM L. FISHER*
- ------------------------------ Director
William L. Fisher
GERRIT W. GONG*
- ------------------------------ Director
Gerrit W. Gong
J. STUART HUNT*
- ------------------------------ Director
J. Stuart Hunt
FREDERICK A. KLINGENSTEIN*
- ------------------------------ Director
Frederick A. Klingenstein
JACK A. VICKERS*
- ------------------------------ Director
Jack A. Vickers
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ THOMAS E. HART
-------------------------
Thomas E. Hart
ATTORNEY-IN-FACT
</TABLE>
76
<PAGE>
1998 INCENTIVE PLAN
OF
POGO PRODUCING COMPANY
1. OBJECTIVES. The Pogo Producing Company 1998 Incentive Plan (the
"Plan") is designed to retain key employees, to encourage the sense of
proprietorship of such employees and to stimulate the active interest of such
persons in the development and financial success of Pogo Producing Company, a
Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under the
Plan and thereby providing Participants (as hereinafter defined) with a
proprietary interest in the growth and performance of the Company and its
Subsidiaries.
2. DEFINITIONS. As used herein, the terms set forth below shall
have the following respective meanings:
"Award" means the grant of any form of nonqualified stock option or
stock appreciation right, stock award or cash award, whether granted singly, in
combination or in tandem, to a Participant who is an employee pursuant to any
applicable terms, conditions and limitations as the Committee may establish in
order to fulfill the objectives of the Plan.
"Award Agreement" means a written agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
an Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan.
"Common Stock" means the Common Stock, par value $1.00 per share, of
the Company.
"Fair Market Value" means, as of a particular date, (i) if shares of
Common Stock are listed on a national securities exchange, the mean between the
highest and lowest sales price per share of Common Stock on the consolidated
transaction reporting system for the principal such national securities exchange
on that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported, (ii) if
shares of Common Stock are not so listed but are quoted on the NASDAQ National
Market System, the mean between the highest and lowest sales price per share of
Common Stock on the NASDAQ National Market System on that
-1-
<PAGE>
date, or, if there shall have been no such sale so reported on that date, on
the last preceding date on which such a sale was so reported or (iii) if the
Common Stock is not so listed or quoted, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such
date, on the last preceding date on which such quotations shall be available,
as reported by NASDAQ, or, if not reported by NASDAQ, by the National
Quotation Bureau, Inc.
"Participant" means an employee of the Company or any of its
Subsidiaries to whom an Award has been made under this Plan.
"Subsidiary" means any corporation of which the Company directly or
indirectly owns shares representing more than 50% of the voting power of all
classes or series of capital stock of such corporation which have the right to
vote generally on matters submitted to a vote of the shareholders of such
corporation.
3. ELIGIBILITY. Key employees of the Company and its Subsidiaries
eligible for an Award under this Plan are those who hold positions of
responsibility and whose performance, in the judgment of the Committee, can have
a significant effect on the success of the Company and its Subsidiaries.
4. COMMON STOCK AVAILABLE FOR AWARDS. There shall be available for
Awards granted wholly or partly in Common Stock (including rights or options
which may be exercised for or settled in Common Stock) during the term of this
Plan an aggregate of 500,000 shares of Common Stock. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file required documents with governmental authorities
and stock exchanges and transaction reporting systems to make shares of Common
Stock available for issuance pursuant to Awards. Common Stock related to Awards
that are forfeited or terminated, expire unexercised, are settled in cash in
lieu of Stock or in a manner such that all or some of the shares covered by an
Award are not issued to a Participant, or are exchanged for Awards that do not
involve Common Stock, shall immediately become available for Awards hereunder.
The Committee may from time to time adopt and observe such procedures concerning
the counting of shares against the Plan maximum as it may deem appropriate.
5. ADMINISTRATION. This Plan shall be administered by the
Committee, which shall have full and exclusive power to interpret this Plan and
to adopt such rules, regulations and guidelines for carrying out this Plan as it
may deem necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee shall consist of at least two members of the Board. The Committee
may, in its discretion, provide for the extension of the exercisability of an
Award, accelerate the vesting or exercisability of an Award, eliminate or make
less restrictive any restrictions contained in an Award, waive any restriction
or other provision of this Plan or an Award or otherwise amend or modify an
Award in any manner that is either (i) not adverse to the Participant holding
such Award or (ii) consented to by such Participant. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in this Plan or
in any Award in the manner and to the extent the Committee deems necessary
-2-
<PAGE>
or desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee or officer of the Company to whom it
has delegated authority in accordance with the provisions of Paragraph 6 of
this Plan shall be liable for anything done or omitted to be done by him or
her, by any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan.
6. DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
7. AWARDS. The Committee shall determine the type or types of
Awards to be made to each Participant under this Plan. Each Award made
hereunder shall be embodied in an Award Agreement, which shall contain such
terms, conditions and limitations as shall be determined by the Committee in its
sole discretion and shall be signed by the Participant and by the Chief
Executive Officer or the Chief Administrative Officer of the Company for and on
behalf of the Company. Awards may consist of those listed in this Paragraph 7
and may be granted singly, in combination or in tandem. Awards may also be made
in combination or in tandem with, in replacement of, or as alternatives to,
grants or rights under this Plan or any other employee plan of the Company or
any of its Subsidiaries, including the plan of any acquired entity. An Award
may provide for the granting or issuance of additional, replacement or
alternative Awards upon the occurrence of specified events, including the
exercise of the original Award granted to a Participant.
(a) STOCK OPTION. An Award may consist of a right to purchase a
specified number of shares of Common Stock at a specified price that is not
less than the greater of (i) 50% of the Fair Market Value of the Common
Stock on the date of grant and (ii) the par value of the Common Stock on
the date of grant.
(b) STOCK APPRECIATION RIGHT. An Award may consist of a right to
receive a payment, in cash or Common Stock, equal to the excess of the Fair
Market Value or other specified valuation of a specified number of shares
of Common Stock on the date the stock appreciation right ("SAR") is
exercised over a specified strike price, as set forth in the applicable
Award Agreement.
(c) STOCK AWARD. An Award may consist of Common Stock or may be
denominated in units of Common Stock. All or part of any stock award may
be subject to conditions established by the Committee, and set forth in the
Award Agreement, which may include, but are not limited to, continuous
service with the Company and its Subsidiaries, achievement of specific
business objectives, increases in specified indices, attaining specified
growth rates and other comparable measurements of performance. Such Awards
may be based on Fair Market Value or other specified valuations. The
certificates evidencing shares of Common Stock issued in connection with a
stock award shall contain appropriate legends and restrictions describing
the terms and conditions of the restrictions applicable thereto. As
-3-
<PAGE>
used herein, "Restricted Stock" means Common Stock that is restricted or
subject to forfeiture provisions.
(d) CASH AWARD. An Award may be denominated in cash with the amount
of the eventual payment subject to future service and such other
restrictions and conditions as may be established by the Committee, and set
forth in the Award Agreement, including, but not limited to, continuous
service with the Company and its Subsidiaries, achievement of specific
business objectives, increases in specified indices, attaining specified
growth rates and other comparable measurements of performance.
8. PAYMENT OF AWARDS.
(a) GENERAL. Payment of Awards may be made in the form of cash or
Common Stock or combinations thereof and may include such restrictions as
the Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions.
(b) DEFERRAL. With the approval of the Committee, payments in
respect of Awards may be deferred, either in the form of installments or a
future lump sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance with
procedures established by the Committee. Any deferred payment, whether
elected by the Participant or specified by the Award Agreement or by the
Committee, may be forfeited if and to the extent that the Award Agreement
so provides.
(c) DIVIDENDS AND INTEREST. Dividends or dividend equivalent rights
may be extended to and made part of any Award denominated in Common Stock
or units of Common Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
Common Stock or units of Common Stock.
(d) SUBSTITUTION OF AWARDS. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type.
9. STOCK OPTION EXERCISE. The price at which shares of Common Stock
may be purchased under a stock option shall be paid in full at the time of
exercise in cash or, if elected by the optionee, the optionee may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or any combination thereof. The Committee shall determine acceptable methods
for tendering Common Stock or other Awards to exercise a stock option as it
deems appropriate. If permitted by the Committee, payment may be made by
successive exercises by the Participant. The Committee may provide for loans
from the Company to an employee to permit the exercise or purchase of
-4-
<PAGE>
Awards and may provide for procedures to permit the exercise or purchase of
Awards by use of the proceeds to be received from the sale of Common Stock
issuable pursuant to an Award. Unless otherwise provided in the applicable
Award Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of a stock option, a number of the shares
issued upon the exercise of the stock option, equal to the number of shares
of Restricted Stock used as consideration therefor, shall be subject to the
same restrictions as the Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee.
10. TAX WITHHOLDING. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, an appropriate amount
of cash or number of shares of Common Stock or a combination thereof for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
11. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION. The Board
may amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would impair the rights of
any Participant under any Award previously granted to such Participant shall be
made without such Participant's consent.
12. TERMINATION OF EMPLOYMENT. Upon the termination of employment by
a Participant, any unexercised, deferred or unpaid Awards shall be treated as
provided in the specific Award Agreement evidencing the Award. In the event of
such a termination, the Committee may, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions
contained in an Award, waive any restriction or other provision of this Plan or
an Award or otherwise amend or modify the Award in any manner that is either (i)
not adverse to such Participant or (ii) consented to by such Participant.
13. ASSIGNABILITY. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this Paragraph 13
shall be null and void.
-5-
<PAGE>
14. ADJUSTMENTS.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock (whether or not such issue is prior to,
on a parity with or junior to the Common Stock) or Common Stock or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of outstanding
shares of Common Stock, then (i) the number of shares of Common Stock
reserved under this Plan and covered by outstanding Awards denominated in
Common Stock or units of Common Stock, (ii) the exercise or other price in
respect of such Awards and (iii) the appropriate Fair Market Value and
other price determinations for such Awards hereof shall each be
proportionately adjusted by the Board to reflect such transaction. In the
event of any consolidation or merger of the Company with another
corporation or entity, or the adoption by the Company of a plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock
of securities or property (other than normal cash dividends or dividends
payable in Common Stock), the Board shall make appropriate adjustments to
(i) the number of shares of Common Stock reserved under this Plan and
covered by outstanding Awards denominated in Common Stock or units of
Common Stock, (ii) the exercise or other price in respect of such Awards
and (iii) the appropriate Fair Market Value and other price determinations
for such Awards to give effect to such transaction; provided that such
adjustments shall only be such as necessary to maintain the proportionate
interest of the holders of the Awards and preserve, without exceeding, the
value of such Awards. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume Awards by
means of substitution of new Awards, as appropriate, for previously issued
Awards or an assumption of previously issued Awards as part of such
adjustment.
15. RESTRICTIONS. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan may be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed and any applicable federal
-6-
<PAGE>
and state securities laws. The Committee may cause a legend or legends to be
placed upon any such certificates to make appropriate reference to such
restrictions.
16. UNFUNDED PLAN. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company nor the Board nor the Committee be deemed to
be a trustee of any cash, Common Stock or rights thereto to be granted under
this Plan. Any liability or obligation of the Company to any Participant with
respect to a grant of cash, Common Stock or rights thereto under this Plan shall
be based solely upon any contractual obligations that may be created by this
Plan and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.
17. GOVERNING LAW. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
18. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of
October 27, 1998, the date (the "Effective Date") it was approved by the Board.
19. PERMITTED TRANSFERS. The Committee may, in its discretion,
authorize all or a portion of the Awards to be granted to a Participant to be on
terms which permit transfer by such Participant to the following "Permitted
Assignees:"
(a) any person who is a sibling of a Participant, a Parent of a
Participant, or the spouse of Participant or a descendant of
Participant, including any person adopted by Participant or by any of
Participant's descendants, and including the descendants of any such
adopted person, provided that the adoption is completed before the
adopted person is eighteen years of age;
(b) the trustees of any trust holding properties with respect to
which Permitted Assignees and Participant actuarially comprise more
than seventy-five percent (75%) of the beneficial ownership at the
time of the assignment, determined as provided below; and
-7-
<PAGE>
(c) any corporation or other business entity which is wholly
owned by Permitted Assignees and Participant at the time of the
assignment (directly or indirectly).
In making the determination whether Permitted Assignees actuarially comprise
more than seventy-five percent (75%) of the beneficial ownership of properties
held in a trust at the time of an assignment to the trustees of the trust, the
following beneficial interests in the trust shall be ignored:
(a) any beneficial interest of a person who is lawfully married
to a Permitted Assignee at the time of the assignment or who had been
married to a Permitted Assignee at the time of the Permitted
Assignee's death and has not remarried at the time of the assignment;
and
(b) any beneficial interest represented by the existence of any
power of appointment over the trust properties, even though the actual
exercise of the power of appointment may constitute an assignment.
The beneficial interests which are not ignored as provided above (the "Relevant
Interests") shall be divided into two categories, those which are held for
Permitted Assignees and those which are not, and each category shall be valued
as provided under section 2512(a) of the Internal Revenue Code of 1986, as
amended, as if the beneficial interests were then assigned, even if those
interests are not assignable. Permitted Assignees shall be deemed to comprise
more than seventy-five percent (75%) of the beneficial ownership of properties
held in a trust at the time of an assignment to the trustees of the trust if the
value of the Relevant Interests which are held for Permitted Assignees is more
than three times the value of the Relevant Interests which are not held for
Permitted Assignees.
Notwithstanding the foregoing, (x) there may be no consideration for any such
transfer, (y), if applicable, the Award Agreement pursuant to which such
Award is granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Paragraph 19,
and (z) subsequent transfers of transferred Awards, shall be prohibited
except those in accordance with Paragraph 13. Following transfer, any such
Awards shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that (i) in the event of
termination of employment, Paragraph 12 hereof shall continue to be applied
with respect to the original Participant, following which the Awards shall be
exercisable by the transferee only to the extent, and for the periods
specified in the Paragraph 12 and the applicable Award Agreement, (ii) the
original Participant shall remain subject to the withholding tax provisions
of Paragraph 10, and (iii) the Company shall have no duty or obligation to
provide notice to a transferee of any action or event affecting the rights of
the transferee under the Plan including, without limitation, any amendment,
modification, suspension or termination of the Plan pursuant to Paragraph 11,
the early termination of an Award pursuant to Paragraph 12, or adjustments to
the amount of the Awards pursuant to Paragraph 14.
-8-
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN STUART P. BURBACH ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an
"Employment Agreement" bearing an original "Effective Date" of February 1,
1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby
deemed to be the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said
Employment Agreement for an additional one-year period so as to terminate
(unless further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of
Executive for the benefit of Company and its shareholders, and desires to
induce Executive to remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an
employee of Company for the period specified herein from and after the date
of this Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this
Extension Agreement in order to formally secure for Company the benefit of
the experience and abilities of Executive, and to set forth the agreements
and understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and
performance of this Extension Agreement by Company has been duly authorized
and approved by all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and agreements herein contained, and in consideration of the
sum of $10 paid by Company to Executive, receipt whereof is hereby
acknowledged by Executive, Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company
bearing an "Effective Date" of February 1, 1996 and a "Renewal Date" which is
deemed herein to be February 1, 1999, is hereby extended for an additional
one-year period commencing February 1, 1999 and ending January 31, 2001,
unless such employment period is hereafter further extended for an additional
period by both Executive and Company.
2. All provisions of the Employment Agreement between
Executive and Company dated as of February 1, 1996, and as it is herein
amended, are continued in full force and effect without change as if the
Employment Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /s/ JOHN O. MCCOY, JR.
----------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/s/ JOE ANN KINGDON
- -------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ STUART P. BURBACH
---------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN JERRY A. COOPER ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an
"Employment Agreement" bearing an original "Effective Date" of February 1,
1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby
deemed to be the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said
Employment Agreement for an additional one-year period so as to terminate
(unless further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of
Executive for the benefit of Company and its shareholders, and desires to
induce Executive to remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an
employee of Company for the period specified herein from and after the date
of this Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this
Extension Agreement in order to formally secure for Company the benefit of
the experience and abilities of Executive, and to set forth the agreements
and understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and
performance of this Extension Agreement by Company has been duly authorized
and approved by all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and agreements herein contained, and in consideration of the
sum of $10 paid by Company to Executive, receipt whereof is hereby
acknowledged by Executive, Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company
bearing an "Effective Date" of February 1, 1996 and a "Renewal Date" which is
deemed herein to be February 1, 1999, is hereby extended for an additional
one-year period commencing February 1, 1999 and ending January 31, 2001,
unless such employment period is hereafter further extended for an additional
period by both Executive and Company.
2. All provisions of the Employment Agreement between
Executive and Company dated as of February 1, 1996, and as it is herein
amended, are continued in full force and effect without change as if the
Employment Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /s/ JOHN O. MCCOY, JR.
----------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/s/ JOE ANN KINGDON
- -------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ JERRY A. COOPER
-------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN KENNETH R. GOOD ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an "Employment
Agreement" bearing an original "Effective Date" of February 1, 1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby deemed to
be the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said Employment
Agreement for an additional one-year period so as to terminate (unless
further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of Executive for
the benefit of Company and its shareholders, and desires to induce Executive
to remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an employee
of Company for the period specified herein from and after the date of this
Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this Extension
Agreement in order to formally secure for Company the benefit of the
experience and abilities of Executive, and to set forth the agreements and
understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and
performance of this Extension Agreement by Company has been duly authorized
and approved by all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and in consideration of the sum of
$10 paid by Company to Executive, receipt whereof is hereby acknowledged by
Executive, Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company bearing
an "Effective Date" of February 1, 1996 and a "Renewal Date" which is deemed
herein to be February 1, 1999, is hereby extended for an additional one-year
period commencing February 1, 1999 and ending January 31, 2001, unless such
employment period is hereafter further extended for an additional period by
both Executive and Company.
2. All provisions of the Employment Agreement between Executive
and Company dated as of February 1, 1996, and as it is herein amended, are
continued in full force and effect without change as if the Employment
Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /s/ JOHN O. MCCOY, JR.
-----------------------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/s/ JOE ANN KINGDON
- -----------------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ KENNETH R. GOOD
-------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN RADFORD P. LANEY ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an "Employment
Agreement" bearing an original "Effective Date" of February 1, 1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby deemed to
be the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said Employment
Agreement for an additional one-year period so as to terminate (unless
further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of Executive for
the benefit of Company and its shareholders, and desires to induce Executive
to remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an employee
of Company for the period specified herein from and after the date of this
Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this Extension
Agreement in order to formally secure for Company the benefit of the
experience and abilities of Executive, and to set forth the agreements and
understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and
performance of this Extension Agreement by Company has been duly authorized
and approved by all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and in consideration of the sum of
$10 paid by Company to Executive, receipt whereof is hereby acknowledged by
Executive, Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company bearing
an "Effective Date" of February 1, 1996 and a "Renewal Date" which is deemed
herein to be February 1, 1999, is hereby extended for an additional one-year
period commencing February 1, 1999 and ending January 31, 2001, unless such
employment period is hereafter further extended for an additional period by
both Executive and Company.
2. All provisions of the Employment Agreement between Executive
and Company dated as of February 1, 1996, and as it is herein amended, are
continued in full force and effect without change as if the Employment
Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /s/ JOHN O. MCCOY, JR.
-----------------------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/s/ JOE ANN KINGDON
- -----------------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ RADFORD P. LANEY
--------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN JOHN O. MCCOY, JR. ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an "Employment Agreement"
bearing an original "Effective Date" of February 1, 1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby deemed to be
the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said Employment
Agreement for an additional one-year period so as to terminate (unless
further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of Executive for the
benefit of Company and its shareholders, and desires to induce Executive to
remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an employee of
Company for the period specified herein from and after the date of this
Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this Extension
Agreement in order to formally secure for Company the benefit of the
experience and abilities of Executive, and to set forth the agreements and
understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and performance of
this Extension Agreement by Company has been duly authorized and approved by
all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements herein contained, and in consideration of the sum of $10 paid
by Company to Executive, receipt whereof is hereby acknowledged by Executive,
Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company bearing an
"Effective Date" of February 1, 1996 and a "Renewal Date" which is deemed
herein to be February 1, 1999, is hereby extended for an additional one-year
period commencing February 1, 1999 and ending January 31, 2001, unless such
employment period is hereafter further extended for an additional period by
both Executive and Company.
2. All provisions of the Employment Agreement between Executive and
Company dated as of February 1, 1996, and as it is herein amended, are
continued in full force and effect without change as if the Employment
Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /s/ PAUL G. VAN WAGENEN
-------------------------------
Chairman, President and Chief
Executive Officer
ATTEST:
/s/ JOE ANN KINGDON
- -------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ JOHN O. MCCOY, JR.
----------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN PAUL G. VAN WAGENEN ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an "Employment Agreement"
bearing an original "Effective Date" of February 1, 1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby deemed to be
the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said Employment
Agreement for an additional one-year period so as to terminate (unless
further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of Executive for the
benefit of Company and its shareholders, and desires to induce Executive to
remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an employee of
Company for the period specified herein from and after the date of this
Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this Extension
Agreement in order to formally secure for Company the benefit of the
experience and abilities of Executive, and to set forth the agreements and
understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and performance of
this Extension Agreement by Company has been duly authorized and approved by
all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements herein contained, and in consideration of the sum of $10 paid
by Company to Executive, receipt whereof is hereby acknowledged by Executive,
Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company bearing an
"Effective Date" of February 1, 1996 and a "Renewal Date" which is deemed
herein to be February 1, 1999, is hereby extended for an additional one-year
period commencing February 1, 1999 and ending January 31, 2001, unless such
employment period is hereafter further extended for an additional period by
both Executive and Company.
2. All provisions of the Employment Agreement between Executive and
Company dated as of February 1, 1996, and as it is herein amended, are
continued in full force and effect without change as if the Employment
Agreement had been initially effective as of February 1, 1999.
POGO PRODUCING COMPANY
By: /S/ JOHN O. MCCOY, JR.
------------------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/S/ JOE ANN KINGDON
- -------------------
Assistant Corporate Secretary
EMPLOYEE:
/S/ PAUL G. VAN WAGENEN
-----------------------
<PAGE>
EXTENSION AGREEMENT TO CONTINUE EMPLOYMENT AGREEMENT
BETWEEN BRUCE E. ARCHINAL ("EXECUTIVE") AND
POGO PRODUCING COMPANY, A DELAWARE CORPORATION ("COMPANY"),
DATED EFFECTIVE FEBRUARY 1, 1999
WHEREAS, Executive and Company are parties to an "Employment Agreement"
bearing an original "Effective Date" of February 1, 1996; and
WHEREAS, February 1, 1999, (even date herewith) is hereby deemed to be
the "Renewal Date" in that Employment Agreement; and
WHEREAS, Executive and Company each wish to extend said Employment
Agreement for an additional one-year period so as to terminate (unless
further extended) two years thereafter, (to-wit January 31, 2001); and
WHEREAS, Company desires to retain the services of Executive for the
benefit of Company and its shareholders, and desires to induce Executive to
remain in its employ for that extended time period; and
WHEREAS, Executive has agreed to continue to serve as an employee of
Company for the period specified herein from and after the date of this
Extension Agreement; and
WHEREAS, Company and Executive desire to enter into this Extension
Agreement in order to formally secure for Company the benefit of the
experience and abilities of Executive, and to set forth the agreements and
understandings of Company and Executive; and
WHEREAS, Company has advised Executive that execution and performance of
this Extension Agreement by Company has been duly authorized and approved by
all requisite corporate action on the part of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements herein contained, and in consideration of the sum of $10 paid
by Company to Executive, receipt whereof is hereby acknowledged by Executive,
Executive and Company do hereby agree as follows:
1. The Employment Agreement between Executive and Company bearing an
"Effective Date" of February 1, 1996 and a "Renewal Date" which is deemed
herein to be February 1, 1999, is hereby extended for an additional one-year
period commencing February 1, 1999 and ending January 31, 2001, unless such
employment period is hereafter further extended for an additional period by
both Executive and Company.
2. All provisions of the Employment Agreement between Executive and
Company dated as of February 1, 1996, and as it is herein amended, are
continued in full force and effect without change as if the Employment
Agreement had been initially effective as of February 1, 1999.
Pogo Producing Company
By: /s/ JOHN O. MCCOY, JR.
------------------------------
Senior Vice President and
Chief Administrative Officer
ATTEST:
/s/ JOE ANN KINGDON
- -------------------
Assistant Corporate Secretary
EMPLOYEE:
/s/ BRUCE E. ARCHINAL
---------------------
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware
corporation (the "Company") and DAVID R. BEATHARD (the "Executive"), dated
as of the 1st day of February, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication of
the Executive, and to provide the Executive with compensation and benefits
arrangements which are competitive with those of other corporations and which
ensure that the compensation and benefits expectations of the Executive will
be satisfied. The Board also believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control,
and to insure the continuation of favorable compensation and benefits upon a
Change of Control. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the
date of this Agreement.
(b) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the second anniversary of such date;
provided, however, that on each annual anniversary of the Effective Date (the
"Renewal Date"), the Employment Period shall be reviewed, to determine
whether, in the discretion of the Company, it should be extended for one
additional year so as to terminate two years from such Renewal Date. Any
such one year extension shall be effective only if, prior to the Renewal
Date, the Company shall give notice to the Executive that the Employment
Period shall be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities").
<PAGE>
Notwithstanding anything in this Agreement to the contrary, the
following shall not constitute a Change of Control:
(i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company, or
(iv) any acquisition by State Farm Mutual Automobile
Insurance Company and certain affiliates ("State Farm") or Klingenstein,
Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial
ownership of Outstanding Company Voting Securities resulting in an
accumulation of said securities up to and including the following amounts:
A. In the case of State Farm, 30% of Outstanding
Voting Securities, and
B. In the case of Klingenstein, 30% of Outstanding
Voting Securities, or
(v) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who where the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership,
-2-
<PAGE>
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Voting Securities, as the case may be]
beneficially owns, directly or indirectly, 20% or more, respectively, of the
then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting power of
the then outstanding voting securities of such corporation, entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation with respect to which following such sale or other
disposition (A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities, as
the case may be] beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
where members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
3. EMPLOYMENT AGREEMENT. The Company hereby agrees to continue
the Executive in its employ in accordance with the terms and provisions of
this Agreement, for the Employment Period.
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
90-day period immediately preceding the later of the Effective Date, the most
recent Renewal Date or a Change of Control, if any, (the "Applicable Date")
and (B) the Executive's services shall be performed at the
-3-
<PAGE>
location where the Executive was employed immediately preceding the
Applicable Date or any office which is the headquarters of the Company and is
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement; provided Executive may not serve on the board of a publicly
traded for profit corporation or similar body of a publicly traded for profit
business organized in other than corporate form without the consent of the
Compensation Committee of the Board of Directors of the Company. It is
expressly understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Applicable Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Applicable Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by
the Company and its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Applicable Date occurs.
During the Employment Period, the Annual Base Salary shall be reviewed at
least annually and may be increased at any time and from time to time as
shall be substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with
the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary,
the Executive may be awarded at the discretion of the Company for any fiscal
year ending during the Employment Period, a bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other executives of the Company and its affiliated
companies. Such plans, practices, policies and programs shall provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, equal to the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Applicable Date.
-4-
<PAGE>
(iv) WELFARE BENEFIT PLANS. During the Employment
Period, the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the
Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other executives of the Company and its
affiliated companies. Such plans, practices, policies and programs shall
provide the Executive with benefits which are equal, in the aggregate, to the
most favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 90-day period immediately preceding the
Applicable Date.
(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
(vi) FRINGE BENEFITS. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Applicable Date.
(viii) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(c) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by
-5-
<PAGE>
the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to
be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material violation by the Executive of
the Executive's obligations under Section 4(a) of this Agreement (other than
as a result of incapacity due to physical or mental illness) which is willful
and deliberate on the Executive's part, which is committed in bad faith or
without reasonable belief that such violation is in the best interests of the
Company and which is not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such violation or (ii)
the conviction of the Executive of a felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD; OTHER TERMINATIONS. The
Executive's employment may be terminated (i) during the Employment Period by
the Executive for Good Reason, (ii) during the Window Period by the Executive
without any reason or (iii) by Executive other than (A) for Good Reason or
(B) during a Window Period.
For purposes of this Agreement, the "Window Period" shall mean
the 180-day period immediately following the date a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the request of a
third party who has taken steps reasonably calculated to effect the Change of
Control or (ii) otherwise arose in connection with or anticipation of the
Change of Control, then for all purposes of this Agreement the "date a Change
of Control occurs" shall mean the date immediately prior to the date of such
termination of employment or cessation of status as an officer.
For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities excluding for this purpose an insubstantial or inadvertent
action which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an insubstantial or
inadvertent failure which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
-6-
<PAGE>
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company
for Cause, or by the Executive without any reason during the Window Period or
for Good Reason, shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(c) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's right hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination, (iii) if the
Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be, and (iv) if the Executive's
employment is terminated by the Executive other than for Good Reason or
during a Window Period, the date of the receipt of the Notice of Termination
or any later date specified therein.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR
CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid and (2)
any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
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B. the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the product of (1) three and
(2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus
described in Section 4(b)(ii) paid or payable in respect of the most recently
completed fiscal year of the Company; and, provided further, that such amount
shall be reduced by the present value (determined as provided in Section
280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of
any other amount of severance relating to salary or bonus continuation to be
received by the Executive upon termination of employment of the Executive
under any severance plan, severance policy or severance arrangement of the
Company; and
C. a separate lump sum supplemental retirement benefit
equal to the difference between (1) the actuarial equivalent (utilizing for
this purpose the actuarial assumptions utilized with respect to the Employees
Retirement Plan for Pogo Producing Company (or any successor plan thereto)
(the "Retirement Plan") during the 90-day period immediately preceding the
Applicable Date) of the benefit payable under the Retirement Plan and any
supplemental and/or excess retirement plan of the Company and its affiliated
companies providing benefits for the Executive (the "SERP") which the
Executive would receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this
Agreement for the remainder of the Employment Period, assuming for this
purpose that all accrued benefits are fully vested and that benefit accrual
formulas are no less advantageous to the Executive than those in effect
during the 90-day period immediately preceding the Applicable Date, and (2)
the actuarial equivalent (utilizing for this purpose the actuarial
assumptions utilized with respect to the Retirement Plan during the 90-day
period immediately preceding the Applicable Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the SERP
(the amount of such benefit shall be hereinafter referred to as the
"Supplemental Retirement Amount"); and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated in accordance with the most favorable plans, practices, programs
or policies of the Company and its affiliated companies as in effect and
applicable generally to other executives and their families during the 90-day
period immediately preceding the Applicable Date, provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility (such continuation of such benefits for the applicable
period herein set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until the end of
the Employment Period and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to
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be paid or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other executives and their
families during the 90-day period immediately preceding the Applicable Date
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits and (ii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination
of an amount equal to the sum of the Severance Amount and the Supplemental
Retirement Amount.
(c) DISABILITY. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (which shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits (excluding, in each case, Disability Benefits (as defined
below)) and (ii) payment to the Executive in a lump sum in cash within 30
days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount and the Supplemental Retirement Amount and (B)
the present value (determined as provided in Section 280G(d)(4) of the Code)
of any cash amount to be received by the Executive as a disability benefit
pursuant to the terms of any long term disability plan, policy or arrangement
of the Company and its affiliated companies, but not including any proceeds
of disability insurance covering the Executive to the extent paid for on a
contributory basis by the Executive (which shall be paid in any event as an
Other Benefit) (the benefits included in this clause (B) shall be hereinafter
referred to as the "Disability Benefits").
(d) CAUSE; BY EXECUTIVE OTHER THAN FOR GOOD REASON AND OTHER
THAN DURING A WINDOW PERIOD. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason or without any reason during the Window Period, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section
6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
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affiliated companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Section 6(a)(ii) of
this Agreement, such amounts shall not be reduced whether or not the
Executive obtains other employment. If there is any contest by the Company
concerning the Payments or benefits to be provided to the Executive hereunder
whether through litigation, arbitration or mediation, or with respect to the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof, and the Executive is the
prevailing party, the Company agrees to pay promptly upon conclusion of the
contest all legal fees and expenses which the Executive may reasonably have
incurred.
(b) If there shall be any dispute between the Company and
the Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that Good Reason did not exist, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) hereof as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking (which need not be secured) by or on behalf of the Executive to
repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed
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with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether
and when Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section (c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall be offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of
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the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be an unfunded
obligation of the Company.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(c) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
IF TO THE EXECUTIVE:
David R. Beathard
4305 Mildred
Bellaire, Texas 77401
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IF TO THE COMPANY:
Pogo Producing Company
P.O. Box 2504
Houston, Texas 77252-2504
Attention: Senior Vice President and
Chief Administrative Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its name
on its behalf, all as of the day and year first above written.
/s/ DAVID R. BEATHARD
---------------------
POGO PRODUCING COMPANY
By: /s/ PAUL G. VAN WAGENEN
-----------------------
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EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware
corporation (the "Company") and STEPHEN R. BRUNNER (the "Executive"), dated
as of the 1st day of February, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication of
the Executive, and to provide the Executive with compensation and benefits
arrangements which are competitive with those of other corporations and which
ensure that the compensation and benefits expectations of the Executive will
be satisfied. The Board also believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control,
and to insure the continuation of favorable compensation and benefits upon a
Change of Control. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the
date of this Agreement.
(b) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the second anniversary of such date;
provided, however, that on each annual anniversary of the Effective Date (the
"Renewal Date"), the Employment Period shall be reviewed, to determine
whether, in the discretion of the Company, it should be extended for one
additional year so as to terminate two years from such Renewal Date. Any
such one year extension shall be effective only if, prior to the Renewal
Date, the Company shall give notice to the Executive that the Employment
Period shall be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities").
<PAGE>
Notwithstanding anything in this Agreement to the contrary, the
following shall not constitute a Change of Control:
(i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company, or
(iv) any acquisition by State Farm Mutual Automobile
Insurance Company and certain affiliates ("State Farm") or Klingenstein,
Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial
ownership of Outstanding Company Voting Securities resulting in an
accumulation of said securities up to and including the following amounts:
A. In the case of State Farm, 30% of Outstanding
Voting Securities, and
B. In the case of Klingenstein, 30% of Outstanding
Voting Securities, or
(v) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who where the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership,
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immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the case
may be] beneficially owns, directly or indirectly, 20% or more, respectively,
of the then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or the combined voting power
of the then outstanding voting securities of such corporation, entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation with respect to which following such sale or other
disposition (A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities, as
the case may be] beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
where members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition
of assets of the Company.
3. EMPLOYMENT AGREEMENT. The Company hereby agrees to continue
the Executive in its employ in accordance with the terms and provisions of
this Agreement, for the Employment Period.
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
90-day period immediately preceding the later of the Effective Date, the most
recent Renewal Date or a Change of Control, if any, (the "Applicable Date")
and (B) the Executive's services shall be performed at the
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location where the Executive was employed immediately preceding the
Applicable Date or any office which is the headquarters of the Company and is
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement; provided Executive may not serve on the board of a publicly
traded for profit corporation or similar body of a publicly traded for profit
business organized in other than corporate form without the consent of the
Compensation Committee of the Board of Directors of the Company. It is
expressly understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Applicable Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Applicable Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by
the Company and its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Applicable Date occurs.
During the Employment Period, the Annual Base Salary shall be reviewed at
least annually and may be increased at any time and from time to time as
shall be substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with
the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary,
the Executive may be awarded at the discretion of the Company for any fiscal
year ending during the Employment Period, a bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other executives of the Company and its affiliated
companies. Such plans, practices, policies and programs shall provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, equal to the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Applicable Date.
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(iv) WELFARE BENEFIT PLANS. During the Employment
Period, the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the
Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other executives of the Company and its
affiliated companies. Such plans, practices, policies and programs shall
provide the Executive with benefits which are equal, in the aggregate, to the
most favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 90-day period immediately preceding the
Applicable Date.
(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
(vi) FRINGE BENEFITS. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Applicable Date.
(viii) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(c) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by
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the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to
be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material violation by the Executive of
the Executive's obligations under Section 4(a) of this Agreement (other than
as a result of incapacity due to physical or mental illness) which is willful
and deliberate on the Executive's part, which is committed in bad faith or
without reasonable belief that such violation is in the best interests of the
Company and which is not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such violation or (ii)
the conviction of the Executive of a felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD; OTHER TERMINATIONS. The
Executive's employment may be terminated (i) during the Employment Period by
the Executive for Good Reason, (ii) during the Window Period by the Executive
without any reason or (iii) by Executive other than (A) for Good Reason or
(B) during a Window Period.
For purposes of this Agreement, the "Window Period" shall mean
the 180-day period immediately following the date a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the request of a
third party who has taken steps reasonably calculated to effect the Change of
Control or (ii) otherwise arose in connection with or anticipation of the
Change of Control, then for all purposes of this Agreement the "date a Change
of Control occurs" shall mean the date immediately prior to the date of such
termination of employment or cessation of status as an officer.
For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities excluding for this purpose an insubstantial or inadvertent
action which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an insubstantial or
inadvertent failure which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
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(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company
for Cause, or by the Executive without any reason during the Window Period or
for Good Reason, shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(c) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's right hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination, (iii) if the
Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be, and (iv) if the Executive's
employment is terminated by the Executive other than for Good Reason or
during a Window Period, the date of the receipt of the Notice of Termination
or any later date specified therein.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR
CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid and (2)
any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
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B. the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the product of (1) three and
(2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus
described in Section 4(b)(ii) paid or payable in respect of the most recently
completed fiscal year of the Company; and, provided further, that such amount
shall be reduced by the present value (determined as provided in Section
280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of
any other amount of severance relating to salary or bonus continuation to be
received by the Executive upon termination of employment of the Executive
under any severance plan, severance policy or severance arrangement of the
Company; and
C. a separate lump sum supplemental retirement benefit
equal to the difference between (1) the actuarial equivalent (utilizing for
this purpose the actuarial assumptions utilized with respect to the Employees
Retirement Plan for Pogo Producing Company (or any successor plan thereto)
(the "Retirement Plan") during the 90-day period immediately preceding the
Applicable Date) of the benefit payable under the Retirement Plan and any
supplemental and/or excess retirement plan of the Company and its affiliated
companies providing benefits for the Executive (the "SERP") which the
Executive would receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this
Agreement for the remainder of the Employment Period, assuming for this
purpose that all accrued benefits are fully vested and that benefit accrual
formulas are no less advantageous to the Executive than those in effect
during the 90-day period immediately preceding the Applicable Date, and (2)
the actuarial equivalent (utilizing for this purpose the actuarial
assumptions utilized with respect to the Retirement Plan during the 90-day
period immediately preceding the Applicable Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the SERP
(the amount of such benefit shall be hereinafter referred to as the
"Supplemental Retirement Amount"); and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated in accordance with the most favorable plans, practices, programs
or policies of the Company and its affiliated companies as in effect and
applicable generally to other executives and their families during the 90-day
period immediately preceding the Applicable Date, provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility (such continuation of such benefits for the applicable
period herein set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until the end of
the Employment Period and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to
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be paid or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other executives and their
families during the 90-day period immediately preceding the Applicable Date
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits and (ii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination
of an amount equal to the sum of the Severance Amount and the Supplemental
Retirement Amount.
(c) DISABILITY. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (which shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits (excluding, in each case, Disability Benefits (as defined
below)) and (ii) payment to the Executive in a lump sum in cash within 30
days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount and the Supplemental Retirement Amount and (B)
the present value (determined as provided in Section 280G(d)(4) of the Code)
of any cash amount to be received by the Executive as a disability benefit
pursuant to the terms of any long term disability plan, policy or arrangement
of the Company and its affiliated companies, but not including any proceeds
of disability insurance covering the Executive to the extent paid for on a
contributory basis by the Executive (which shall be paid in any event as an
Other Benefit) (the benefits included in this clause (B) shall be hereinafter
referred to as the "Disability Benefits").
(d) CAUSE; BY EXECUTIVE OTHER THAN FOR GOOD REASON AND OTHER
THAN DURING A WINDOW PERIOD. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason or without any reason during the Window Period, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section
6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
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affiliated companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Section 6(a)(ii) of
this Agreement, such amounts shall not be reduced whether or not the
Executive obtains other employment. If there is any contest by the Company
concerning the Payments or benefits to be provided to the Executive hereunder
whether through litigation, arbitration or mediation, or with respect to the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof, and the Executive is the
prevailing party, the Company agrees to pay promptly upon conclusion of the
contest all legal fees and expenses which the Executive may reasonably have
incurred.
(b) If there shall be any dispute between the Company and
the Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that Good Reason did not exist, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) hereof as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking (which need not be secured) by or on behalf of the Executive to
repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed
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with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether
and when Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section (c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall be offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of
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the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be an unfunded
obligation of the Company.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(c) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
IF TO THE EXECUTIVE:
Stephen R. Brunner
6119 Palm Ridge Court
Kingwood, Texas 77345
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IF TO THE COMPANY:
Pogo Producing Company
P.O. Box 2504
Houston, Texas 77252-2504
Attention: Senior Vice President and
Chief Administrative Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its name
on its behalf, all as of the day and year first above written.
/s/ STEPHEN R. BRUNNER
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POGO PRODUCING COMPANY
By: /s/ PAUL G. VAN WAGENEN
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EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware
corporation (the "Company") and J. DON MCGREGOR (the "Executive"), dated as of
the 1st day of February, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
and to provide the Executive with compensation and benefits arrangements which
are competitive with those of other corporations and which ensure that the
compensation and benefits expectations of the Executive will be satisfied. The
Board also believes it is imperative to diminish the inevitable distraction of
the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to insure the continuation of
favorable compensation and benefits upon a Change of Control. Therefore, in
order to accomplish these objectives, the Board has caused the Company to enter
into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the
date of this Agreement.
(b) The "Employment Period" shall mean the period commencing on
the Effective Date and ending on the second anniversary of such date; provided,
however, that on each annual anniversary of the Effective Date (the "Renewal
Date"), the Employment Period shall be reviewed, to determine whether, in the
discretion of the Company, it should be extended for one additional year so as
to terminate two years from such Renewal Date. Any such one year extension
shall be effective only if, prior to the Renewal Date, the Company shall give
notice to the Executive that the Employment Period shall be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities").
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Notwithstanding anything in this Agreement to the contrary, the
following shall not constitute a Change of Control:
(i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, or
(iv) any acquisition by State Farm Mutual Automobile Insurance
Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co.,
L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of
Outstanding Company Voting Securities resulting in an accumulation of said
securities up to and including the following amounts:
A. In the case of State Farm, 30% of Outstanding Voting
Securities, and
B. In the case of Klingenstein, 30% of Outstanding
Voting Securities, or
(v) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
where the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions as
their ownership,
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immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the
case may be] beneficially owns, directly or indirectly, 20% or more,
respectively, of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting securities of such
corporation, entitled to vote generally in the election of directors and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which following such sale or other disposition
(A) more than 60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
[excluding the Company, any Specified Stockholder, any employee benefit plan (or
related trust) of the Company or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be] beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members of the board of
directors of such corporation where members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
3. EMPLOYMENT AGREEMENT. The Company hereby agrees to continue the
Executive in its employ in accordance with the terms and provisions of this
Agreement, for the Employment Period.
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the later of the Effective Date, the most recent Renewal
Date or a Change of Control, if any, (the "Applicable Date") and (B) the
Executive's services shall be performed at the
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location where the Executive was employed immediately preceding the
Applicable Date or any office which is the headquarters of the Company and is
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company. During the Employment Period
it shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement; provided Executive may not serve on
the board of a publicly traded for profit corporation or similar body of a
publicly traded for profit business organized in other than corporate form
without the consent of the Compensation Committee of the Board of Directors of
the Company. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Applicable
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Applicable Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the Company
and its affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Applicable Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually and may be
increased at any time and from time to time as shall be substantially consistent
with increases in base salary generally awarded in the ordinary course of
business to other executives of the Company and its affiliated companies. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. As used in this Agreement,
the term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary,
the Executive may be awarded at the discretion of the Company for any fiscal
year ending during the Employment Period, a bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other executives of the Company and its affiliated
companies. Such plans, practices, policies and programs shall provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, equal to the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Applicable Date.
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(iv) WELFARE BENEFIT PLANS. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other executives of the Company and its affiliated companies. Such
plans, practices, policies and programs shall provide the Executive with
benefits which are equal, in the aggregate, to the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Applicable Date.
(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 90-day period immediately
preceding the Applicable Date.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Applicable Date.
(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during the
90-day period immediately preceding the Applicable Date.
(viii) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(c) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
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the Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material violation by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which is willful and
deliberate on the Executive's part, which is committed in bad faith or without
reasonable belief that such violation is in the best interests of the Company
and which is not remedied in a reasonable period of time after receipt of
written notice from the Company specifying such violation or (ii) the conviction
of the Executive of a felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD; OTHER TERMINATIONS. The
Executive's employment may be terminated (i) during the Employment Period by the
Executive for Good Reason, (ii) during the Window Period by the Executive
without any reason or (iii) by Executive other than (A) for Good Reason or (B)
during a Window Period.
For purposes of this Agreement, the "Window Period" shall mean the
180-day period immediately following the date a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment or cessation
of status as an officer (i) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "date a Change of Control occurs" shall mean the
date immediately prior to the date of such termination of employment or
cessation of status as an officer.
For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which results
in a diminution in such position, authority, duties or responsibilities
excluding for this purpose an insubstantial or inadvertent action which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an insubstantial or
inadvertent failure which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive without any reason during the Window Period or for
Good Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(c) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's right
hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be, and (iv) if the Executive's employment is
terminated by the Executive other than for Good Reason or during a Window
Period, the date of the receipt of the Notice of Termination or any later date
specified therein.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR
CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or the
Executive shall terminate employment either for Good Reason or without any
reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid and (2) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (1) and
(2) shall be hereinafter referred to as the "Accrued Obligations"); and
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B. the amount (such amount shall be hereinafter referred
to as the "Severance Amount") equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) any bonus described in Section
4(b)(ii) paid or payable in respect of the most recently completed fiscal year
of the Company; and, provided further, that such amount shall be reduced by the
present value (determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by the Executive upon
termination of employment of the Executive under any severance plan, severance
policy or severance arrangement of the Company; and
C. a separate lump sum supplemental retirement benefit
equal to the difference between (1) the actuarial equivalent (utilizing for this
purpose the actuarial assumptions utilized with respect to the Employees
Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately preceding the Applicable
Date) of the benefit payable under the Retirement Plan and any supplemental
and/or excess retirement plan of the Company and its affiliated companies
providing benefits for the Executive (the "SERP") which the Executive would
receive if the Executive's employment continued at the compensation level
provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the
remainder of the Employment Period, assuming for this purpose that all accrued
benefits are fully vested and that benefit accrual formulas are no less
advantageous to the Executive than those in effect during the 90-day period
immediately preceding the Applicable Date, and (2) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions utilized with respect to
the Retirement Plan during the 90-day period immediately preceding the
Applicable Date) of the Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP (the amount of such benefit shall be
hereinafter referred to as the "Supplemental Retirement Amount"); and
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Executive and/or the Executive's family at least equal
to those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this Agreement
if the Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other executives
and their families during the 90-day period immediately preceding the Applicable
Date, provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits for the
applicable period herein set forth shall be hereinafter referred to as "Welfare
Benefit Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such period;
and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family any
other amounts or benefits required to
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be paid or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other executives and their
families during the 90-day period immediately preceding the Applicable Date
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits and (ii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Severance Amount and the Supplemental
Retirement Amount.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (which shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits (excluding, in each case, Disability Benefits (as defined below)) and
(ii) payment to the Executive in a lump sum in cash within 30 days of the Date
of Termination of an amount equal to the greater of (A) the sum of the Severance
Amount and the Supplemental Retirement Amount and (B) the present value
(determined as provided in Section 280G(d)(4) of the Code) of any cash amount to
be received by the Executive as a disability benefit pursuant to the terms of
any long term disability plan, policy or arrangement of the Company and its
affiliated companies, but not including any proceeds of disability insurance
covering the Executive to the extent paid for on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (B) shall be hereinafter referred to as the "Disability
Benefits").
(d) CAUSE; BY EXECUTIVE OTHER THAN FOR GOOD REASON AND OTHER
THAN DURING A WINDOW PERIOD. If the Executive's employment shall be terminated
for Cause during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the amount of
any compensation previously deferred by the Executive, in each case to the
extent theretofore unpaid. If the Executive terminates employment during the
Employment Period, excluding a termination either for Good Reason or without any
reason during the Window Period, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in
Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
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affiliated companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Section 6(a)(ii) of this
Agreement, such amounts shall not be reduced whether or not the Executive
obtains other employment. If there is any contest by the Company concerning the
Payments or benefits to be provided to the Executive hereunder whether through
litigation, arbitration or mediation, or with respect to the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof, and the Executive is the prevailing party, the
Company agrees to pay promptly upon conclusion of the contest all legal fees and
expenses which the Executive may reasonably have incurred.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that
Good Reason did not exist, the Company shall pay all amounts, and provide all
benefits, to the Executive and/or the Executive's family or other beneficiaries,
as the case may be, that the Company would be required to pay or provide
pursuant to Section 6(a) hereof as though such termination were by the Company
without Cause or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amounts pursuant to this
paragraph except upon receipt of an undertaking (which need not be secured) by
or on behalf of the Executive to repay all such amounts to which the Executive
is ultimately adjudged by such court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed
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with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section (c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall be
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of
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the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be an unfunded obligation
of the Company.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE:
J. Don McGregor
P.O. Box 2504
Houston, Texas 77252-2504
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IF TO THE COMPANY:
Pogo Producing Company
P.O. Box 2504
Houston, Texas 77252-2504
Attention: Senior Vice President and
Chief Administrative Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ J. DON MCGREGOR
--------------------------------
POGO PRODUCING COMPANY
By: /s/ PAUL G. VAN WAGENEN
-----------------------------
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EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware
corporation (the "Company") and GERALD A. MORTON (the "Executive"), dated as
of the 1st day of February, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
and to provide the Executive with compensation and benefits arrangements
which are competitive with those of other corporations and which ensure that
the compensation and benefits expectations of the Executive will be
satisfied. The Board also believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control,
and to insure the continuation of favorable compensation and benefits upon a
Change of Control. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the
date of this Agreement.
(b) The "Employment Period" shall mean the period commencing on
the Effective Date and ending on the second anniversary of such date; provided,
however, that on each annual anniversary of the Effective Date (the "Renewal
Date"), the Employment Period shall be reviewed, to determine whether, in the
discretion of the Company, it should be extended for one additional year so as
to terminate two years from such Renewal Date. Any such one year extension
shall be effective only if, prior to the Renewal Date, the Company shall give
notice to the Executive that the Employment Period shall be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities").
<PAGE>
Notwithstanding anything in this Agreement to the contrary, the
following shall not constitute a Change of Control:
(i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege),
(ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, or
(iv) any acquisition by State Farm Mutual Automobile Insurance
Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co.,
L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of
Outstanding Company Voting Securities resulting in an accumulation of said
securities up to and including the following amounts:
A. In the case of State Farm, 30% of Outstanding Voting
Securities, and
B. In the case of Klingenstein, 30% of Outstanding
Voting Securities, or
(v) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
where the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions as
their ownership,
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<PAGE>
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person [excluding the Company, any Specified
Stockholder, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the
case may be] beneficially owns, directly or indirectly, 20% or more,
respectively, of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting securities of such
corporation, entitled to vote generally in the election of directors and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which following such sale or other disposition
(A) more than 60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
[excluding the Company, any Specified Stockholder, any employee benefit plan (or
related trust) of the Company or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be] beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members of the board of
directors of such corporation where members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
3. EMPLOYMENT AGREEMENT. The Company hereby agrees to continue the
Executive in its employ in accordance with the terms and provisions of this
Agreement, for the Employment Period.
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the later of the Effective Date, the most recent Renewal
Date or a Change of Control, if any, (the "Applicable Date") and (B) the
Executive's services shall be performed at the
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location where the Executive was employed immediately preceding the
Applicable Date or any office which is the headquarters of the Company and is
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company. During the Employment Period it
shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement; provided Executive
may not serve on the board of a publicly traded for profit corporation or
similar body of a publicly traded for profit business organized in other than
corporate form without the consent of the Compensation Committee of the Board
of Directors of the Company. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive
prior to the Applicable Date, the continued conduct of such activities (or
the conduct of activities similar in nature and scope thereto) subsequent to
the Applicable Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the Company
and its affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Applicable Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually and may be
increased at any time and from time to time as shall be substantially consistent
with increases in base salary generally awarded in the ordinary course of
business to other executives of the Company and its affiliated companies. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. As used in this Agreement,
the term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary,
the Executive may be awarded at the discretion of the Company for any fiscal
year ending during the Employment Period, a bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other executives of the Company and its affiliated
companies. Such plans, practices, policies and programs shall provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, equal to the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Applicable Date.
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<PAGE>
(iv) WELFARE BENEFIT PLANS. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other executives of the Company and its
affiliated companies. Such plans, practices, policies and programs shall
provide the Executive with benefits which are equal, in the aggregate, to the
most favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 90-day period immediately preceding the
Applicable Date.
(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 90-day period immediately
preceding the Applicable Date.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Applicable Date.
(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Applicable Date.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 90-day period
immediately preceding the Applicable Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(c) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
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the Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean (i) a material violation by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which is willful and
deliberate on the Executive's part, which is committed in bad faith or
without reasonable belief that such violation is in the best interests of the
Company and which is not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such violation or (ii)
the conviction of the Executive of a felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD; OTHER TERMINATIONS. The
Executive's employment may be terminated (i) during the Employment Period by
the Executive for Good Reason, (ii) during the Window Period by the Executive
without any reason or (iii) by Executive other than (A) for Good Reason or
(B) during a Window Period.
For purposes of this Agreement, the "Window Period" shall mean the
180-day period immediately following the date a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the request of a
third party who has taken steps reasonably calculated to effect the Change of
Control or (ii) otherwise arose in connection with or anticipation of the
Change of Control, then for all purposes of this Agreement the "date a Change
of Control occurs" shall mean the date immediately prior to the date of such
termination of employment or cessation of status as an officer.
For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which results
in a diminution in such position, authority, duties or responsibilities
excluding for this purpose an insubstantial or inadvertent action which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an insubstantial or
inadvertent failure which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
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(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive without any reason during the Window Period or for
Good Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(c) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's right
hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be, and (iv) if the Executive's employment is
terminated by the Executive other than for Good Reason or during a Window
Period, the date of the receipt of the Notice of Termination or any later date
specified therein.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR
CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid and (2)
any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
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B. the amount (such amount shall be hereinafter referred to
as the "Severance Amount") equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) any bonus described in
Section 4(b)(ii) paid or payable in respect of the most recently completed
fiscal year of the Company; and, provided further, that such amount shall be
reduced by the present value (determined as provided in Section 280G(d)(4) of
the Internal Revenue Code of 1986, as amended (the "Code")) of any other
amount of severance relating to salary or bonus continuation to be received
by the Executive upon termination of employment of the Executive under any
severance plan, severance policy or severance arrangement of the Company; and
C. a separate lump sum supplemental retirement benefit
equal to the difference between (1) the actuarial equivalent (utilizing for
this purpose the actuarial assumptions utilized with respect to the Employees
Retirement Plan for Pogo Producing Company (or any successor plan thereto)
(the "Retirement Plan") during the 90-day period immediately preceding the
Applicable Date) of the benefit payable under the Retirement Plan and any
supplemental and/or excess retirement plan of the Company and its affiliated
companies providing benefits for the Executive (the "SERP") which the
Executive would receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this
Agreement for the remainder of the Employment Period, assuming for this
purpose that all accrued benefits are fully vested and that benefit accrual
formulas are no less advantageous to the Executive than those in effect
during the 90-day period immediately preceding the Applicable Date, and (2)
the actuarial equivalent (utilizing for this purpose the actuarial
assumptions utilized with respect to the Retirement Plan during the 90-day
period immediately preceding the Applicable Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the SERP
(the amount of such benefit shall be hereinafter referred to as the
"Supplemental Retirement Amount"); and
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Executive and/or the Executive's family at least equal
to those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this Agreement
if the Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other executives
and their families during the 90-day period immediately preceding the Applicable
Date, provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits for the
applicable period herein set forth shall be hereinafter referred to as "Welfare
Benefit Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such period;
and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family any
other amounts or benefits required to
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be paid or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other executives and their
families during the 90-day period immediately preceding the Applicable Date
(such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits and (ii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Severance Amount and the Supplemental
Retirement Amount.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (which shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits (excluding, in each case, Disability Benefits (as defined below)) and
(ii) payment to the Executive in a lump sum in cash within 30 days of the Date
of Termination of an amount equal to the greater of (A) the sum of the Severance
Amount and the Supplemental Retirement Amount and (B) the present value
(determined as provided in Section 280G(d)(4) of the Code) of any cash amount to
be received by the Executive as a disability benefit pursuant to the terms of
any long term disability plan, policy or arrangement of the Company and its
affiliated companies, but not including any proceeds of disability insurance
covering the Executive to the extent paid for on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (B) shall be hereinafter referred to as the "Disability
Benefits").
(d) CAUSE; BY EXECUTIVE OTHER THAN FOR GOOD REASON AND OTHER
THAN DURING A WINDOW PERIOD. If the Executive's employment shall be terminated
for Cause during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the amount of
any compensation previously deferred by the Executive, in each case to the
extent theretofore unpaid. If the Executive terminates employment during the
Employment Period, excluding a termination either for Good Reason or without any
reason during the Window Period, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section 6(a)(ii),
6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
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affiliated companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Section 6(a)(ii) of this
Agreement, such amounts shall not be reduced whether or not the Executive
obtains other employment. If there is any contest by the Company concerning the
Payments or benefits to be provided to the Executive hereunder whether through
litigation, arbitration or mediation, or with respect to the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof, and the Executive is the prevailing party, the
Company agrees to pay promptly upon conclusion of the contest all legal fees and
expenses which the Executive may reasonably have incurred.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that
Good Reason did not exist, the Company shall pay all amounts, and provide all
benefits, to the Executive and/or the Executive's family or other beneficiaries,
as the case may be, that the Company would be required to pay or provide
pursuant to Section 6(a) hereof as though such termination were by the Company
without Cause or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amounts pursuant to this
paragraph except upon receipt of an undertaking (which need not be secured) by
or on behalf of the Executive to repay all such amounts to which the Executive
is ultimately adjudged by such court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed
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with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether
and when Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
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<PAGE>
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section (c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall be offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of
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<PAGE>
the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be an unfunded obligation
of the Company.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE:
Gerald A. Morton
2321 Addison
Houston, Texas 77030
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IF TO THE COMPANY:
Pogo Producing Company
P.O. Box 2504
Houston, Texas 77252-2504
Attention: Senior Vice President and
Chief Administrative Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ GERALD A. MORTON
--------------------
POGO PRODUCING COMPANY
By: /s/ PAUL G. VAN WAGENEN
------------------------
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AMENDED AND RESTATED
BAREBOAT CHARTER
BETWEEN
TANTAWAN PRODUCTION B.V.
AND
TANTAWAN SERVICES, L L C
DATED
AS OF FEBRUARY 9, 1996
<PAGE>
AMENDED AND RESTATED BAREBOAT CHARTER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- ----------------------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FPSO............................................ 1
2. FPSO TO BE CHARTERED.................................................................................. 2
3. SERVICE............................................................................................... 2
4. DURATION OF CHARTER................................................................................... 2
5. GUARANTEES............................................................................................ 3
6. REPRESENTATIONS AND WARRANTIES........................................................................ 4
7. MAINTENANCE AND OPERATION............................................................................. 5
8. INSPECTION............................................................................................ 7
9. COMPENSATION.......................................................................................... 8
10. CHANGE IN LAW......................................................................................... 10
11. TAXES................................................................................................. 11
12. CONFLICTS OF INTEREST................................................................................. 11
13. LIENS AGAINST THE FPSO................................................................................ 11
14. INVENTORY............................................................................................. 13
15. GAS SALES AGREEMENT................................................................................... 13
16. DOWNTIME.............................................................................................. 13
17. INSURANCE............................................................................................. 14
18. INDEMNITY............................................................................................. 17
19. NONWAIVER OF DEFAULTS; NONRECOURSE.................................................................... 19
20. FORCE MAJEURE......................................................................................... 19
21. LAW AND ARBITRATION................................................................................... 20
22. NOTICES............................................................................................... 21
23. PURCHASE OPTION....................................................................................... 22
24. REVENUES.............................................................................................. 24
25. REDELIVERY OF FPSO.................................................................................... 24
26. REQUISITION........................................................................................... 25
27. GENERAL AND PARTICULAR AVERAGE........................................................................ 25
28. SALVAGE............................................................................................... 25
29. AUDIT................................................................................................. 25
30. DEFAULT............................................................................................... 26
31. REMEDIES.............................................................................................. 26
32. MISCELLANEOUS......................................................................................... 28
</TABLE>
<TABLE>
<S> <C>
Appendix A TECHNICAL DESCRIPTION AND DESIGN BASIS
Appendix B1 FORM OF JOINT VENTURER GUARANTEE AND INDEMNITY
Appendix B2 FORM OF LESSOR PARENT COMPANY GUARANTEE AND INDEMNITY
Appendix C1
Appendix C2
</TABLE>
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AMENDED AND RESTATED BAREBOAT CHARTER
This Amended and Restated Bareboat Charter (this "Agreement"), made and
entered into as of the 9th day of February 1996, by and between Tantawan
Production B.V., a Netherlands corporation ("Lessor"), and Tantawan Services, L
L C, a Delaware limited liability company ("Charterer"), acting through its Thai
branch.
W I T N E S S E T H
WHEREAS, the Petroleum Authority of Thailand ("PTT") and Thaipo Limited,
Thai Romo Limited and The Sophonpanich Co., Ltd. have entered into that certain
Gas Sales Agreement dated November 7, 1995 (the "Gas Sales Agreement") in
connection with the Petroleum Concession Agreement No. 1/2534/36, dated August
1, 1991, covering block B8/32 offshore Thailand, awarded by the Ministry of
Industry to Maersk Oil (Thailand) Ltd., Thaipo, Limited and Thai Romo, Limited,
and Supplementary Petroleum Concession No. 1 to Petroleum Concession No.
1/2534/36, dated March 6, 1992, whereby The Sophonpanich Co., Ltd., entered into
Petroleum Concession No. 1/2534/36 (collectively, the "Concession Agreement");
WHEREAS Thaipo Limited, Thai Romo Limited and Palang Sophon Limited
(formerly known as Sophon Thai Gulf Limited which was successor in interest to
The Sophonpanich Co. Ltd.) are currently the Concessionaires under the
Concession Agreement (collectively "the Concessionaires");
WHEREAS, Charterer desires to charter from Lessor on a bareboat basis a
Floating Production Storage and Offloading System known as the "Tantawan
Explorer" (the "FPSO"), for use in the Tantawan Field, Thailand;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Lessor and Charterer agree as follows:
1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FPSO
Lessor shall be responsible for delivery (the "Delivery") of the FPSO to
Charterer in international waters offshore the yard at which the FPSO is
being converted (the "Delivery Site") as evidenced by a certificate of
delivery issued by Lessor and countersigned by Charterer. Prior to
Delivery, Lessor shall be fully responsible for and assume all risks with
respect to the FPSO. Charterer has hired an operator ("Operator") pursuant
to an Operating Agreement (the "Operating Agreement") to operate the FPSO
commencing with Delivery. Operator shall be responsible for completing all
work to be performed in respect of the FPSO until Field Acceptance, as
herein defined, has occurred, including transporting the FPSO from the
Delivery Site to the site in the Tantawan Field designated by Charterer
(the "Offshore Site"), hooking-up the FPSO on its anchoring system and
hydrostatic, electrical and instrumentation testing. Operator shall also be
responsible for commissioning the FPSO.
2. FPSO TO BE CHARTERED
Charterer hereby agrees to bareboat charter the FPSO as described in
APPENDIX A and its inventory from Lessor, for the period and upon the terms
and conditions stated herein. Lessor represents, undertakes and warrants
that at the time of Delivery the FPSO shall comply with the requirements of
the design basis set forth in APPENDIX A hereto (the "Design Basis") and
shall be properly documented and classed as ABS A1 Floating Production,
Storage and Offloading System, with no recommendations and as per the
particulars of APPENDIX A. Lessor shall before and at the time of Delivery
make the FPSO seaworthy and in every respect ready in hull, machinery and
equipment for service hereunder.
1
<PAGE>
3. SERVICE
Charterer shall have the full use of the FPSO at the Offshore Site and,
subject to Lessor's approval, at any other place in the world where its
operation is not prohibited by applicable law and/or regulations. Charterer
may subcontract to identified subcontractors certain of its obligations
hereunder, including, but not limited to, those relating to the operation,
maintenance and repair of the FPSO. However, such subcontracts shall not
relieve Charterer of such obligations.
4. DURATION OF CHARTER
4.1 The term (the "Initial Term") of this Agreement shall commence upon
Delivery. The Initial Term shall end upon a date eleven (11) years and six
(6) months after Hire Commencement Date (as defined in Article 9.1).
4.2 When the FPSO is hooked up at the Offshore Site and is ready to receive
hydrocarbons, when hydrostatic tests have been satisfactorily completed
and, to the extent possible, when electrical and instrumentation tests have
been satisfactorily completed, Charterer or its nominee will make an
inspection to determine whether such events have occurred. Within
twenty-four (24) hours of the inspection, Charterer will notify Lessor in
writing of whether or not such events have occurred. Lessor will cause
Operator to have available at the Offshore Site appropriate and experienced
staff to promptly correct all items found to be unacceptable. When
Charterer is satisfied that such events have occurred ("Field Acceptance"),
Charterer shall sign a certificate of field acceptance to this effect. (If
Charterer's affiliate shall fail to perform or cause to be performed the
work of installing pipeline end manifolds ("PLEMs") and the anchoring of
the mooring system for the FPSO at the Offshore Site and such failure shall
have directly and solely prevented the occurrence of Field Acceptance, then
Field Acceptance shall be deemed to have occurred as of the date Field
Acceptance would have occurred but for Charterer's actions or failure to
perform such action.) Field Acceptance by Charterer shall not be construed
as a waiver or discharge of any of the representations, warranties or
undertakings of Lessor in or with respect to this Agreement or the FPSO.
4.3 Upon the expiration of the Initial Term, Charterer shall have the option
to terminate this Agreement, extend this Agreement on an annual basis at
prices to be agreed upon by Lessor and Charterer, or purchase the FPSO
pursuant to Article 23. The election of any such option may be exercised by
Charterer's giving Lessor notice thereof at least 360 days prior to the
expiration of the Initial Term. If no such notice is received, Charterer
shall be deemed to have exercised its option to terminate this Agreement as
of the end of the Initial Term. If Charterer elects to extend this
Agreement, then Charterer and Lessor shall negotiate in good faith in an
effort to reach agreement prior to the end of the Initial Term on a Total
Bareboat Rate for the subsequent annual term. If no such agreement is
reached, Charterer shall have the additional option to purchase the FPSO as
aforesaid by notice to Lessor at least 180 days prior to the end of the
Initial Term. If no agreement on a Total Bareboat Rate for an extended term
is timely reached and if no notice of an election to purchase the FPSO is
timely given, Charterer shall be deemed to have exercised its option to
terminate this Agreement as of the end of the Initial Term. If an agreement
on Total Bareboat Rate for an extended term is reached, this Agreement
shall be extended until the first anniversary date of the end of the
Initial Term and this Article 4.3 shall apply at the end of said extended
term MUTATIS MUTANDIS.
5. GUARANTEES
5.1 Simultaneously with the execution of this Agreement, Charterer shall
furnish to Lessor several guarantees limited to field percentage interest
(the "Joint Venturer Guarantees") of Charterer's performance under this
Agreement which shall be given by Thaipo Limited, Thai Romo Limited and
Sophon Thai Gulf Limited (the "Joint Venturers") in the form of APPENDIX
B-1 hereto.
2
<PAGE>
5.2 As security for payment of Hire (as hereinafter defined) and other amounts
due to Lessor hereunder, Charterer shall grant or cause the Concessionaires
to grant (to the extent permitted by Thai law) a security interest to
Lessor in all oil produced from the Tantawan Field taken on board the FPSO
and the proceeds thereof, such security interest to be subordinate to
royalties, taxes and field operating expenses and granted on a PARI PASSU
basis, with all lenders financing the development of the Tantawan Field.
Charterer shall fully assist Lessor in perfecting such a security interest,
to the extent permitted by the laws of the United States of America and the
laws of Thailand. Charterer shall not agree to permit such other lenders to
perfect their security interests if Lessor is unable or elects not to
perfect its security interest.
5.3 Lessor has delivered to Charterer a Guarantee and Indemnity Agreement
("Lessor Parent Company Guarantee") in the form of APPENDIX B-2 hereto,
executed by its ultimate corporate parent, IHC Caland N.V., guaranteeing
the performance by Lessor of its obligations hereunder.
6. REPRESENTATIONS AND WARRANTIES
6.1 Lessor represents and warrants to Charterer that:
a) Lessor is a corporation duly organized and in good standing under the
laws of the Netherlands; has all requisite corporate power and all
material governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so
to qualify could be reasonably expected to have a material adverse
effect on its business.
b) Lessor has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement; the execution,
delivery and performance by Lessor of this Agreement has been duly
authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by Lessor and
constitutes its legal, valid and binding obligation, enforceable against
Lessor in accordance with its terms except to the extent such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditor's rights and (ii) the application
of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
c) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in
a breach of the articles of association (statuten) of Lessor or any
applicable law or regulation or any material agreement or instrument to
which Lessor is a party or by which it is bound or to which it is
subject or constitute a default under any such material agreement or
instrument.
d) All authorizations, approvals and consents of, and filings or
registrations with, any governmental or regulatory authority or agency,
as are at the date of Delivery necessary for the execution, delivery or
performance by Lessor of this Agreement and for the legality, validity,
or enforceability hereof, will have been obtained at such date and
thereafter will be maintained until the expiration or termination of
this Agreement.
6.2 Charterer represents and warrants to Lessor that:
a) Charterer is a corporation duly organized and in good standing under
the laws of the State of Delaware; has all requisite corporate power and
all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now
being or as proposed to be conducted; and is qualified to do business
and is in good standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification
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necessary and where failure so to qualify could be reasonably expected
to have a material adverse effect on its business.
b) Charterer has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement; the execution,
delivery and performance by Charterer of this Agreement has been duly
authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by Charterer
and constitutes its legal, valid and binding obligation, enforceable
against Charterer in accordance with its terms except to the extent such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditor's rights and (ii) the application
of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
c) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in
a breach of the certificate of incorporation or by-laws of Charterer or
any applicable law or regulation or any material agreement or instrument
to which Charterer is a party or by which it is bound or to which it is
subject or constitute a default under any such material agreement or
instrument.
d) All authorizations, approvals and consents of, and filings or
registrations with, any governmental or regulatory authority or agency,
as are at the date of Delivery necessary for the execution, delivery or
performance by Charterer of this Agreement and for the legality,
validity, or enforceability hereof, will have been obtained at such date
and thereafter will be maintained until the expiration or termination of
this Agreement.
e) Charterer will not, for the duration of the charter term, engage in
significant activities or own substantial assets located in the United
States of America.
6.3 OTHER THAN AS SPECIFICALLY STATED IN THIS AGREEMENT NEITHER PARTY SHALL BE
DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE TITLE, SEAWORTHINESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE OF THE FPSO OR
ANY PART THEREOF.
7. MAINTENANCE AND OPERATION
7.1 Lessor agrees that the FPSO shall, for the duration of the charter term,
be in the full possession and at the absolute disposal for all purposes of
Charterer and under its complete control in every respect. Subject to
Article 7.3, as necessary to meet and maintain requirements of the American
Bureau of Shipping ("ABS"), Charterer shall maintain the FPSO in a good
state of repair. In addition, Charterer shall maintain the FPSO in
efficient operating condition and in accordance with good commercial
maintenance practice, and shall keep the FPSO with valid, unexpired
classification of the class as indicated in Article 2, free of
recommendations and notations affecting class. Charterer shall furnish
Lessor with one duplicate original or certified true copy of all class and
flag certificates issued or notated during the duration of the charter upon
their issuance or notation. Lessor shall keep all Thai, Bahamian (the
"Country of Registry") and other required certificates valid, up-to-date
and in full force at all times. Charterer shall maintain the following
maintenance reports, records, surveys and documents: Planned Maintenance
System, Continuous Survey of Machinery and such other reports, records,
surveys and documents as Lessor shall reasonably specify in writing.
Charterer shall provide copies of such documents to Lessor upon Lessor's
request. Lessor shall provide Charterer and Operator with all
authorizations which Charterer may reasonably require in order to
accomplish the actions required or permitted to Charterer under this
Article 7.
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7.2 Subject to Article 7.3, Charterer shall take immediate steps to have all
necessary repairs done within a reasonable time.
7.3 Notwithstanding the terms of Articles 7.1 and 7.2, Major Repairs necessary
to meet and maintain ABS requirements and the Design Basis shall be the
responsibility of Lessor provided always that Charterer has not caused the
need for such repairs as a result of Charterer's gross negligence or
willful misconduct. "Major Repairs" shall mean all repairs to the FPSO
other than: (a) repairs resulting from corrosion caused by a combination of
carbon dioxide and water in the gas stream, and (b) repairs costing less
than U.S. $100,000 per incident. Such Major Repairs shall be carried out by
Lessor and Charterer shall provide all necessary assistance.
7.4 In the event of any improvement, structural changes or new equipment
becoming necessary for the continued operation of the FPSO by reason of new
class requirements or compulsory legislation or in order to maintain the
FPSO in compliance with the Design Basis, then Lessor shall carry out such
work at its expense.
7.5 Charterer shall establish and maintain financial security of
responsibility in respect of oil or other pollution damage as required by
any government or other division or authority thereof, to enable the FPSO,
without penalty or charge, lawfully to enter and remain at the Offshore
Site in performance of this Agreement or in the case of removal of the FPSO
to another site as may be permitted by the terms hereof, at such other
site. Charterer shall make and maintain all arrangements by bond or
otherwise as may be necessary to satisfy such requirements at Charterer's
sole expense.
7.6 Charterer shall at its own expense and by its own procurement, except as
stated to the contrary elsewhere, man, victual, operate, supply, fuel and
repair the FPSO whenever required during the duration of this Agreement and
shall pay all charges and expenses of every kind and nature whatsoever
incidental to its use and operation of the FPSO under this Agreement. The
Master, officers, crew and production personnel of the FPSO shall be the
servants of Charterer for all purposes whatsoever.
7.7 Charterer shall comply with the regulations of the Country of Registry
and, to the extent applicable, the Kingdom of Thailand. Charterer will
cause the FPSO to comply at all times with all applicable laws, treaties
and conventions and with all rules and regulations issued thereunder and to
have on board, when required thereby, valid certificates showing compliance
therewith.
7.8 During the duration of this Agreement the FPSO shall retain her present
name and shall remain under and fly the Bahamian flag, provided, however,
that Charterer shall have the liberty to paint the FPSO in its own colors,
install and display its funnel insignia and fly its own house flag.
Painting and repainting, installment and re-instalment shall be for
Charterer's account.
7.9 (a) Subject to Article 7.4 and Lessor's approval, which shall not be
unreasonably withheld, Charterer shall have the right to add additional
equipment, modify existing equipment or connect additional production
facilities. Any such additions or modifications, including the installation
thereof, shall be at the sole cost, risk and expense of Charterer. Such
additions, modifications and connections so installed shall, without
necessity of further act, become part of the FPSO and the property of
Lessor; PROVIDED, HOWEVER, that so long as no Event of Default shall have
occurred and be continuing, any such additions, modifications and
connections not required to be installed in order to meet the requirements
of Article 7.4 hereof and not installed as replacements for property
included on board the FPSO on the date of Field Acceptance may be removed
(so long as such removal can be accomplished without damage to the FPSO) by
Charterer, at its own expense and risk, at any time during, or at the
expiration of, the Initial Term upon reasonable prior notice, whereupon
such equipment shall, without necessity of further act, become the property
of Charterer.
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(b) Charterer may, in the ordinary course of maintenance, repair or
overhaul of the FPSO, remove any item of property constituting a part of
the FPSO; PROVIDED, HOWEVER, that such item is replaced as promptly as
possible by an item of property which is free and clear of all liens,
encumbrances and rights of others and is in as good operating condition, is
as seaworthy and has a value and utility at least equal to the item of
property being replaced. Any item of property removed from the FPSO as
provided in the preceding sentence shall remain the property of Lessor
until replaced in accordance with the terms of such sentence, but shall
then, without further act, become the property of Charterer. Any such
replacement item of property shall, without further act, become the
property of Lessor and be deemed part of the FPSO as defined herein for all
purposes hereof.
7.10 Charterer shall have the use of all items of inventory, equipment and
spares being part of or on board the FPSO on the date of Delivery, which
Lessor undertakes to provide. Such inventory will be specified pursuant to
Article 14.
8. INSPECTION
8.1 Lessor shall have the right at any reasonable time to inspect or survey
the FPSO itself or to instruct a duly authorized third-party surveyor to
carry out such survey on its behalf to ascertain the condition of the FPSO,
and to satisfy itself that the FPSO is being properly repaired, maintained
and operated. Such inspections and surveys shall be for Lessor's account.
Charterer shall provide, free of charge to Lessor, upon reasonable request
by Lessor, transportation from the shore base to the FPSO and vice versa on
its regular flights and, to the extent available, accommodations, catering
and communication on board for such inspectors or surveyors.
8.2 Charterer shall also permit Lessor to inspect the FPSO's log books
whenever requested and shall immediately furnish Lessor with full
information regarding any casualties or other accidents or damage to or
caused by the FPSO.
9. COMPENSATION
9.1 As full compensation for the performance by Lessor of its obligations
under this Agreement, Charterer shall pay Lessor a hire ("Hire"). Hire
shall accrue in accordance with this Article 9 commencing at 0001 hours
local time at the Offshore Site on the date ("Hire Commencement Date") on
which both (a) Field Acceptance, and (b) the earlier of (i) December 20,
1996 or (ii) the date on which hydrocarbons begin flowing through the FPSO,
shall have occurred.
Except as otherwise provided herein, Hire shall continue to accrue until
the date when the FPSO is redelivered to Lessor under the terms of this
Agreement. Hire for the first ten (10) years after the Hire Commencement
Date shall be paid at the rate of $65,752 per day, and Hire for the final
eighteen (18) months of the Initial Term shall be paid at the rate of
$43,227 per day (as applicable, the "Total Bareboat Rate") in the manner
provided for in Article 24, subject to adjustment by mutual agreement of
the parties, and, except as otherwise specifically provided herein, no
other compensation or reimbursement shall be due to Lessor for the
performance of its obligations hereunder.
9.2 Payment of Hire shall be made monthly in arrears, without any discount,
adjustment, set off or deduction, except as specifically set forth in this
Article 9 or otherwise in this Agreement. Lessor shall provide invoices to
Charterer covering each payment of Hire at least ten (10) days before due.
Payment of Hire shall be made to such U.S. Dollar account or accounts with
such European office of a first class bank as Lessor shall designate in
writing. Lessor shall not change such designations without Charterer's
consent, which consent shall not be withheld unless Charterer determines
that:
(i) such change would increase Charterer's costs; or
(ii) such change would expose Charterer to the risk of double payment.
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The first payment of Hire shall be paid in same day funds before the close
of business at the place of payment on the first business day of the
calendar month beginning after the Hire Commencement Date. Except as
otherwise provided in this Agreement, subsequent payments of Hire shall be
paid in same day funds at the place of payment on the first business day of
each applicable calendar month during the Initial Term or an extended term
("Hire Payment Date"). Hire shall accrue on a daily basis; provided that
Hire for any periods that constitute less than a calendar day shall be a
pro rata portion of Hire for such calendar day. If a Hire Payment Date
falls on a day which is not a banking day at the place of payment, payment
shall instead be made on the next succeeding day that is a banking day at
such place. Any Hire paid but not earned shall be refunded on the next Hire
Payment Date (or as otherwise provided under this Agreement) to Charterer
by Lessor.
9.3 Upon request by Charterer, Lessor shall promptly pay to Charterer, or at
the option of Charterer, at any time following an Event of Default by
Lessor hereunder or a default under the Lessor Parent Company Guarantee,
Charterer shall be entitled to deduct from the payments of Hire:
(i) actual or reasonably estimated disbursements, if any, for Lessor's
account;
(ii) any advances to the master of the FPSO (the "Master") or to Lessor's
affiliates, contractors, subcontractors, or agents for expenses or
disbursements for Lessor's account;
(iii) any previous overpayment of Hire, including payments made with
respect to periods of Downtime;
(iv) any sums due in respect of Lessor's failure to meet Lessor's
performance undertakings under this Agreement; and
(v) any other sums or credits to which Charterer is entitled under this
Agreement.
If a deduction is made based on an estimate, the next Hire payment shall be
adjusted, if necessary, to reflect any difference between such estimate and
the actual amount of deduction that Charterer is able to verify. All
deductions from Hire shall be verified by Charterer by production of
vouchers or supporting documentation corresponding to the deductions within
thirty (30) days after the applicable Hire Payment Date.
9.4 Notwithstanding anything contained in this Article 9 to the contrary, the
final payment of Hire hereunder shall be made on the date of redelivery of
the FPSO to Lessor. Deductions, to the extent permitted by Article 9.3,
from said final payment shall be those reasonably estimated by Charterer if
the actual amounts have not been determined and also less the amount
estimated by Charterer to become payable by Lessor for fuel and supplies on
redelivery of the FPSO to Lessor as provided in Article 25.
9.5 (a) Should the FPSO become an actual total loss, Hire shall cease at the
time of its loss or, if such time is unknown, at the time when the FPSO was
last heard of. Should the FPSO become a total loss of any other kind, if
approved in writing by Charterer in accordance with sub-clause (d) below,
including, without limitation, a constructive, compromised, agreed or
arranged total loss (a "constructive total loss"), Hire shall cease at the
time of the casualty resulting in such loss. Within ninety (90) days after
Hire has ceased under this Article 9.5, all monies owing to Charterer under
the provisions of this Agreement at the time Hire ceases under this Article
9.5 shall be paid to Charterer, and likewise Lessor shall be paid the net
amount of all sums due from Charterer. If the FPSO shall have been missing
for at least forty-eight (48) hours when a payment of Hire would otherwise
be due, such payment shall be postponed until the safety of the FPSO is
ascertained.
(b) Should the FPSO become an actual total loss or a constructive total
loss (i) for reasons other than negligence or willful misconduct of Lessor
Group and (ii) in circumstances where no Event of Default by Lessor or its
affiliates, its Guarantor or the Operator (a "Lessor Party") has occurred
and is continuing, this Agreement shall be deemed to be terminated as of
the date on which the
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obligation to pay Hire ceases in accordance with Article 9.5(a) without
prejudice to (A) the payment obligations of Lessor and Charterer as
described in Article 9.5(a) and (B) any other provisions which would
otherwise survive termination of this Agreement which, for the avoidance of
doubt, does not include any obligation to rebuild the FPSO or procure a new
FPSO.
(c) Should the FPSO become an actual total loss or a constructive total
loss either (i) for reasons where the negligence or willful misconduct of a
member of Lessor Group is a contributing factor or (ii) in circumstances
where an Event of Default by a Lessor Party has occurred and is continuing,
then, irrespective of such total loss, Charterer shall have the remedies
set out in Article 31 hereof.
(d) Lessor and its affiliates shall not be entitled to (i) claim under
this Agreement or (ii) reach agreement with the insurers on the hull
policies taken out by Lessor and its affilates that, in either case, the
FPSO constitutes a total loss of any kind other than an actual total loss
without the prior written approval of Charterer.
(e) An actual total loss or a constructive total loss will not constitute
in and of itself an Event of Default.
9.6 In the event Charterer fails to make any payment (including without
limitation any payment of Hire) due and owing to Lessor under this
Agreement, Lessor shall so notify Charterer. If Charterer fails to pay
amounts due and owing within five (5) business days after receipt of such
notice, Charterer shall pay to Lessor, in addition to all other amounts
then due and owing, a late fee at a rate equal to one-month LIBOR plus two
percent (2%) on the amounts then due and owing for the period of said fifth
(5th) day until paid without prejudice to any other remedies under this
Agreement.
9.7 All payments of Hire and other amounts due hereunder from one party to the
other shall be made in U.S. Dollars by interbank transfer. Except as
otherwise provided herein, all sums due by one party to the other shall be
paid within 30 days of receipt of invoice.
9.8 Charterer shall be responsible for obtaining and shall use all reasonable
efforts to obtain exchange control approval for payments under this
Agreement.
10. CHANGE IN LAW
10.1 The Total Bareboat Rate is based on the tax laws of Thailand and Holland
as of the date of this Agreement and assumes a tax burden of 1.1% of the
Total Bareboat Rate. In the event there are any changes in Thailand tax
laws or their interpretation which affect the cost to the Lessor of
chartering the FPSO, the Total Bareboat Rate shall be revised upwards or
downwards to take into account such change in costs; provided, however,
Charterer shall not be obligated to pay any Thai, Dutch or U.S. tax burden
up to a total amount equal to 2.2% of the Total Bareboat Rate and further
provided Lessor shall use all reasonable efforts to maintain its present
status under the tax treaty between Thailand and the Netherlands and shall
take all reasonable actions to prevent or minimize any such increased
expenses. Any increase in the total tax burden on the Total Bareboat Rate
in excess of 2.2% of the Total Bareboat Rate attributable to any changes in
Dutch tax laws shall be for Lessor's account. Any adjustment of said
compensation shall be effective as of the effective date of the change in
such tax burden; provided, Lessor shall furnish to Charterer the necessary
supporting documentation evidencing such changes within a reasonable time.
10.2 The parties hereto do not believe that any U.S. taxes are applicable to
payments made under this Agreement. To the extent that U.S. withholding
taxes are assessed on Hire payable hereunder, Hire shall be increased such
that the net Hire received by Lessor hereunder shall not be affected by
such U.S. withholding taxes. Lessor agrees to use its best efforts to
promptly obtain a refund of any such U.S. income taxes which have been
withheld in excess of Lessor's U.S. tax obligations and to promptly repay
such refund to Charterer.
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11. TAXES
Subject to Article 10, all taxes (including income and withholding taxes)
which are due with respect to the payment of the Total Bareboat Rate
pursuant to this Agreement shall be paid by Lessor or reimbursed to
Charterer by Lessor, except that Thailand value added taxes ("VAT"), other
Thailand sales/use taxes and Thailand customs and import duties applicable
to the FPSO, shall be paid by Charterer or reimbursed to Lessor by
Charterer. Charterer or its designee on the behalf of the Concessionaires
shall be designated as the importer of the FPSO and be responsible for
customs clearance and obtaining import licenses on the FPSO.
12. CONFLICTS OF INTEREST
Neither Lessor nor any of its subcontractors shall pay any fee, commission,
rebate or other thing of value to, or for the benefit of, any employee of
Charterer, its principals or any of its or their affiliates, nor shall
Lessor do business with any company knowing that the results thereof might
benefit an employee of the Charterer, its principals or any of its or their
affiliates.
13. LIENS AGAINST THE FPSO
13.1 a) Neither Charterer nor the master of the FPSO nor any other person
shall have any right, power or authority to create, incur or permit to
exist upon the FPSO any lien, charge or encumbrance other than
Permitted Encumbrances. Lessor may fasten to the FPSO in a conspicuous
place and maintain during the term of this Agreement a notice reading
as follows:
NOTICE OF CHARTER
This Vessel is mortgaged to , and is under
charter to Tantawan Services, L L C With the exception of
such mortgage, under the terms of said charter, neither
the charterer, any subcharterer, the master of this
Vessel, nor any other person has the right, power or
authority to create, incur or permit to be placed or
imposed upon this Vessel, or its profits, any lien
whatsoever, other than liens for master's and crew's wages
or salvage or as otherwise provided under said charter.
b) Lessor warrants that it has not created and covenants that it will not
create or permit to exist, and shall indemnify, hold harmless and defend
Charterer against any loss which Charterer may sustain by reason of, any
Owner Encumbrances.
c) "Permitted Encumbrances" shall mean (i) the rights of Charterer under
this Agreement, (ii) the rights of Lessor under this Agreement, (iii)
during the Initial Term or any extended term, liens for current master's
and crew's wages and salvage, (iv) Lessor Group's mortgage of the FPSO
in favor of certain lending institutions ("Lenders") provided Charterer
shall have received satisfactory assurances from the Lenders as to the
exercise of Charterer's rights under this Agreement in the absence of an
Event of Default by Charterer and the expiration of all cure periods
relevant thereto, and (v) liens arising in tort which are covered by
insurance; and "Permitted Encumbrance" shall mean any of the foregoing.
d) "Owner Encumbrances" shall mean any liens, security interests or
encumbrances resulting from voluntary action by Lessor Group, as
hereinafter defined, taken without the prior written approval of
Charterer and not taken as the result of an Event of Default by
Charterer.
13.2 Charterer agrees that if a libel or a complaint in admiralty (for purposes
of this Article 13.2 called a "claim") shall be filed against the FPSO, or
if the FPSO shall be otherwise levied upon or taken into custody or
detained or sequestered by virtue of proceedings in any court or tribunal
or by any government or other authority because of any claim (excluding a
claim against Lessor), Charterer shall at its own expense within 15 days
thereafter cause the FPSO to be released and each such
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claim to be discharged (except to the extent that the same shall be
contested by Charterer in good faith by appropriate proceedings and shall
not affect the continued use of the FPSO). Charterer agrees forthwith to
notify Lessor by telegram or telex, confirmed by letter, of each such claim
involving amounts in excess of $500,000 and of the release and discharge of
each such claim. Charterer agrees to advise in writing at least once in
each three-month period as to the status and merits of all such claims not
released and discharged within 15 days as provided above, which either are
not bonded or affect the ability of Charterer to use the FPSO in the
ordinary course of its business. Charterer agrees to indemnify, hold
harmless and defend Lessor against any loss which Lessor may sustain by
reason of any liens, security interests or encumbrances resulting from
voluntary action by Charterer Group taken without the prior written
approval of Lessor and not taken as the result of an Event of Default by
Lessor.
14. INVENTORY
A complete inventory of the FPSO's entire outfit, equipment (including
vessel equipment and supplies, cabin, crew and galley equipment),
furniture, furnishings, appliances, spare and replacement parts and all
unbroached consumable stores, fuel and lubricants onboard shall be jointly
taken within thirty (30) days following Field Acceptance by representatives
of Lessor and Charterer or by an independent outside firm as may be
mutually agreed upon. A similar inventory shall be taken and mutually
agreed upon at the time of Redelivery.
15. GAS SALES AGREEMENT
Charterer and Lessor recognize that compliance with the terms of the Gas
Sales Agreement will be required by the parties thereto, and Lessor and
Charterer will generally cooperate in facilitating such compliance by the
parties thereto.
16. DOWNTIME
16.1 Downtime shall mean any calendar day on which the FPSO is unable to
process sufficient gas so as to deliver (and actually deliver) into the
export pipeline the lesser of (i) 150 million cubic feet ("Mmcf") of gas or
(ii) the amount of gas that Charterer, its affiliates and designees are
capable of delivering to the FPSO, as determined in good faith by Charterer
on the basis of demonstrated measured data; provided that any shortfall in
gas delivery on a given calendar day may be made up so as to avoid Downtime
hereunder over the three succeeding calendar days. Downtime shall also mean
any calendar day on which the FPSO is unable to process and deliver into
the FPSO storage tanks the lesser of (i) 40,000 barrels of liquids or (ii)
the amount of liquids that Charterer, its affiliates and designees are
capable of delivering to the FPSO, as determined in good faith by Charterer
on the basis of demonstrated measured data; provided, however, that no
Downtime shall be deemed to have occurred pursuant to this sentence if the
FPSO's inability to process the liquids so required results solely from the
FPSO's inability to process the quantity of gas required by the immediately
preceding sentence. Downtime shall also mean any calendar day on which the
FPSO is unable to offload into shuttle tankers the oil stored on the FPSO,
other than for adverse weather conditions as specified in the Terminal
Regulations Manual, as defined in the Operating Agreement and in
Charterer's reasonable opinion this adversely affects the normal operation
of the fields served by the FPSO. For purposes of this Article 16.1,
"process" shall be interpreted to mean the processing on board the FPSO of
gas and liquids having the properties given in the Design Basis in
circumstances which conform to the design criteria given in the Design
Basis.
16.2 Downtime shall occur notwithstanding the fact that maintenance or repairs
(including Major Repairs but excluding those resulting from Charterer's
gross negligence or willful misconduct) are occurring. Downtime shall not
occur during the period that Charterer is adding or modifying equipment or
connecting additional facilities pursuant to Article 7.9 hereof.
16.3 Lessor shall give Charterer sixty (60) days' prior notice of any Major
Repairs to the FPSO.
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16.4 Downtime shall be deemed not to occur during an event which is a Force
Majeure event hereunder.
16.5 A Downtime Penalty Period shall mean any year based upon a historical
rolling year beginning after the earlier of (i) February 28, 1997 or (ii)
the Contractual Delivery Date, as defined in the Gas Sales Agreement. If
Charterer desires to fix the commencement of the Downtime Penalty Period by
reference to a Contractual Delivery Date based on completion of the seventy
two (72) hour test ("Test") referred to in clause 6.3 of the Gas Sales
Agreement, Charterer shall be required to obtain confirmation from Lessor
prior to commencement of the Test that the FPSO is able to process and
deliver Sales Gas, as defined in the Gas Sales Agreement, consistent with
the PTT nomination made pursuant to said clause 6.3. During any Downtime
Penalty Period (i) Charterer shall not be obligated to pay Lessor the Total
Bareboat Rate in respect of any Downtime occurring after the first thirty
(30) days of Downtime and (ii) if the first thirty (30) days of Downtime
are consecutive, in addition to the foregoing, Charterer shall not be
obligated to pay Lessor the Total Bareboat Rate for said first thirty
(30)-day period (and if Charterer has previously paid any or all of the
Total Bareboat Rate in respect of said first thirty (30) day period, Lessor
shall promptly refund such amount to Charterer).
17. INSURANCE
17.1 Lessor shall maintain in force or shall cause one of its affiliates to
maintain during the term of this Agreement the following insurance
coverages. Deductibles for insurance obtained pursuant to Article 17.1 a),
b) and c) shall be shared equally by Charterer and Lessor; all other
deductibles shall be for the account of Lessor.
a) Hull and Machinery and Increased Value Insurance on the FPSO in the
amount of one hundred twenty percent (120%) of the estimated value of
the FPSO on the London Institute Hull Clauses, or equivalent, including
Collision Liability to the extent not provided under Article 17.1 (d)
below.
b) Confiscation and Expropriation Insurance on the FPSO in the amount of
one hundred twenty percent (120%) of the estimated value of the FPSO.
c) War Risk Insurance on the FPSO subject to London Institute Hull War
Risk and Strikes Clauses, or equivalent, in the amount of one hundred
twenty percent (120%) of the estimated value of the FPSO, and War Risk
Protection and Indemnity Clauses with a limit of one hundred twenty
percent (120%) of the estimated value of the FPSO.
d) Protection and Indemnity Insurance on the FPSO, subject to the rules of
a Protection and Indemnity Club who are members of the International
Group of P & I Clubs. The P & I entry to include that proportion, if
any, of Collision Liabilities not covered under Article 17.1 (a) above.
e) Workmen's Compensation and Employer's Liability Insurance covering
Lessor Group's (as hereinafter defined) employees for statutory benefits
as set out and required by local law in the area of operation or any
area in which Lessor Group may become legally obligated to pay benefits.
Appropriate maritime coverage shall be included.
f) Comprehensive General Liability and Automobile Liability Insurance
covering premises and operations, independent contractors and
contractual liability, as well as all owned, hired and non-owned
vehicles. Minimum policy limits for personal injury and property damage
shall be:
i) Comprehensive General Liability: US$25,000,000 single limit per
occurrence;
ii) Automobile Liability: US$1,000,000 single limit per occurrence or
such greater amount as required by applicable law.
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g) Pollution Insurance for the FPSO for US$300 million per occurrence,
subject to market availability.
17.2 Before commencing performance of this Agreement, Lessor shall furnish
Charterer with Certificates of Insurance indicating:
a) the kinds and amounts of insurance as required;
b) the insurance company or companies providing the aforesaid coverages;
c) the effective and expiration dates of policies;
d) that Charterer will be given thirty (30) days' (7 days for War Risk
insurance policy) written advance notice of any material change,
non-renewal or cancellation of any policy;
e) the territorial limits of all policies; and
f) that Charterer Group (as hereinafter defined) has been named as an
additional insured on all policies referred to in Article 17.1 (except
Article 17.1e)) with waivers of subrogation on the policies in Article
17.1.
17.3 Charterer shall maintain in force during the term of this Agreement the
following insurance coverages. Deductibles shall be for the account of
Charterer.
a) Workman's Compensation and Employer's Liability Insurance covering
Charterer Group's employees for statutory benefits as set out and
required by local law in the area of operation or area in which
Charterer Group may become legally obligated to pay benefits.
Appropriate maritime coverage shall be included.
b) Comprehensive General Liability and Automobile Liability Insurance
covering premises and operations, independent contractors and
contractual liability, as well as all owned, hired and non-owned
vehicles. Minimum policy limits for personal injury and property damage
shall be:
i) Comprehensive General Liability: US$25,000,000 single limit per
occurrence; and
ii) Automobile Liability: US$1,000,000 single limit per occurrence or
such greater amount as required by applicable law.
c) Seepage and Pollution Insurance on normal industry terms for the
reservoir and oil field installations for US$50 million per occurrence.
17.4 Charterer shall furnish Lessor with Certificates of Insurance indicating:
a) the kinds and amounts of insurance as required;
b) insurance company or companies providing the aforesaid coverages;
c) effective and expiration dates of policies;
d) Lessor will be given thirty (30) days' written advance notice of any
material change, non-renewal or cancellation of any policy;
e) the territorial limits of all policies; and
f) that Lessor Group has been named as an additional insured on all
policies referred to in Article 17.3 b) and c) with waivers of
subrogation on the policies in Article 17.3.
Charterer shall use reasonable efforts to obtain an agreement from PTT to
indemnify Lessor Group and Charterer Group for losses and damages resulting
from operations of shuttle tankers used or hired to transport oil from the
FPSO.
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17.5 Except as specifically provided above in this Article 17, Lessor and
Charterer shall work toward establishing insurance values, amounts,
coverages and deductibles on forms and with insurers which are compatible
and consistent with the standards of prudent owners and operators of
vessels of similar type, size, age, location and activity as the FPSO.
18. INDEMNITY
18.1 Charterer Group shall have no liability or responsibility whatsoever for
injury, illness or death of or property loss or damage (including to the
FPSO) sustained by Lessor and its affiliates, associates, co-venturers,
subcontractors at all levels, sub-suppliers, lenders and their respective
shareholders, officers and employees and agents and the Master and crew of
the FPSO (hereinafter all such persons and companies called "Lessor Group")
howsoever caused or arising. Lessor shall protect, defend, indemnify and
hold harmless Charterer and its affiliates, associates, co-venturers, co-
venturers of subsidiaries and affiliates, and subcontractors at all levels
and their respective shareholders, officers, employees and agents
(hereinafter all such companies and persons called "Charterer Group") from
and against any loss, damage, claim, expense, suit or liability (including
attorneys' fees and legal costs) as a result of such injury, illness or
death or property loss or damage.
18.2 Lessor Group shall have no liability or responsibility whatsoever for
injury, illness or death or property loss or damage (including oil and gas
reservoirs, pipelines and platforms in which Charterer Group has an
interest) sustained by Charterer Group, howsoever caused or arising,
including the unseaworthiness of the FPSO or otherwise. Charterer shall
protect, defend, indemnify and hold harmless Lessor Group from and against
any loss, damage, claim, expense, suit or liability (including attorneys'
fees and legal costs) as a result of such injury, illness or death or
property loss or damage.
18.3 Subject to the provisions of Articles 18.5, 18.6 and 18.9, with respect to
claims by third parties (which shall exclude Charterer Group and Lessor
Group) to the extent arising out of Lessor Group's negligence, Lessor
agrees to indemnify, defend and save Charterer Group harmless from and
against any and all losses, claims, demands, liabilities, damages, suits or
actions in rem or otherwise (including expenses and attorneys' fees) for
loss or damage to or injury, illness or death of such third parties.
18.4 Subject to the provisions of Articles 18.5, 18.6 and 18.9, with respect to
claims by third parties (which shall exclude Charterer Group and Lessor
Group) to the extent arising out of Charterer Group's negligence, Charterer
agrees to indemnify, defend and save Lessor Group harmless from and against
any and all losses, claims, demands, liabilities, damages, suits or actions
in rem or otherwise (including expenses and attorneys' fees) for loss or
damage to or injury, illness or death of such third parties.
18.5 From and after Field Acceptance, Charterer shall be solely responsible for
(i) seepage or pollution from reservoirs, pipelines, platforms and other
property related thereto owned or leased by Charterer Group while such
property is in Charterer Group's custody and control, including cost of
cleanup of same, and (ii) with respect to amounts in excess of $10,000,000
per occurrence, pollution from the FPSO (including its risers). Charterer
agrees to indemnify, defend and save Lessor Group harmless from and against
any and all losses, claims, demands, liabilities, damages, suits or actions
in rem or otherwise (including expenses and attorneys' fees) for loss or
damage to Lessor Group arising out of the seepage or pollution described in
clause (i) and the pollution (for amounts in excess of $10,000,000 per
occurrence) described in clause (ii). With respect to said pollution from
the FPSO, Charterer shall conduct cleanup operations and Lessor shall
provide all reasonable assistance; ultimate financial responsibility for
the cost of such cleanup (to the extent less than $10,000,000) will be
allocated by mutual agreement of the parties or pursuant to applicable law.
If Charterer causes crude oil or gas described in this Article 18.5 to be
insured, Charterer shall cause Lessor Group to be named as co- insured in
such policy as their interests may appear.
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18.6 a) Notwithstanding Article 18.5, Lessor shall be solely responsible for
all liabilities, costs, expenses, penalties and/or fines arising from
or caused by any pollution originating in or above the surface of the
water from (i) spills of fuels, bunkers, slop tanks, lubricants, motor
oils, pipe dope, paints, solvents, ballast, bilge, garbage and sewage
in Lessor Group's possession or control (including the FPSO) and (ii)
any property or equipment (other than the FPSO) owned, leased or
provided by the Lessor Group while such equipment is in a member of
Lessor Group's custody and control, including costs of cleanup of
same.
b) Notwithstanding Article 18.5, Charterer shall be solely responsible for
all liabilities, costs, expenses, penalties and/or fines arising from or
caused by any pollution originating in or above the surface of the water
from (i) spills of fuels, bunkers, slop tanks, lubricants, motor oils,
pipe dope, paints, solvents, ballast, bilge, garbage and sewage in
Charterer Group's possession or control (other than the FPSO) and (ii)
any property or equipment owned, leased or provided by the Charterer
Group (other than the FPSO) while such equipment is in a member of
Charterer Group's custody and control, including costs of cleanup of
same.
18.7 All excuses from liability for one party and all indemnities given by one
party to the other party or to the other party's Group pursuant to this
Agreement, including but not limited to the indemnities in this Article 18,
shall apply regardless of the sole or concurrent negligence or gross
negligence or breach of duty or strict liability of the parties to be
indemnified but shall not apply in the case of willful misconduct.
18.8 As used herein, "affiliate" shall mean any company or legal entity which
(i) controls either directly or indirectly a party hereto, (ii) which is
itself effectively controlled directly or indirectly by such party or (iii)
is directly or indirectly effectively controlled by a company or entity
which directly or indirectly controls such party. "Control" means the right
to exercise forty percent (40%) or more of the voting rights in the
appointment of the directors of the company concerned.
18.9 In no event shall either party's Group be liable for any loss of
production, loss of oil or gas, loss of revenue or profit, loss of
commercial advantage, demurrage, or any consequential or indirect losses or
damages suffered by the other party's Group as a result of any act or
omission or negligence, unseaworthiness of the FPSO or otherwise, and each
party shall protect, defend, indemnify and hold harmless the other party's
Group with respect to its Group's losses in this regard.
18.10 The provisions of this Article 18 are intended to specifically allocate
certain liabilities between the parties hereto in the events described in
this Article 18 but shall not be interpreted to waive or excuse
performance by any party of its representations, warranties and covenants
set forth in this Agreement.
19. NON-WAIVER OF DEFAULTS; NON-RECOURSE
19.1 Any failure by either party at any time, or from time to time, to enforce
or require the strict keeping and performance of any of the terms or
conditions of this Agreement, or to exercise a right hereunder, shall not
constitute a waiver of such terms or conditions.
19.2 Notwithstanding any provision herein to the contrary, Lessor's recourse in
the event of occurrence of any Event of Default hereunder shall be as
provided in Article 31 hereof, PROVIDED THAT Lessor shall have no recourse
to the assets of Charterer (other than its rights with respect of the
FPSO), but shall be permitted to exercise any and all rights under and with
respect to the guarantees and collateral referred to in Article 5.
20. FORCE MAJEURE
20.1 Any loss or damage or delay in, or failure of performance of either party
shall not constitute default hereunder or give rise to any claims for
damages if and to the extent that such loss, damage, delay or failure is
caused by "Force Majeure."
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20.2 In this Agreement "Force Majeure" shall denote any event the happening of
which could not be prevented even though a person against whom it happened
or threatened to happen were to take such appropriate care as might be
expected of a Reasonable and Prudent Operator, as hereinafter defined.
"Reasonable and Prudent Operator" when used to describe the standard of
care to be exercised by a party in performing its obligations means the
degree of diligence and prudence and foresight reasonably and ordinarily
exercised by experienced operators engaged in the same line of business
under the same or similar circumstances and conditions and when used to
determine the action that would be required of a party means the action an
experienced commercial operator engaged in the same line of business under
the same or similar circumstances and conditions would take in the exercise
of such due diligence, prudence and foresight. Notwithstanding Article
20.1, Force Majeure shall not release either party from any obligation to
give a notice or make any payment (including, in particular, any payment of
Hire) under this Agreement except where the making of a payment is
prevented by a Force Majeure event affecting the transfer of monies by the
payor. Any payments which are so prevented from being made by reason of
Force Majeure shall, upon the cessation of the Force Majeure event, be made
as soon as practicable thereafter in addition to any other amounts which
may then be payable by such party under this Agreement.
20.3 Events which may, subject to Article 20.2, be considered Force Majeure
events shall include but not be limited to acts of government, strikes,
lock-outs, acts of public enemy, wars whether declared or undeclared,
blockades, insurrection, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, washouts, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, freezing of
wells or lines of pipe, partial or entire failure of wells, inability to
obtain necessary materials or supplies due to changes in laws and
regulations, material changes in the obligations of the concessionaire
under the Concession Agreement, as herein defined, imposed unilaterally by
the Government of Thailand, and inability of PTT to accept delivery of
natural gas delivered to PTT under the Gas Sales Agreement where such
inability constitutes an event of Force Majeure under the Gas Sales
Agreement which has been declared.
20.4 A party claiming relief on account of Force Majeure shall:
(i) as soon as practicable give notice to the other party of the happening
said to constitute Force Majeure, such notice to include full
information about the circumstances and a statement of the steps and
time believed necessary to remedy the failure but neither party shall
be obligated to settle or prevent any strike or other industrial
action except on terms which, in its sole judgment, are acceptable to
it; and
(ii) proceed as a Reasonable and Prudent Operator at its own expense to
remedy the failure as rapidly as possible.
21. LAW AND ARBITRATION
21.1 This Agreement shall be construed and governed in accordance with the
maritime law of the United States of America and, to the extent such law is
inapplicable, with the laws of the State of New York excluding any conflict
of law rules. In connection with the interpretation of any exhibit hereto,
the choice of law of this Agreement shall prevail.
21.2 Any dispute arising under or in connection with this Agreement shall be
settled by arbitration in New York City under the rules of the American
Arbitration Association, except as provided herein. The party requesting
arbitration shall be entitled to have arbitration of the dispute
consolidated with any other pending dispute under this Agreement or with
any dispute arising under the Operating Agreement. The party requesting
arbitration shall serve upon the other party a written demand for
arbitration with the name and address of the arbitrator appointed by it,
and such other party shall, within ten (10) days thereafter, appoint an
arbitrator, and the two arbitrators so named, if they can agree, shall
appoint a third, and the decision or award of any two shall be final and
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binding upon the parties. In no event shall any dispute or consolidated
group of disputes be determined by more than three arbitrators. Should the
party upon whom the demand for arbitration is served fail or refuse to
appoint an arbitrator within ten (10) days, the single arbitrator shall
have the right to decide alone, and his decision or award shall be final
and binding upon the parties. The arbitrator(s) shall have the discretion
to impose the cost of the arbitration proceedings, including reasonable
attorney's fees upon the losing party, or divide it between the parties on
any terms which may appear just. Any decision or award rendered hereunder
may be made and entered as a rule or judgment of any Court, in any country
having jurisdiction.
21.3 Judgment upon the arbitration award rendered may be entered in any Court
having either personal or in rem jurisdiction, or application may be made
to such Court for a judicial acceptance of the award and an Order of
Enforcement, as the case may be.
22. NOTICES
22.1 Notices or other communications required to be given by either party
pursuant to this Agreement shall be written in English and sent in letter
form or by telex or facsimile to the address of the other party set forth
in Article 22.2 below, or to such other address as may from time to time be
designated by the other party through notification of such party. The dates
on which notices shall be deemed to have been effectively given shall be
determined as follows:
22.1.1 Notices given by personal delivery shall be deemed effectively
given on the date of personal delivery;
22.1.2 Notices given in letter form shall be deemed effectively given on
the seventh day after the date mailed (as indicated by the
postmark) by registered airmail, postage prepaid, or the third day
after delivery to an internationally recognized courier service;
22.1.3 Notices given by telex shall be deemed effectively given on the
first business day following the date of transmission, as indicated
on the document in question; and
22.1.4 Notices given by facsimile shall be deemed effectively given on the
first business day following the date of transmission, as indicated
on the document in question.
22.2 Except as otherwise provided in Article 22.1, the parties shall give all
notices and send all invoices and communications under this Agreement to:
22.2.1 If to Lessor:
Tantawan Production B.V.
557's - Gravelandseweg
3119 XT Schiedam
The Netherlands
Attention: R. Smulders
31-10-4260430 (ph)
31-10-4731434 (fax)
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22.2.2 If to the Charterer:
Tantawan Services, LLC with a copy to:
18th Floor, B.B. Building Pogo Producing Company
54 Soi Asoke, Sukhumvit 21 Rd. 5 Greenway Plaza, Suite 2700
Kwaeng Klongtoey Nua, Khet Houston, TX 77046-0504
Klontoey Attn: Legal Dept.
Bangkok 10110, Thailand (713) 297-5000 (phone)
Attn: Resident Manager (713) 297-4970 (fax)
(662) 260-7151 (phone)
(662) 260-7150 (fax)
22.3 All references in this Agreement to a business day shall refer to a day
when both parties are open for business or, in the case of payments under
Article 9, a day when banks at the place of payment are open for business.
23. PURCHASE OPTION
Provided that an Event of Default by Charterer under Article 30 of this
Agreement is not existing, Charterer shall have the right to exercise an
option (the "Purchase Option") to purchase the FPSO (including its on-board
spare parts) from the Lessor free from all encumbrances (except
encumbrances created by Charterer), (i) at the expiration of the Initial
Term for a price of five million dollars ($5,000,000), or (ii) at any time
during the Initial Term or during any extended term at a price to be
determined by reference to Appendix C-1, or (iii) at any time during the
Initial Term or at any time during an extended term, (A) if an Event of
Default by Lessor has occurred under Article 30 of this Agreement and
Charterer has elected, pursuant to Article 31.1(b) hereof to exercise this
Purchase Option, or (B) if, in the opinion of Charterer (and, if requested
by Lessor, in the opinion of Charterer's outside counsel), such purchase is
required by relevant governmental authorities pursuant to applicable laws,
rules, regulations or agreements with such governmental authorities, for a
price determined by reference to Appendix C-2; provided that, in each of
the forgoing cases, such purchase price shall be reduced by any amounts due
from Lessor under this Agreement which have been established at the time of
such purchase; provided further, in the case of a purchase pursuant to
subsections (i) or (ii) above only, the FPSO shall not be moved to operate
in another field outside Thailand or, if within Thailand, (i) to a field in
which a current or future member of the Charterer Group (as defined in
Article 18.1) does not have an interest, or (ii) unless pursuant to the
Concession Agreement. Any Thailand sales or transfer taxes attributable to
the sale will be paid by Charterer. If Charterer is exercising its Purchase
Option pursuant to (i) or (iii)(A) above, Charterer shall provide notice of
its intent to do so in accordance with the relevant provisions of this
Agreement. If Charterer is exercising its Purchase Option pursuant to
(iii)(B) above, Charterer shall provide notice of its intent to do so at
the earliest reasonable practicable opportunity. If Charterer is exercising
its Purchase Option pursuant to (ii) above, Charterer shall provide notice
of its intent to do so at least 180 days prior to such purchase. Upon
notification by Charterer of its intent to exercise the Purchase Option,
Lessor shall use reasonable diligence to cause the release of all liens
(except liens caused or created by Charterer Group) on the FPSO to be
effective not later than closing of the sale.
In the event the Purchase Option is exercised, unless agreed otherwise
between Charterer and Lessor, Lessor shall sell the FPSO and Charterer
shall purchase the FPSO "as is," safely afloat, at the time and place of
redelivery of the FPSO pursuant to Article 25, at which time:
a) Lessor shall deliver to Charterer:
(i) A certificate signed by a duly authorized executive of Lessor to
the effect that the FPSO is free from all encumbrances (except
encumbrances created by Charterer),
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(ii) A certificate signed by the appropriate government official of
the Country of Registry showing Lessor as the sole owner of the
FPSO and no liens of record other than encumbrances to be
satisfied out of the FPSO's sales proceeds,
(iii) One or more bills of sale executed by duly authorized officers of
Lessor on behalf of Lessor conveying full title of the FPSO to
Charterer in suitable form for recording or registering title,
(iv) Copies of class and trading certificates (where relevant to its
class) for the FPSO valid at the time of re-delivery,
(v) All government approvals necessary to transfer the FPSO to
Charterer and, if requested by Charterer, to delete the FPSO from
registry in the Country of Registry and any country claiming
jurisdiction over Lessor's power to sell the FPSO,
(vi) Copies of all log books, classification certificates, manuals and
other documents in the Lessor's or Lessor's manager's possession
related to the FPSO's operation and maintenance, and
(vii) Physical possession of the FPSO.
b) On delivery Charterer shall pay the purchase price to Lessor or its
designee by transfer to Lessor's account then designated for receipt of
Hire payments.
c) Each party shall deliver to the other party such additional
documentation or take such additional action as such other party may
reasonably request or as may be customary at the time with respect to
the sale of vessels registered in the Country of Registry and which is
not in conflict with the provisions of this Agreement, provided that
Lessor shall not be required to arrange or pay for a drydocking or
inspection of the FPSO for purposes of said sale and purchase.
24. REVENUES
Lessor and Charterer have entered into that certain Accounts Agreement
dated December 19, 1996, among the Joint Venturers, Thaipo Limited as Field
Operator, Lessor, Charterer, Operator and ABN AMRO Bank N.V., Bangkok
Branch (the "Accounts Agreement"). If the Accounts Agreement terminates as
the result of a Lessor Event of Default under this Agreement and,
subsequent to such termination, such Lessor Event of Default is cured prior
to Charterer exercising its rights to terminate this Agreement under
Article 31 of this Agreement, then Lessor and Charterer shall as soon as
reasonably practicable enter into a new accounts agreement in form and
substance substantially similar to the Accounts Agreement. The obligations
of Charterer under the said Accounts Agreement (and any successor accounts
agreement entered into pursuant to the preceding sentence) shall be deemed
for purposes of the Joint Venturer Guarantees to be obligations of
Charterer hereunder.
25. REDELIVERY OF FPSO
The FPSO shall at the expiration or termination or as provided in Article
31.2 (b) of this Agreement (unless lost or a constructive total loss or
under requisition or purchased by Charterer) be redelivered to Lessor at
the Offshore Site (the "Redelivery"), as is - where is, in accordance with
the following conditions. The FPSO shall be redelivered to Lessor properly
documented and in class with no recommendations, fair wear and tear not
affecting class excepted. Charterer shall have discharged substantially all
free crude oil (other than tank bottoms) from the FPSO. Any expenses of
degassing or demucking conducted within 12 months of Redelivery shall be
borne by Charterer. The FPSO shall upon Redelivery have her class
certificates valid. Charterer will render the FPSO available to Lessor at
the time of Redelivery for survey, inspection, testing and inventory check
at
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Lessor's expense. Charterer at its expense shall meet its Redelivery
obligations and the charter period shall be extended for the period
necessary to make any deficiencies good. During any such period the
compensation payable under Article 9 before Redelivery shall not be so
payable provided Charterer's obligations herein are met promptly and
expeditiously. Prior to and during the Redelivery of the FPSO, Charterer
shall provide such reasonable assistance to Lessor as Lessor requests in
order to effect taking Redelivery of the FPSO, including but not limited to
temporary office facilities onshore and transportation from Charterer's
shore base to the FPSO and vice versa for Lessor's personnel and supplies
as is reasonable under the circumstances. On Redelivery, Lessor shall be
free (i) to cut and either remove or abandon the anchor chains, the risers,
buoyancy tanks and the control umbilicals (but so as to leave no hazard to
shipping and to avoid damage to Charterer's wells, wellheads, pipelines,
PLEMS or other equipment) and to remove the FPSO from the Offshore Site but
without having any obligation to remove subsurface equipment or materials
including piling or any other obligation to clear the Offshore Site and
(ii) to remove any free crude oil not previously removed by Charterer at
Charterer's expense.
26. REQUISITION
26.1 If the FPSO is seized, expropriated, confiscated, nationalized or
requisitioned by any authority (other than the government, or any
department, commission or agency thereof, of the Country of Registry,
whether a legally constituted governmental authority or otherwise), and
such seizure, expropriation, confiscation, nationalization or requisition
has continued for a period of at least 30 consecutive days, this Agreement,
at the option of Charterer, may continue in force or may be terminated at
any time during the period of seizure, expropriation, confiscation,
nationalization or requisition, provided that in the event Charterer elects
to terminate, notice shall be given to Lessor by Charterer and
compensation, as specified in Article 9, shall cease as of the date
occurring 30 days prior to the date of notice of termination and the FPSO
shall be deemed to have been Redelivered to Lessor by Charterer. If
Charterer has previously paid any or all of such compensation in respect of
such 30 day period, Lessor shall promptly refund such amount to Charterer.
26.2 In the event the FPSO is seized, expropriated, confiscated, nationalized
or requisitioned by the government, or any department, commission or agency
thereof, of the Country of Registry, whether a legally constituted
governmental authority or otherwise, this Agreement shall be deemed
terminated and compensation, as specified in Article 9.1, shall cease as of
the date of seizure, expropriation, confiscation, nationalization or
requisition, and the FPSO shall be deemed to have been redelivered to
Lessor by Charterer.
26.3 In the event any seizure, expropriation, confiscation, nationalization or
requisition of the FPSO occurs, Lessor shall use its best efforts to
arrange the release of the FPSO therefrom (including, without limitation,
changing the Country of Registry of the FPSO) and shall afford Charterer
the opportunity to join in any such action.
27. GENERAL AND PARTICULAR AVERAGE
General average if any shall be adjusted according to the York-Antwerp
Rules 1994 or any subsequent modification thereof current at the time of
the casualty.
28. SALVAGE
All salvage and towage shall be for Lessor's benefit and the cost of
repairing damage occasioned thereby shall be borne by Lessor.
29. AUDIT
Lessor shall maintain its records which pertain to Articles 9 and 11 hereof
in accordance with generally accepted international accounting principles
and will keep copies of all applicable
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documents, forms and third-party invoices, etc., and will permit Charterer
to inspect such records at any time upon request during regular business
hours.
30. DEFAULT
The following events by either party hereto or any guarantor ("Guarantor")
under a Joint Venturer Guarantee or Lessor Parent Company Guarantee (any
such Guarantee being defined as a "Guarantee") shall constitute an Event of
Default:
a) failure to observe any material covenant, condition or agreement to be
performed or observed by said party hereunder or any Guarantor under the
Guarantees; or
b) any representation or warranty made herewith or pursuant hereto or
pursuant to any of the Guarantees shall prove to be incorrect at any
time in any material respect; or
c) said party or Guarantor shall become insolvent or bankrupt or consent
to the appointment of a trustee or receiver, or a trustee or receiver
shall be appointed for said party or for a substantial part of its
property without its consent and shall not be dismissed for a period of
thirty (30) days, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against said party and, if
instituted against said party, shall not be dismissed for a period of
thirty (30) days, and at any time thereafter so long as the same shall
be continuing; or
d) an Event of Default with respect to that party or its Guarantor shall
have occurred under the Operating Agreement (for purpose of this
paragraph d) only, an Event of Default by Operator under the Operating
Agreement shall be deemed an Event of Default by Lessor hereunder); or
e) A Force Majeure Event shall have occurred preventing payment by either
party and such failure to pay continues unremedied for a period of 60
consecutive days.
31. REMEDIES
31.1 Upon the occurrence of an Event of Default by Lessor or its affiliate and
at any time thereafter so long as the same shall be continuing, Charterer
may, at its option, upon ninety (90) days' notice thereof to Lessor,
declare this Agreement to be in default; and, at any time thereafter, so
long as Lessor shall not have remedied or have commenced and at all times
thereafter diligently acted to remedy all outstanding Events of Default,
Charterer (a) may terminate this Agreement, compensation as specified in
Article 9.1 shall cease as of the date of termination and Charterer shall
redeliver the FPSO to Lessor as if the FPSO were being redelivered pursuant
to Article 25 hereof, or (b) accelerate its right to exercise the Purchase
Option at a price to be determined by reference to Appendix C (offsetting
any damages which have been established at the time of such purchase
against the purchase price of the FPSO) and terminate compensation under
Article 9.1. Lessor shall be liable for any and all damages to Charterer
resulting from termination of this Agreement and for all legal fees and any
other costs and expenses whatsoever incurred by Charterer by reason of the
occurrence of any Event of Default or by reason of the exercise by
Charterer of any remedy hereunder, including, without limitation, any costs
and expenses incurred by Charterer in connection with Redelivery of the
FPSO. Notwithstanding the remedies available to Charterer under this
Article 31, the provisions of Article 18.9 shall apply so as to limit the
damages of Charterer and any guarantors of Charterer's obligations
hereunder, PROVIDED that if Lessor shall breach its obligation other than
for reasons wholly outside its control to sell the FPSO to Charterer if
Charterer exercises its Purchase Option under sub-clause (b) above, Lessor
shall be liable to such guarantors for direct damages to the guarantors or
any of their affiliates which are parties to the Gas Sales Agreement
arising under Articles XV or XVIII of the Gas Sales Agreement. To the
extent that such guarantors (and such affiliates) claim direct damages
under the Gas Sales Agreement as provided in the preceding sentence, such
guarantors and affiliates must use their reasonable efforts to mitigate
their damages. Charterer must use reasonable efforts to mitigate its
damages.
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31.2 Upon the occurrence of an Event of Default by Charterer or its affiliate
(provided that such Event of Default did not arise out of or result from
actions, or omissions to act, of Operator under the Operating Agreement)
and at any time thereafter so long as the same shall be continuing, Lessor
may, at its option, upon ninety (90) (or, in the case of an Event of
Default based on a failure to pay money when due (including a failure by
reason of Force Majeure), thirty (30)) days' notice thereof to Charterer,
declare this Agreement to be in default; and, at any time thereafter, so
long as Charterer shall not have remedied or (except as to an Event of
Default based on a failure to pay money when due) have commenced and at all
times thereafter diligently acted to remedy all outstanding Events of
Default Lessor may do, and Charterer shall comply with, one or more of the
following, as Lessor in its sole discretion shall so elect, to the extent
permitted by, and subject to compliance with any mandatory requirements of
applicable law then in effect. Lessor must use reasonable efforts to
mitigate its damages and shall apply any amounts received from the sale or
re-charter (for a period equal to the remainder of the term of this
Agreement) of the FPSO (after deducting Lessor's direct out-of-pocket
expenses of making the FPSO ready for sale or re-charter) to reduce the
amount of any charter hire and other amounts payable by Charterer to Lessor
pursuant to the last paragraph of this Article 31.2. To the extent that
Charterer fails to maintain in force any insurance coverage described in
Article 17.3 and is not diligently acting to replace such coverage, Lessor
shall be entitled to obtain such insurance for the account of Charterer.
a) Lessor may terminate this Agreement.
b) Upon written demand, Lessor may cause Charterer to, and Charterer
hereby agrees that it will, redeliver the FPSO to Lessor within a
reasonable period of time not to exceed 45 days and in the same manner
and in the same condition as if the FPSO were being redelivered pursuant
to Article 25 hereof; or Lessor or its agent, at Lessor's option, may,
but shall be under no obligation to, retake the FPSO irrespective of
whether Charterer or any other person may be in possession of the FPSO,
upon 24 hours prior notice but without prior demand and without legal
process, and for that purpose Lessor or its agent may take possession
thereof.
c) Lessor or its agent may sell the FPSO at public or private sale, with
notice to Charterer, or otherwise may dispose of, hold, use, operate,
charter (whether for a period greater or less than the balance of what
would have been the charter period for the FPSO in the absence of the
termination of Charterer's rights to the FPSO) to others or keep idle,
all on such terms and conditions and at such place or places as Lessor
may determine.
In addition, Charterer shall be liable for and shall pay to Lessor within
thirty days after Lessor takes redelivery or possession of the FPSO a lump
sum equal to any and all additional Hire payable during the Initial Term
and for all legal fees and any other costs and expenses whatsoever incurred
by Lessor by reason of the occurrence of any Event of Default or by reason
of the exercise by Lessor of any remedy hereunder, including, without
limitation, any costs and expenses incurred by Lessor in connection with
the Redelivery or retaking of the FPSO.
31.3 Each party's remedies referred to in this Article 31 are intended to be
the exclusive remedies of such party under this Agreement; PROVIDED,
HOWEVER, that either party may enforce performance of these remedies by all
legal or equitable means.
31.4 No express or implied waiver by either party of any Event of Default shall
be in any way, or be construed to be, a waiver of any further or subsequent
Event of Default.
32. MISCELLANEOUS
32.1 a) All terms and conditions of this Agreement shall be binding upon and
shall enure to the benefit of the parties hereto and their respective
successors and permitted assigns. Any purported assignment in
contravention of this Article 32 shall be null and void.
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b) Charterer shall be entitled to assign its rights, duties and
obligations hereunder to an affiliate without the consent of Lessor
PROVIDED that Lessor receives simultaneously with such assignment
guarantees from the Joint Venturers in respect of such assignee's
obligations in the terms set out in Article 5 hereof.
c) Any party having rights under this Agreement shall be entitled to
pledge and/or assign its rights and, to the extent possible, and if
requested, its duties and obligations under this Agreement by way of
security to any lending institution providing financing for the
transactions contemplated hereby or related to the development of the
Tantawan Field or a collateral agent on their behalf provided that any
such pledge or assignment does not release the assignor or any guarantor
of the assignor's obligations hereunder, from any of their respective
obligations to the Lessor or the Charterer as the case may be.
d) Charterer shall not subcharter the FPSO to any party including an
affiliate without the prior written consent of Lessor such consent not
to be unreasonably withheld.
Save as specifically provided above, neither party hereto shall be entitled
to assign any rights or obligations under this Agreement without the prior
consent of the other party, not to be unreasonably withheld. Charterer
shall maintain a written record that identifies Lessor as the person
entitled to payments under this Agreement. In the event of an assignment by
Lessor of any of its rights under this Agreement, such assignment will be
reflected on the record maintained by Charterer.
22
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[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
23
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32.2 This Agreement may be executed in one or more counterparts, all of which,
taken together, shall constitute one original document.
32.3 Except as specifically provided herein to the contrary, each party hereto
intends that this Agreement shall not benefit or create any right or cause
of action to any person other than parties hereto or their permitted
assignees.
32.4 The making, execution and delivery of this Agreement by the parties hereto
have been induced by no representation, statements, warranties or
agreements other than those herein expressed or set forth in the attached
exhibits or schedules. This Agreement and such exhibits or schedules embody
the entire understanding of the parties, and there are no further or other
agreements or understandings, written or oral, in effect between the
parties relating to the subject matter hereof, unless expressly referred to
by reference herein.
32.5 This Agreement may be amended or modified and any condition herein
specified may be waived by mutual consent of the parties by a written
instrument executed on behalf of the parties.
32.6 The captions contained in this Agreement are for convenience of reference
only and do not form a part of this Agreement and shall not affect the
interpretation hereof.
32.7 If any portion of this Agreement shall be deemed by an arbitration
tribunal or a court of competent jurisdiction to be unenforceable, the
remaining portions shall be valid and enforceable only if, after excluding
the portion deemed to be unenforceable, the remaining terms hereof shall
provide for the consummation of the transactions contemplated herein in
substantially the same manner as originally set forth at the date this
Agreement was executed.
32.8 Each of the parties hereto intends this Agreement will be treated as a
lease of the FPSO from Lessor to Charterer. Neither Charterer, Lessor, nor
any of their respective affiliates will take any action nor file any
document with any governmental authority including, without limitation, any
tax return, which is inconsistent with such characterization of this
Agreement as a lease.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate as of the 9th day of February, 1996.
TANTAWAN PRODUCTION B.V. TANTAWAN SERVICES, L L C
By: /s/ G. HAYTHORNTHWAITE By: THAILAND FINANCE COMPANY, its
- --------------------------- Managing Member
Name: G. HAYTHORNTHWAITE
TITLE: Managing Director By: /s/ JOHN W. ELSENHANS
-------------------------------------
Name: John W. Elsenhans
TITLE: Vice President and Treasurer
24
<PAGE>
FLOATING STORAGE AND OFFLOADING SYSTEM
BAREBOAT CHARTER
BETWEEN
WATERTIGHT SHIPPING B.V.
AS LESSOR
AND
THAIPO LIMITED, THAI ROMO LIMITED,
PALANG SOPHON LIMITED AND B8/32 PARTNERS LIMITED,
AS CHARTERER
DATED AS OF AUGUST 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FSO............................................. 1
2. FSO TO BE CHARTERED................................................................................... 2
3. SERVICE............................................................................................... 2
4. DURATION OF CHARTER................................................................................... 2
5. [INTENTIONALLY OMITTED]............................................................................... 3
6. REPRESENTATIONS AND WARRANTIES........................................................................ 3
7. MAINTENANCE AND OPERATION............................................................................. 5
8. INSPECTION............................................................................................ 7
9. COMPENSATION.......................................................................................... 7
10. CHANGE IN LAW......................................................................................... 11
11. TAXES................................................................................................. 11
12. CONFLICTS OF INTEREST................................................................................. 11
13. LIENS AGAINST THE FSO................................................................................. 11
14. INVENTORY............................................................................................. 13
15. GAS SALES AGREEMENT................................................................................... 13
16. DOWNTIME.............................................................................................. 13
17. INSURANCE............................................................................................. 14
18. INDEMNITY............................................................................................. 18
19. NON-WAIVER OF DEFAULTS................................................................................ 21
20. FORCE MAJEURE......................................................................................... 22
21. LAW AND ARBITRATION................................................................................... 23
22. NOTICES............................................................................................... 23
23. PURCHASE OPTION....................................................................................... 24
24. GUARANTY.............................................................................................. 26
25. REDELIVERY OF FSO..................................................................................... 27
26. REQUISITION........................................................................................... 28
27. GENERAL AND PARTICULAR AVERAGE........................................................................ 28
28. SALVAGE............................................................................................... 28
29. AUDIT................................................................................................. 29
30. DEFAULT............................................................................................... 29
31. REMEDIES.............................................................................................. 29
32. MISCELLANEOUS......................................................................................... 32
</TABLE>
<TABLE>
<S> <C>
Appendix A TECHNICAL DESCRIPTION AND SPECIFICATIONS
Appendix B-1 FORM OF LESSOR PARENT COMPANY GUARANTY AND INDEMNITY
Appendix B-2 FORM OF PERFORMANCE GUARANTY
Appendix C-1 PURCHASE PRICE
Appendix C-2 PURCHASE PRICE
Appendix D-1 INITIAL PERFORMANCE TESTS
Appendix D-2 FINAL PERFORMANCE TESTS
Appendix E QUIET ENJOYMENT LETTER
</TABLE>
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FLOATING STORAGE AND OFFLOADING SYSTEM
BAREBOAT CHARTER
This Bareboat Charter (this "Agreement"), made and entered into as of August
24, 1998, by and among Watertight Shipping B.V., a company organized under the
laws of The Netherlands ("Lessor"), and Thaipo Limited, a company organized
under the laws of the Kingdom of Thailand ("Thaipo"), Thai Romo Limited, a
company organized under the laws of the Kingdom of Thailand ("Thai Romo"),
Palang Sophon Limited, a company organized under the laws of the Kingdom of
Thailand ("Palang"), and B8/32 Partners Limited, a company organized under the
laws of the Kingdom of Thailand ("B8/32" and, together with Thaipo, Thai Romo
and Palang, the "Charterer").
W I T N E S S E T H
WHEREAS, the Petroleum Concession Agreement No. 1/2q534/36, dated August
1, 1991, covering block B8/32 offshore Thailand was awarded by the Ministry of
Industry to Maersk Oil (Thailand) Ltd., Thaipo and Thai Romo, and Supplementary
Petroleum Concession No. 1 to Petroleum Concession No. 1/2534/36, dated March 6,
1992, permitted The Sophonpanich Co., Ltd., to enter into Petroleum Concession
No. 1/2534/36 (collectively, the "Concession Agreement");
WHEREAS Thaipo, Thai Romo, Palang (formerly known as Sophon Thai Gulf
Limited which was successor in interest to The Sophonpanich Co. Ltd.) and B8/32
(formerly known as Maersk Oil (Thailand) Ltd.) are currently the concessionaires
under the Concession Agreement in that portion of the concession known as the
Benchamas Field;
WHEREAS, Charterer desires to charter from Lessor on a bareboat basis a
Floating Storage and Offloading System known as the "Benchamas Explorer" (the
"FSO"), for use in the Benchamas Field, Thailand;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Lessor and Charterer agree as follows:
1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FSO.
Lessor shall be responsible for delivery (the "Delivery") of the FSO to
Charterer in international waters in the vicinity of Thailand (the
"Delivery Site") as evidenced by a certificate of delivery issued by Lessor
and countersigned by Charterer. Prior to Delivery, Lessor shall be fully
responsible for and assume all risks with respect to the FSO. Charterer has
hired an operator ("Operator") pursuant to an Operating Agreement (the
"Operating Agreement") to operate the FSO commencing with Delivery.
Operator shall be responsible for completing all work to be performed in
respect of the FSO from Delivery until Field Acceptance, as herein defined,
has occurred, including completing all construction work, transporting the
FSO from the Delivery Site to the site in the Benchamas Field designated by
Charterer (the "Offshore Site"), hooking-up the FSO on its anchoring system
and completing all Performance Tests, as herein defined. Operator shall
also be responsible for commissioning the FSO.
2. FSO TO BE CHARTERED.
Charterer hereby agrees to bareboat charter the FSO as described in
APPENDIX A and its inventory from Lessor, for the period and upon the terms
and conditions stated herein. Lessor represents, undertakes and warrants
that at the time of Delivery the FSO shall comply with the requirements of
the Technical Specifications set forth in APPENDIX A hereto (the "Technical
Specifications") and shall be properly documented and classed as ABS A1
Floating Storage and Offloading System, with no recommendations affecting
class and as per the particulars of APPENDIX A. At the time of Delivery,
the FSO shall be seaworthy and in every respect ready in hull, machinery
and equipment for service hereunder.
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<PAGE>
3. SERVICE.
Charterer shall have the full use of the FSO at the Offshore Site and,
subject to Lessor's approval, not to be unreasonably withheld or delayed,
at any other place in the world where its operation is not prohibited by
applicable law and/or regulations excluding, however, the United States of
America and its territories. Charterer may subcontract to identified
subcontractors certain of its obligations hereunder, including, but not
limited to, those relating to the operation, maintenance and repair of the
FSO. However, such subcontracts shall not relieve Charterer of such
obligations, except to the extent that such obligations are subcontracted
to a party acceptable to Lessor.
4. DURATION OF CHARTER.
4.1. The term (the "Initial Term") of this Agreement shall commence upon
Delivery. The Initial Term shall end upon a date ten (10) years after the
Hire Commencement Date (as defined in Article 9.1.).
4.2. Neither Field Acceptance (as defined in the Operating Agreement) nor
Final Acceptance (as defined in the Operating Agreement) by Charterer shall
be construed as a waiver or discharge of any of the representations,
warranties or undertakings of Lessor in or with respect to this Agreement
or the FSO.
4.3. Upon the expiration of the Initial Term, (a) Charterer shall have the
option to terminate this Agreement, extend this Agreement on an annual
basis at hire to be agreed upon by Lessor and Charterer, or purchase the
FSO pursuant to Article 23. and (b) the Performance Guaranty shall be
promptly returned to the issuer thereof. If Charterer is considering
extending this Agreement, it shall give revocable notice of its desire to
extend this Agreement at least 360 days prior to the expiration of the
Initial Term. Upon the giving of such notice, Charterer and Lessor shall
negotiate in good faith in an effort to reach agreement prior to 180 days
prior to the end of the Initial Term on a Total Bareboat Rate for the term
for which Charterer desires to extend this Agreement. In addition,
Charterer shall have the option to purchase the FSO pursuant to Article 23.
by irrevocable notice to Lessor at least 180 days prior to the end of the
Initial Term. If no agreement on a Total Bareboat Rate for an extended term
is timely reached and if no notice of an election to purchase the FSO is
timely given, Charterer shall be deemed to have exercised its option to
terminate this Agreement as of the end of the Initial Term.
5. [INTENTIONALLY OMITTED].
6. REPRESENTATIONS AND WARRANTIES.
6.1. Lessor represents and warrants to Charterer that:
(a) Lessor is a corporation duly organized and in good standing under the
laws of The Netherlands; has all requisite corporate power and all
material governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so
to qualify could be reasonably expected to have a material adverse
effect on its business.
(b) Lessor has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Agreement; the execution,
delivery and performance by Lessor of this Agreement have been duly
authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by Lessor and
constitutes its legal, valid and binding obligation, enforceable against
Lessor in accordance with its terms except to the extent such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditor's
2
<PAGE>
rights and (ii) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(c) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in
a breach of the articles of association of Lessor or any applicable law
or regulation or any material agreement or instrument to which Lessor is
a party or by which it is bound or to which it is subject or constitute
a default under any such material agreement or instrument.
(d) All authorizations, approvals and consents of, and filings or
registrations with, any governmental or regulatory authority or agency,
as are at the date of Delivery necessary for the execution, delivery or
performance by Lessor of this Agreement and for the legality, validity,
or enforceability hereof, will have been obtained at such date and
thereafter will be maintained until the expiration or termination of
this Agreement.
(e) Lessor is a "tax resident" as such term is defined in the
Netherlands-Thailand tax treaty. Lessor covenants that neither Lessor
nor any agent acting on its behalf in connection with the performance of
Lessor's obligations under this Agreement has, or during the term of the
Agreement will have, a permanent establishment in Thailand.
6.2. Charterer represents and warrants to Lessor that:
(a) Each of the companies comprising Charterer is duly organized and in
good standing under the laws of the Kingdom of Thailand; has all
requisite power and all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its
business as now being or as proposed to be conducted; and is qualified
to do business and is in good standing in all jurisdictions in which the
nature of the business conducted by it makes such qualification
necessary and where failure so to qualify could be reasonably expected
to have a material adverse effect on its business.
(b) Each of the companies comprising Charterer has all necessary power and
authority to execute, deliver and perform its obligations under this
Agreement; the execution, delivery and performance by each of the
companies comprising Charterer of this Agreement have been duly
authorized by all necessary action on its part; and this Agreement has
been duly and validly executed and delivered by each of the companies
comprising Charterer and constitutes its legal, valid and binding
obligation, enforceable against each of the companies comprising
Charterer in accordance with its terms except to the extent such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditor's rights and (ii) the application
of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in
a breach of the organizational documents of each of the companies
comprising Charterer or any applicable law or regulation or any material
agreement or instrument to which any of the companies comprising
Charterer is a party or by which it is bound or to which it is subject
or constitute a default under any such material agreement or instrument.
(d) All authorizations, approvals and consents of, and filings or
registrations with, any governmental or regulatory authority or agency,
as are at the date of Delivery necessary for the execution, delivery or
performance by Charterer of this Agreement and for the legality,
validity, or enforceability hereof, will have been obtained at such date
and thereafter will be maintained until the expiration or termination of
this Agreement.
3
<PAGE>
6.3. OTHER THAN AS SPECIFICALLY STATED IN THIS AGREEMENT NO PARTY SHALL BE
DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE TITLE, SEAWORTHINESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE OF THE FSO OR
ANY PART THEREOF.
7. MAINTENANCE AND OPERATION.
7.1. Lessor agrees that the FSO shall, from the date of Delivery and until
termination of this Agreement in accordance with its terms, be in the full
possession and at the absolute disposal for all purposes of Charterer and
under Charterer's complete control in every respect. Subject to Lessor's
obligations pursuant to Article 7.3. to cause the FSO to meet and maintain
requirements of the American Bureau of Shipping ("ABS"), Charterer shall
maintain the FSO in a good state of repair. In addition, Charterer shall
maintain the FSO in efficient operating condition and in accordance with
good commercial maintenance practice, and shall keep the FSO (subject to
Article 7.3.) with valid, unexpired classification of the class as
indicated in Article 2., free of recommendations and notations affecting
class. Charterer shall furnish Lessor with one duplicate original or
certified true copy of all class and flag certificates issued or notated
during the duration of the charter upon their issuance or notation. Lessor
shall keep all Thai, Panamanian (Panama being hereinafter referred to as
the "Country of Registry") and other required certificates valid,
up-to-date and in full force at all times. Charterer shall maintain the
following maintenance reports, records, surveys and documents: Planned
Maintenance System, Continuous Survey of Machinery and such other reports,
records, surveys and documents as Lessor shall reasonably specify in
writing. Charterer shall provide copies of such documents to Lessor upon
Lessor's request. Lessor shall provide Charterer and Operator with all
authorizations which Charterer may reasonably require in order to
accomplish the actions required or permitted to Charterer under this
Article 7.
7.2. Charterer shall take immediate steps to have all necessary repairs done
within a reasonable time.
7.3. Provided that the FSO is located at the Offshore Site, in the event of
any improvement, structural changes or new equipment becoming necessary for
the continued operation of the FSO by reason of new class requirements or
compulsory legislation or in order to maintain the FSO in compliance with
the Technical Specifications, then Lessor shall carry out such work at its
expense.
7.4. Charterer shall establish and maintain financial security of
responsibility in respect of oil or other pollution damage as required by
any government or other division or authority thereof, to enable the FSO,
without penalty or charge, lawfully to enter and remain at the Offshore
Site in performance of this Agreement or in the case of removal of the FSO
to another site as may be permitted by the terms hereof, at such other
site. Charterer shall make and maintain all arrangements by bond or
otherwise as may be necessary to satisfy such requirements at Charterer's
sole expense.
7.5. Charterer shall at its own expense and by its own procurement, except as
stated to the contrary elsewhere, man, victual, operate, supply, fuel and
repair the FSO whenever required during the duration of this Agreement and
shall pay all charges and expenses of every kind and nature whatsoever
incidental to its use and operation of the FSO under this Agreement. The
master of the FSO (the "Master"), officers, crew and production personnel
of the FSO shall be the servants of Operator for all purposes whatsoever.
7.6. Charterer shall comply with the regulations of the Country of Registry
and, to the extent applicable, the Kingdom of Thailand or any other
jurisdiction within which the FSO is operating. Charterer will cause the
FSO to comply at all times with all applicable laws, treaties and
conventions and with all rules and regulations issued thereunder and to
have on board, when required thereby, valid certificates showing compliance
therewith.
4
<PAGE>
7.7. During the duration of this Agreement the FSO shall retain her present
name and shall remain under and fly the flag of the Country of Registry,
provided, however, that Charterer shall have the right to paint the FSO in
its own colors, install and display its funnel insignia and fly its own
house flag. Any change in such painting or change in such funnel insignia
shall be for Charterer's account.
7.8. (a) Subject to Article 7.4. and Lessor's approval, which shall not be
unreasonably withheld or delayed, Charterer shall have the right to add
additional equipment, modify existing equipment or connect additional
production facilities. Any such additions or modifications, including the
installation thereof, shall be at the sole risk and expense of Charterer.
Such additions, modifications and connections so installed shall, without
necessity of further act, become part of the FSO and the property of
Lessor; PROVIDED, HOWEVER, that so long as no Event of Default caused by
Charterer (as defined in Article 30.) shall have occurred and be
continuing, any such additions, modifications and connections not installed
as replacements for property included on board the FSO on the date of Field
Acceptance may be removed (so long as such removal can be accomplished
without damage to the FSO) by Charterer, at its own expense and risk, at
any time during, or at the expiration of, the Initial Term or any extension
term upon reasonable prior notice, whereupon such equipment shall, without
necessity of further act, become the property of Charterer.
(b) Charterer may, in the ordinary course of maintenance, repair or
overhaul of the FSO, remove any item of property constituting a part of the
FSO; PROVIDED, HOWEVER, that such item is replaced as promptly as possible
by an item of property which is free and clear of all liens, encumbrances
and rights of others and is in as good operating condition, is as seaworthy
and has a value and utility at least equal to the item of property being
replaced. Any item of property removed from the FSO as provided in the
preceding sentence shall remain the property of Lessor until replaced in
accordance with the terms of such sentence, but shall then, without further
act, become the property of Charterer. Any such replacement item of
property shall, without further act, become the property of Lessor and be
deemed part of the FSO as defined herein for all purposes hereof.
(c) In the event that the FSO is relocated from the Offshore Site pursuant
to Article 3. (but not as a result of any failure of the FSO to perform in
accordance with the Technical Specifications at the Offshore Site or as a
result of any required maintenance), Charterer shall be responsible for all
costs of removal and installation and any design changes or equipment
necessary for the FSO to perform in accordance with the Technical
Specifications at its relocated site.
7.9. Charterer shall have the use of all items of inventory, equipment and
spares being part of or on board the FSO on the date of Delivery, which
Lessor undertakes to provide at its expense. Such inventory will be
specified pursuant to Article 14. At Redelivery, Charterer shall replace
all items of inventory, equipment and spares so that the inventory at
Redelivery equals the items of inventory, equipment and spares on board the
FSO on the date of Delivery, or shall pay the Lessor a mutually agreeable
price for any unreplaced items of inventory.
8. INSPECTION.
8.1. Lessor shall have the right at any reasonable time to inspect or survey
the FSO itself or to instruct a duly authorized third-party surveyor to
carry out such survey on its behalf to ascertain the condition of the FSO,
and to satisfy itself that the FSO is being properly repaired, maintained
and operated. Such inspections and surveys shall be at Lessor's risk and
for Lessor's account. Charterer shall provide, free of charge to Lessor,
upon reasonable request by Lessor, transportation from the shore base to
the FSO and vice versa on its regular flights and, to the extent available,
accommodations, catering and communication on board for such inspectors or
surveyors.
8.2. Charterer shall also permit Lessor to inspect the FSO's log books
whenever requested and shall promptly furnish Lessor with full information
regarding any material casualties or other accidents or damage to or caused
by the FSO.
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9. COMPENSATION.
9.1. As full compensation for the performance by Lessor of its obligations
under this Agreement, Charterer shall pay Lessor a hire ("Hire"). Hire
shall accrue in accordance with this Article 9. commencing at 0001 hours
local time at the Offshore Site on the date ("Hire Commencement Date") on
later of (a) Field Acceptance, and (b) the earlier of (i) May 15, 1999 or
(ii) the date on which crude oil is stored on the FSO.
Except as otherwise provided herein, Hire shall continue to accrue until
the date when the FSO is redelivered to Lessor under the terms of this
Agreement. Hire for the ten (10) years after the Hire Commencement Date
shall be paid at the rate of Twenty-Three Thousand Three Hundred and Thirty
Dollars (US $23,330) per day, (the "Total Bareboat Rate"), except as
otherwise specifically provided herein, no other compensation or
reimbursement shall be due to Lessor for the performance of its obligations
hereunder.
Except as provided below, with respect to all Hire and all other amounts
payable by Charterer hereunder, the maximum liability of Thaipo shall be
limited to 31.66667% of such Hire and other amounts, the maximum liability
of Thai Romo shall be limited to 31.66667% of such Hire and other amounts,
the maximum liability of Palang shall be limited to 5.00000% of such Hire
and other amounts, and the maximum liability of B8/32 shall be limited to
31.666666% of such Hire and other amounts (each such percentage being
referred to herein as the "Concessionaire Percentage"). Notwithstanding a
member's Concessionaire Percentage, any member of Charterer shall have the
right to pay Hire and other amounts on behalf of any other member of
Charterer.
The Concessionaire Percentages are intended to be the same as the
percentage interest of each member of the Charterer under the Concession
Agreement. If (i) any member of Charterer shall increase its percentage
interest under the Concession Agreement or (ii) any member of Charterer
shall assign any of its interest under the Concession Agreement to an
entity that is not a member of Charterer, the Field Operator shall promptly
notify Lessor of such change. Upon Lessor's receipt of notice from the
Field Operator certifying an increase in percentage interest under the
Concession Agreement or an assignment of an interest under the Concession
Agreement, the Concessionaire Percentage for each member of Charterer shall
be adjusted appropriately with respect to the maximum liability for Hire
and other amounts that shall become payable on or after the date of such
notice but such adjustment shall not affect the percentage liability of a
member of Charterer for any Hire and all other amounts payable prior to the
date of such notice. Notwithstanding the foregoing limitation of liability,
the obligation of Charterer to pay Hire and all other amounts hereunder is
absolute and unconditional to the extent set forth in this Agreement and
Lessor shall have the remedies provided in Article 31.2. for any failure to
pay Hire and all other amounts hereunder. If any member of Charterer shall
assign any of its interest under the Concession Agreement to an entity that
is not a member of Charterer, the assignee of such interest under the
Concession Agreement shall at the time of such assignment be deemed to have
a Concessionaire Percentage and to be a member of Charterer for all
purposes of this Agreement as if such assignee had been an original
signatory to this Agreement. If any member of Charterer assigns all of its
interest under the Concession Agreement and provided that no Event of
Default of Charterer (as defined in Article 30.) with respect to such
assignor has occurred and is continuing, such member of Charterer shall be
without further act released from any and all obligations under this
Agreement which arise or accrue after the date of such assignment. Upon any
change in Concession Percentages, Lessor, Charterer and each present and
former member of Charterer agree to execute such additional documents and
releases as may be requested to evidence the foregoing provisions
including, without limitation, the assignee's agreement to be bound by the
terms of this Agreement.
9.2. Payment of Hire shall be made monthly in advance, without any discount,
adjustment, set off or deduction, except as specifically set forth in this
Article 9. or otherwise in this Agreement. Lessor
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shall provide invoices to Charterer covering each payment of Hire at least
ten (10) days before due. Payment of Hire shall be made to such account or
accounts with such first class bank as Lessor shall designate in writing.
Lessor shall not change such designations without Charterer's consent,
which consent shall not be unreasonably withheld.
The first and second payment of Hire shall be paid in same day funds before
the close of business at the place of payment on the fifth business day of
the calendar month beginning after the Hire Commencement Date. Except as
otherwise provided in this Agreement, subsequent payments of Hire shall be
paid in same day funds at the place of payment on the fifth business day of
each applicable calendar month during the Initial Term or an extended term
("Hire Payment Date"). Hire shall accrue on a daily basis; provided that
Hire for any periods that constitute less than a calendar day shall be a
pro rata portion of Hire for such calendar day. If a Hire Payment Date
falls on a day which is not a banking day at the place of payment, payment
shall instead be made on the next succeeding day that is a banking day at
such place, without interest. Any Hire paid but not earned shall be
refunded on the next Hire Payment Date (or as otherwise provided under this
Agreement) to Charterer by Lessor.
9.3. Upon request by Charterer, Lessor shall promptly pay to Charterer, or at
the option of Charterer, at any time following an Event of Default by
Lessor hereunder or a default under the Lessor Parent Company Guaranty,
Charterer shall be entitled to deduct from the payments of Hire:
(a) actual or reasonably estimated disbursements, if any, for Lessor's
account;
(b) any advances to Lessor's affiliates, contractors, subcontractors, or
agents for expenses or disbursements for Lessor's account;
(c) any previous overpayment of Hire, including payments made with respect
to agreed periods of Downtime; PROVIDED, HOWEVER, that with respect to
periods of Downtime that have not been agreed, Charterer shall not
withhold Hire with respect thereto but that Hire paid with respect to
such Downtime shall accrue interest at the rate of twelve percent (12%)
per annum, compounded monthly, until agreed or settled through
arbitration, whereupon Charterer may withhold such overpayment plus
accrued interest through the date that Charterer recoups such Hire and
interest;
(d) any sums due in respect of Lessor's failure to meet Lessor's
performance undertakings under this Agreement; and
(e) any other sums or credits to which Charterer is entitled under this
Agreement.
If a deduction is made based on an estimate, the next Hire payment shall be
adjusted, if necessary, to reflect any difference between such estimate and
the actual amount of deduction that Charterer is able to verify. All
deductions from Hire shall be verified by Charterer by production of
vouchers or supporting documentation corresponding to the deductions within
thirty (30) days after the applicable Hire Payment Date.
9.4. Notwithstanding anything contained in this Article 9. to the contrary, if
when a payment of Hire is due hereunder, Charterer reasonably expects to
redeliver the FSO before the next Hire Payment Date, Hire shall be paid
prorated to the estimated date of Redelivery (as defined), and from which
estimate Charterer may deduct amounts due or reasonably expected to come
due to Charterer from Lessor for (i) disbursements on Lessor's behalf or
charges for Lessor's account pursuant to any provision hereof including
Article 9.3. and (ii) bunkers on board at Redelivery. Promptly after
Redelivery, any overpayment shall be refunded by Lessor, or any
underpayment made good by Charterer.
9.5. (a) Should the FSO become an actual total loss, Hire shall cease at the
time of its loss or, if such time is unknown, at the time from which the
FSO was last heard. Should the FSO become a total
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loss of any other kind, if approved in writing by Charterer in accordance
with sub-clause (d) below, including, without limitation, a constructive,
compromised, agreed or arranged total loss (a "constructive total loss"),
Hire shall cease at the time of the casualty resulting in such loss. Within
ninety (90) days after Hire has ceased under this Article 9.5., all monies
owing to Charterer under the provisions of this Agreement at the time Hire
ceases under this Article 9.5. shall be paid to Charterer, and likewise
Lessor shall be paid the net amount of all sums due from Charterer. If the
FSO shall have been missing for at least forty-eight (48) hours when a
payment of Hire would otherwise be due, such payment shall be postponed
until the safety of the FSO is ascertained.
(b) Should the FSO become an actual total loss or a constructive total
loss (i) for reasons other than negligence or willful misconduct of Lessor
Group (as defined in Article 18.) and (ii) in circumstances where no Event
of Default by Lessor or its affiliates, its Guarantor or the Operator (a
"Lessor Party") has occurred and is continuing, this Agreement shall be
deemed to be terminated as of the date on which the obligation to pay Hire
ceases in accordance with Article 9.5.(a) without prejudice to (A) the
payment obligations of Lessor and Charterer as described in Article 9.5.(a)
and (B) any other provisions which would otherwise survive termination of
this Agreement which, for the avoidance of doubt, does not include any
obligation to rebuild the FSO or procure a new FSO.
(c) Should the FSO become an actual total loss or a constructive total
loss either (i) for reasons where the gross negligence or willful
misconduct of a member of Lessor Group is a contributing factor; PROVIDED,
THAT, no member of Charterer Group is either grossly negligent or guilty of
willful misconduct in connection with such loss, or (ii) in circumstances
where an Event of Default by a Lessor Party has occurred and is continuing,
then, irrespective of such total loss, Charterer shall have the remedies
set out in Article 31. hereof.
(d) Lessor and its affiliates shall not be entitled to (i) claim under
this Agreement or (ii) reach agreement with the insurers on the hull
policies taken out by Lessor and its affiliates that, in either case, the
FSO constitutes a total loss of any kind other than an actual total loss
without the prior written approval of Charterer.
(e) An actual total loss or a constructive total loss will not constitute
in and of itself an Event of Default and, provided that there are no unpaid
claims which have been asserted by Charterer, the Performance Guaranty
shall promptly be returned to the issuer thereof.
9.6. In the event Charterer fails to make any payment (including without
limitation any payment of Hire) due and owing to Lessor under this
Agreement, Lessor shall so notify Charterer. If Charterer fails to pay
amounts due and owing within five (5) business days after receipt of such
notice, Charterer shall pay to Lessor, in addition to all other amounts
then due and owing, a late fee at a rate equal to one-month LIBOR plus two
percent (2%) on the amounts then due and owing for the period commencing on
the date that such payment was due until paid without prejudice to any
other remedies under this Agreement.
9.7. All payments of Hire and other amounts due hereunder from one party to
the other shall be made in United States Dollars by interbank transfer.
Except as otherwise provided herein, all sums due by one party to the other
shall be paid within 30 days of receipt of invoice.
10. CHANGE IN LAW.
The Total Bareboat Rate is based on the tax laws of Thailand and The
Netherlands as of the date of this Agreement and Lessor's qualification as
a Netherlands corporation entitled to protection under The
Netherlands-Thailand tax treaty. In the event there are any changes in (i)
tax laws of The Netherlands or their interpretation, or (ii) Lessor's
qualification as a "tax resident" (as defined in the Netherlands-Thailand
tax treaty) of The Netherlands which affect the cost to Lessor of
chartering the FSO, such additional costs shall be for Lessor's account and
Lessor shall hold
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Charterer harmless from the consequences thereof. In the event there are
any changes in tax laws in Thailand (including The Netherlands-Thailand tax
treaty) or their interpretation which affect the cost to Lessor of
chartering the FSO which cannot be remedied by reasonable actions on
Lessor's part, such additional costs shall be for Charterer's account and
Hire shall be adjusted accordingly.
11. TAXES.
Subject to the provisions of Article 10. regarding changes in existing tax
laws or the interpretation thereof, all taxes (including income and
withholding taxes) which are due with respect to the payment of the Total
Bareboat Rate pursuant to this Agreement shall be paid by Lessor or
reimbursed to Charterer by Lessor, except that Thailand value added taxes
("VAT"), other Thailand sales/use taxes and Thailand customs and import
duties applicable to the FSO, shall be paid by Charterer or reimbursed to
Lessor by Charterer. Charterer or its designee shall work together with
Operator to ensure the importation of the FSO in the most cost efficient
manner and, if necessary, Charterer or its designee shall be designated as
the importer of the FSO. The party ultimately designated as the importer of
the FSO shall be responsible for customs clearance and obtaining import
licenses on the FSO.
12. CONFLICTS OF INTEREST.
Neither Lessor, its affiliates nor any of its subcontractors shall pay any
fee, commission, rebate or other thing of value to, or for the benefit of,
any employee of Charterer, its principals or any of its or their
affiliates, nor shall Lessor or its affiliates do business with any company
knowing that the results thereof might benefit an employee of the
Charterer, its principals or any of its or their affiliates.
13. LIENS AGAINST THE FSO.
13.1. (a) Neither Lessor, Charterer nor the Master nor any other person shall
have any right, power or authority to create, incur or permit to
exist upon the FSO any lien, charge or encumbrance other than
Permitted Encumbrances.
(b) Lessor shall fasten to the FSO in a conspicuous place and maintain
during the term of this Agreement a notice reading as follows:
NOTICE OF CHARTER
This Vessel is mortgaged to , and is under
charter to Thaipo Limited, Thai Romo Limited, Palang
Sophon Limited and B8/32 Partners Limited. With the
exception of such mortgage, neither the Lessor, any
affiliate of the Lessor, Charterer, any subcharterer, the
master of this Vessel, nor any other person has the right,
power or authority to create, incur or permit to be placed
or imposed upon this Vessel, or its profits, any lien
whatsoever, other than liens for master's and crew's wages
or salvage.
(c) Lessor warrants that it has not created and covenants that it will not
create or permit to exist any Owner Encumbrance other than Permitted
Encumbrances. Furthermore, Lessor shall indemnify, hold harmless and
defend Charterer against any loss which Charterer may sustain by reason
of, any Owner Encumbrances and/or Permitted Encumbrances (other than
those set forth in Articles 13.1.(d)(i) and 13.1.(d)(ii) hereof).
(d) "Permitted Encumbrances" shall mean (i) the rights of Charterer under
this Agreement, (ii) the rights of Lessor under this Agreement, (iii)
during the Initial Term or any extended term, liens for current master's
and crew's wages and salvage, (iv) the rights of the Lessor Group under
any lease consented to by Charterer in writing and a Lessor Group's
mortgage of the FSO and security assignments in favor of certain lending
institutions ("Lenders"), provided
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Charterer shall have received a Quiet Enjoyment Letter in the form
attached hereto as APPENDIX E, and (v) liens arising in tort; and
"Permitted Encumbrance" shall mean any of the foregoing.
(e) "Owner Encumbrances" shall mean any liens, security interests or
encumbrances resulting from voluntary or involuntary action by Lessor
Group taken without the prior written approval of Charterer and not
taken as the result of an Event of Default by Charterer.
13.2. Charterer agrees that if a libel or a complaint in admiralty (for
purposes of this Article 13.2. called a "claim") shall be filed against the
FSO, or if the FSO shall be otherwise levied upon or taken into custody or
detained or sequestered by virtue of proceedings in any court or tribunal
or by any government or other authority because of any claim (excluding a
claim arising by the action or inaction of Lessor, the Lessor Group or any
of their affiliates), Charterer shall at its own expense within 15 days
thereafter cause the FSO to be released and each such claim to be
discharged (except to the extent that the same shall be contested by
Charterer in good faith by appropriate proceedings and there exists at the
time no Charterer Event of Default). Charterer agrees forthwith to notify
Lessor by telegram or facsimile, confirmed by letter, of each such claim
involving amounts in excess of US $500,000 and of the release and discharge
of each such claim. Charterer agrees to advise in writing at least once in
each three-month period as to the status and merits of all such claims not
released and discharged within 15 days as provided above, which either are
not bonded or affect the ability of Charterer to use the FSO in the
ordinary course of its business. Charterer agrees to indemnify, hold
harmless and defend Lessor against any loss which Lessor may sustain by
reason of any liens, security interests or encumbrances resulting from
voluntary action by Charterer Group taken without the prior written
approval of Lessor and not taken as the result of an Event of Default by
Lessor.
14. INVENTORY.
A complete inventory of the FSO's entire outfit, equipment (including
vessel equipment and supplies, cabin, crew and galley equipment),
furniture, furnishings, appliances, spare and replacement parts and all
unbroached consumable stores, fuel and lubricants onboard shall be jointly
taken within thirty (30) days following Field Acceptance by representatives
of Lessor and Charterer or by an independent outside firm as may be
mutually agreed upon. A similar inventory shall be taken and mutually
agreed upon at the time of Redelivery.
15. GAS SALES AGREEMENT.
Charterer and Lessor recognize that compliance with the terms of the gas
sales agreement governing the Block B8/32 Concession will be required by
the parties thereto, and Lessor and Charterer will generally cooperate in
facilitating such compliance by the parties thereto.
16. DOWNTIME.
16.1. Downtime shall mean any calendar day or part thereof on which the FSO is
unable to:
(a) load and deliver into its storage tanks the lesser of (i) 50,000
barrels of liquids or (ii) the amount of liquids that Charterer, its
affiliates and designees are capable of delivering to the FSO, as
determined in good faith by Charterer on the basis of demonstrated
measured data;
(b) store and keep at a minimum of 135 degrees Fahrenheit or such lower
temperature as Charterer shall request at least 1,000,000 barrels of
Crude Oil in its storage tanks; and
(c) offload into offtake tankers the oil stored on the FSO at a minimum
sustained rate of 24,000 barrels per hour or such lesser rate as the
offtake tanker is warranted to accept or which Charterer has ordered to
be pumped into the offtake tanker; PROVIDED, THAT, the FSO shall not
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be required to sustain such rates in the event of adverse weather
conditions as specified in the Terminal Regulations Manual, as defined
in the Operating Agreement.
16.2. Downtime shall occur notwithstanding the fact that maintenance or repairs
are occurring, but excluding those resulting from Charterer's (but not
Operator's) gross negligence or willful misconduct. Downtime shall not
occur during the period that Charterer is adding or modifying equipment or
connecting additional facilities pursuant to Article 7.8.(a) hereof.
16.3. Downtime shall be deemed not to occur during an event which is a Force
Majeure event hereunder.
16.4. A Downtime Damages Period shall mean any calendar day, or a portion
thereof beginning after Field Acceptance in which Downtime occurs. During
any Downtime Damages Period resulting from the Downtime under Articles
16.1.(a) and (b) above, Charterer shall not be obligated to pay Lessor the
Total Bareboat Rate in respect of any Downtime which occurs. Downtime under
Articles 16.1.(a) and (b) shall be calculated on an hourly basis with any
Downtime rounded to the nearest whole hour. A Downtime Damages Period under
Article 16.1.(c) above shall mean any calendar day or a portion thereof
during which Downtime under Article 16.1.(c) has caused an offtake tanker
to incur demurrage. As a result of a Downtime Damages Period under Article
16.1.(c), Charterer shall be entitled to deduct any demurrage incurred
during such Downtime Damages Period up to an amount not to exceed US
$30,880 per day from the Total Bareboat Rate; PROVIDED, THAT, Charterer
shall not deduct any demurrage if the amount of demurrage incurred during
any single offloading does not exceed US $5,000. Charterer shall as soon as
reasonably practicable notify Lessor of the occurrence of, and its estimate
of the total amount of Downtime incurred. The Total Bareboat Rate, as
invoiced on a monthly basis, shall be credited with any undisputed Downtime
occurring during the prior month in accordance with Article 9.3.
17. INSURANCE.
17.1. Lessor shall maintain or cause to be maintained in force during the term
of this Agreement the following insurance coverages:
(a) Hull and Machinery and Increased Value Insurance on the FSO in an
amount not less than the estimated replacement value of the FSO on the
London Institute Hull Clauses, or equivalent, including 3/4 Collision
Liability coverage and be endorsed to Charterer as an additional insured
and loss payee as its interest may appear during the term of this
Agreement.
(b) Protection and Indemnity Insurance on the FSO in an amount not less
than US $100,000,000, subject to the rules of a Protection and Indemnity
Club who are members of the International Group of P & I Clubs. The P &
I entry to include 1/4 Collision Liability coverage and removal of
debris. The P & I entry shall be endorsed to name the Charterer Group
(as defined in Article 18.1.) as covered under the P & I insurance for
misdirected arrow exposures (i.e., Rule 23 of London Steamship P & I
Club Rule Book).
(c) Supplemental Protection and Indemnity Insurance in an amount not less
than US $100,000,000 (and in the case of Article 17.1.(g), not less than
US $300,000,000) in favor of the Charterer Group and covering the
Charterer Group in any circumstance in which misdirected arrow coverage
is unavailable to any member of the Charterer Group as a result of an
act or omission of any member of the Lessor Group (as defined in Article
18.1.) or any other person.
(d) Workmen's Compensation and Employer's Liability Insurance (in an amount
not less than US $1,000,000) covering Lessor Group's employees for
statutory benefits as set out and required by local law in the area of
operation or any area in which Lessor Group may become legally obligated
to pay benefits.
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(e) Comprehensive General Liability and Automobile Liability Insurance
covering premises and operations, independent contractors and
contractual liability, as well as all owned, hired and non-owned
vehicles. Minimum policy limits for personal injury and property damage
shall be:
(i) Comprehensive General Liability: US $1,000,000 single limit per
occurrence;
(ii) Automobile Liability: US $1,000,000 single limit per occurrence
or such greater amount as required by applicable law.
(f) Excess Liability, in an amount not less than US $25,000,000, excess of:
(i) Employer's or Maritime Employer's Liability Insurance
(ii) Comprehensive General Liability Insurance; and
(iii) Automobile Liability Insurance.
(g) Pollution Insurance for the FSO of US $300,000,000 per occurrence,
subject to market availability. Lessor shall promptly notify Charterer
if market availability results in Pollution Insurance of less than
$300,000,000. For purposes of this Article 17.1.(g) only, "FSO" shall
mean the portion of the FSO from and including the import flange on the
single point mooring system to and including the export hose string up
to the import flange of the offtake tanker.
17.2. All insurance pursuant to Article 17.1. shall include the waiver by the
insurers of all rights of subrogation against the Charterer Group and also
a clause specifying that the insurers shall file no claims whatsoever
against the Charterer Group, and shall not exercise against the Charterer
Group any right of counterclaim or setoff in respect of any liability of
Lessor. Charterer Group shall be included as additional insureds under all
insurance policies (other than Articles 17.1.(b), 17.1.(d), 17.1.(f)(i) and
17.1.(g)). Coverage under all insurance to be carried by Lessor shall be
primary insurance and exclusive of any other insurance. In addition, all
such insurance (other than Article 17.1.(b), 17.1.(d), 17.1.(f)(i) and
17.1.(g)) shall include a clause (i) requiring that each insurer promptly
notify the Charterer in writing at the address to which notices are to be
given to Charterer pursuant to Article 22. of any occurrence, including,
without limitation, non-payment of premiums, which threatens to invalidate
or render such insurance unenforceable, or result in its lapse,
cancellation or reduction, in whole or in part, (ii) providing that any
such lapse, cancellation or reduction shall not be effective as to the
Charterer Group until fourteen (14) Days (seven (7) Days in the case of war
risks) after receipt by Charterer of the notice referred to in (i) above,
(iii) expressly providing that all of the provisions thereof, except the
agreed values and the limits of the liability of the insurer under such
policies, shall operate in the same manner as if there were a separate
policy covering each insured and (iv) provide that in respect of the
Charterer Group and each other indemnified party, such insurance shall not
be invalidated by any action or inaction by a member of Lessor Group or
other person or entity and shall insure the interest of the Charterer Group
and any other indemnified party regardless of any breach or violation by a
member of Lessor Group or any other person or entity of any representation,
warranty, declaration or condition contained in such policy.
Before commencing performance of this Agreement, Lessor shall furnish
Charterer with either policies or brokers' letters satisfactory to them
demonstrating compliance with this Article 17. Lessor shall, whenever so
requested by Charterer, produce the insurance policies, the receipts
evidencing payment of the current premiums, and documentation certified by
the insurers as to the coverage and value of the policies.
17.3. Charterer shall maintain or cause to be maintained in force during the
term of this Agreement the following insurance coverages:
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(a) Workman's Compensation and Employer's Liability Insurance (in an amount
not less than US$1,000,000) covering Charterer Group's employees for
statutory benefits as set out and required by local law in the area of
operation or area in which Charterer Group may become legally obligated
to pay benefits.
(b) Comprehensive General Liability and Automobile Liability Insurance
covering premises and operations, independent contractors and
contractual liability, as well as all owned, hired and non-owned
vehicles. Minimum policy limits for personal injury and property damage
shall be:
(i) Comprehensive General Liability: US $1,000,000 single limit per
occurrence; and
(ii) Automobile Liability: US $1,000,000 single limit per occurrence
or such greater amount as required by applicable law.
(c) Excess Liability, in an amount not less than US $25,000,000, excess of:
(i) Employer's or Maritime Employer's Liability Insurance
(ii) Comprehensive General Liability Insurance; and
(iii) Automobile Liability Insurance.
(d) Seepage and Pollution Insurance on normal industry terms for the
reservoir, oil field installations and the flexible risers for US
$50,000,000 per occurrence.
17.4. All insurance pursuant to Article 17.3. shall include the waiver by the
insurers of all rights of subrogation against the Lessor Group and also a
clause specifying that the insurers shall file no claims whatsoever against
the Lessor Group, and shall not exercise against the Lessor Group any right
of counterclaim or setoff in respect of any liability of Charterer. Lessor
Group shall be included as additional insureds under all insurance policies
(other than Article 17.3.(a)). Coverage under all insurance to be carried
by Charterer shall be primary insurance and exclusive of any other
insurance. In addition, all such insurance shall include a clause (i)
requiring that each insurer promptly notify Lessor in writing at the
address to which notices are to be given to Lessor pursuant to Article 22.
of any occurrence, including, without limitation, non-payment of premiums,
which threatens to invalidate or render such insurance unenforceable, or
result in its lapse, cancellation or reduction, in whole or in part, (ii)
providing that any such lapse, cancellation or reduction shall not be
effective as to the Lessor Group until fourteen (14) Days (seven (7) Days
in the case of war risks) after receipt by Lessor of the notice referred to
in (i) above, (iii) expressly providing that all of the provisions thereof,
except the agreed values and the limits of the liability of the insurer
under such policies, shall operate in the same manner as if there were a
separate policy covering each insured and (iv) provide that in respect of
the Lessor Group and each other indemnified party, such insurance shall not
be invalidated by any action or inaction by a member of Charterer Group or
other person or entity and shall insure the interest of the Lessor Group
and any other indemnified party regardless of any breach or violation by a
member of Charterer Group or any other person or entity of any
representation, warranty, declaration or condition contained in such
policy.
Before commencing performance of this Agreement, Charterer shall furnish
Lessor with either policies or brokers' letters satisfactory to them
demonstrating compliance with this Article 17. Charterer shall, whenever so
requested by Lessor, produce the insurance policies, the receipts
evidencing payment of the current premiums, and documentation certified by
the insurers as to the coverage and value of the policies.
17.5. Except as specifically provided above in this Article 17., Lessor shall
establish, and Charterer shall approve, insurance values, amounts,
coverages and deductibles on forms and with insurers which are compatible
and consistent with the standards of prudent owners and operators of
vessels of similar type, size, age, location and activity as the FSO. Hull
and machinery insurance shall be
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written on Institute Time Clauses - Hulls (1/10/83), Norwegian Hull Form or
American Institute Hull Clauses (2nd June 1977). Charterer reserves the
right to reject a specific insurance company for reasonable cause.
17.6. Notwithstanding anything else in this Article or elsewhere in this
Agreement to the contrary, if a party or its affiliate fails to obtain the
insurance which it has agreed to provide herein, or such insurance lapses
or is terminated, such event shall constitute an immediate Event of Default
under Article 30. by such party, and the other party, in addition to other
remedies available to it under Article 31., shall have the immediate right,
without notice or demand to the defaulting party, to obtain the insurance
required pursuant to this Article which shall give rise to an immediate
right of setoff for any expenses incurred, as a deduction from Hire
payable, by drawing upon the Performance Guaranty, or as an additional
payment due hereunder, as applicable.
17.7. The fact that the insurance policies required under this Article 17. have
been taken out shall not be deemed to relieve either party in whole or in
part of any of its obligations and responsibilities to the other party
under this Agreement or to any third party, including its indemnification
obligations under Article 18., nor does either party warrant to the other
that such policies are adequate to indemnify it against any such risk, and
the indemnifying party shall therefore be responsible for taking out, at
its sole expense, such further or other policies as it considers necessary
or prudent for its protection.
17.8. Each party shall bear all deductibles, franchises or self-insured
retentions applicable to insurance taken out by such party.
17.9. Each party shall give the other prompt notice of any claim with respect
of any of the insurance policies referred to in this Article, accompanied
by full details of the incident giving rise to such claim and shall afford
each other all such assistance as may be required, or reasonably requested,
for the preparation and negotiation of any insurance claims hereunder.
18. INDEMNITY.
18.1. Lessor shall protect, defend, indemnify and hold harmless Charterer and
its affiliates, associates, co-venturers, co-venturers' subsidiaries and
affiliates, and subcontractors at all levels and their respective
shareholders, officers, employees and agents (hereinafter all such
companies and persons called "Charterer Group") from and against any loss,
damage, claim, expense, suit or liability (including attorneys' fees and
legal costs) arising out of, or in any way related to, the injury, illness
or death or property loss or damage (including to the FSO) sustained by
Lessor, its affiliates, associates, co-venturers, subcontractors at all
levels, sub-suppliers, lenders and their respective shareholders, officers
and employees and agents and the Master and crew of the FSO (hereinafter
all such persons and companies called "Lessor Group") howsoever caused or
arising and regardless of a member of Charterer Group's or of any third
party's (i) sole, concurrent, active or passive negligence, (ii) a defect
in its property or equipment and (iii) liability or limitation thereof
under any applicable statute of law or theory including strict liability.
18.2. Charterer shall protect, defend, indemnify and hold harmless Lessor Group
from and against any loss, damage, claim, expense, suit or liability
(including attorneys' fees and legal costs) arising out of, or in any way
related to the injury, illness or death or property loss or damage
(including oil and gas reservoirs, pipelines and platforms in which
Charterer Group has an interest, but excluding the FSO) sustained by
Charterer Group howsoever caused or arising and regardless of a member of
Lessor Group's or of any third party's (i) sole, concurrent, active or
passive negligence, (ii) a defect in its property or equipment and (iii)
liability or limitation thereof under any applicable statute of law or
theory including strict liability.
18.3. Subject to the provisions of Articles 18.5., 18.6. and 18.9., Lessor
agrees to indemnify, defend and save Charterer Group harmless from and
against any and all losses, claims, demands, liabilities,
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damages, suits or actions in rem or otherwise (including expenses and
attorneys' fees) for loss or damage to or injury, illness or death of,
third parties regardless of any right that may be afforded to any member of
Lessor Group to claim limitation of liability under any applicable law,
statute or convention with respect to claims by third parties (which shall
exclude Charterer Group and Lessor Group) to the extent, and only to the
extent, such losses, claims, demands, liabilities, damages, suits or
actions arise out of Lessor Group's sole or concurrent active negligence;
PROVIDED, FURTHER, that to the extent that any loss, claim, demand,
liability, damage, suit or action brought by any third party arises in part
out of Charterer Group's concurrent active negligence, Lessor shall
indemnify, defend and save Charterer Group harmless from and against such
loss, claim, demand, liability, damage, suit or action in the proportion to
which the collective concurrent active negligence of all members of the
Lessor Group bears to the total collective concurrent active negligence of
all members of both the Lessor Group and the Charterer Group.
18.4. Subject to the provisions of Articles 18.5., 18.6. and 18.9., Charterer
agrees to indemnify, defend and save Lessor Group harmless from and against
any and all losses, claims, demands, liabilities, damages, suits or actions
in rem or otherwise (including expenses and attorneys' fees) for loss or
damage to or injury, illness or death of third parties regardless of any
right that may be afforded to any member of Charterer Group to claim
limitation of liability under any applicable law, statute or convention
with respect to claims by third parties (which shall exclude Charterer
Group and Lessor Group) to the extent, and only to the extent, such losses,
claims, demands, liabilities, damages, suits or actions arise out of
Charterer Group's sole or concurrent active negligence; PROVIDED, FURTHER,
that to the extent that any loss, claim, demand, liability, damage, suit or
action brought by any third party arises in part out of Lessor Group's
concurrent active negligence, Charterer shall indemnify, defend and save
Lessor Group harmless from and against such loss, claim, demand, liability,
damage, suit or action in the proportion to which the collective concurrent
active negligence of all members of the Charterer Group bears to the total
collective concurrent active negligence of all members of both the Lessor
Group and the Charterer Group.
18.5. (a) From and after Field Acceptance, Charterer agrees to indemnify,
defend and save Lessor Group harmless from and against any and all losses,
claims, demands, liabilities, damages, costs, expenses, penalties and/or
fines, suits or actions in rem or otherwise (including expenses and
attorneys' fees) for loss or damage to Lessor Group arising out of seepage
or pollution of crude oil and gas from reservoirs, pipelines, platforms and
other property related thereto (excluding the FSO) owned or leased by
Charterer Group while such property is in Charterer Group's custody and
control, including cost of cleanup of same.
(b) With respect to seepage or pollution from the FSO, Charterer shall
conduct cleanup operations and Lessor shall provide all reasonable
assistance; ultimate financial responsibility for the cost of such cleanup
will be borne by Lessor Group as provided in Article 18.6.(a). If Charterer
causes crude oil or gas located on the FSO to be insured, Charterer shall
cause Lessor Group to be named as co-insureds in such policy as their
interests may appear.
18.6. (a) Notwithstanding Article 18.5., Lessor shall be solely responsible
for and shall indemnify, defend and save Charterer Group harmless from and
against any and all losses, claims, demands, liabilities, damages, costs,
expenses, penalties and/or fines, suits or actions in rem or otherwise
(including expenses and attorneys' fees) for loss or damage to Charterer
Group arising from or caused by any seepage or pollution originating under
or above the surface of the water from (i) spills of crude oil, gas, fuels,
bunkers, slop tanks, lubricants, motor oils, pipe dope, paints, solvents,
ballast, bilge, garbage and sewage in Lessor Group's possession or control
(including the FSO) and (ii) any property or equipment (including the FSO)
owned, leased or provided by the Lessor Group including costs of cleanup of
same.
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(b) Notwithstanding Article 18.5., Charterer shall be solely responsible
for and shall indemnify, defend and save Lessor Group harmless from and
against any and all losses, claims, demands, liabilities, damages, costs,
expenses, penalties and/or fines, suits or actions in rem or otherwise
(including expenses and attorneys' fees) for loss or damage to Lessor Group
arising from or caused by any pollution originating under or above the
surface of the water from (i) spills of fuels, bunkers, slop tanks,
lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge,
garbage and sewage in Charterer Group's possession or control (other than
FSO) and (ii) any property or equipment owned, leased or provided by the
Charterer Group (other than the FSO) including costs of cleanup of same.
18.7. Except as provided in Articles 18.3. and 18.4., all excuses from
liability for one party and all indemnities given by one party to the other
party or to the other party's Group pursuant to this Agreement shall apply
regardless of the sole negligence or gross negligence or breach of duty or
strict liability of the parties to be indemnified but shall not apply in
the case of willful misconduct.
18.8. As used herein, "affiliate" shall mean any company or legal entity which
(i) controls either directly or indirectly a party hereto, or (ii) which is
itself effectively controlled directly or indirectly by such party, or
(iii) is directly or indirectly effectively controlled by a company or
entity which directly or indirectly controls such party. "Control" means
the right, whether by voting or otherwise, to appoint a director of the
company concerned. "FSO," as used herein, shall include the FSO, the swivel
and risers down to the outlet flange from the PLEM, and the export hoses up
to and including the output flange on such hoses.
18.9. In no event shall either party's Group be liable for any loss of
production, loss of oil or gas, loss of revenue or profit, loss of
commercial advantage, demurrage, or any consequential or indirect losses or
damages suffered by the other party's Group as a result of any act or
omission or negligence, unseaworthiness of the FSO or otherwise. This
Article shall not be construed as a limitation upon the third party
indemnification provisions of this Agreement.
18.10. The provisions of this Article 18. are intended to specifically allocate
certain liabilities between the parties hereto in the events described in
this Article 18 but shall not be interpreted to waive or excuse
performance by any party of its representations, warranties and covenants
set forth in this Agreement.
18.11. (a) For the purposes of this Article 18.11., the term "Indemnitee" will
refer to the person or persons indemnified or entitled (or claiming to be
entitled) to be indemnified pursuant to the provisions of this Agreement;
and the term "Indemnitor" will refer to the person having the obligation
to indemnify pursuant to such provision.
(b) An Indemnitee will promptly give the Indemnitor notice of any matter
that an Indemnitee has determined has given or could give rise to a right
of indemnification under this Agreement, stating the amount of the loss,
claim, demand, liability, damages, cost, expense, penalty and/or fine, suit
or action in rem or otherwise (the "Claim") if known, and method of
computation thereof, all with reasonable particularity, and stating with
particularity the nature of such matter. Failure to provide such notice
will not affect the right of the Indemnitee to indemnification except to
the extent such failure will have resulted in liability to the Indemnitor
that could have been avoided had such notice been provided promptly.
(c) The obligations and liabilities of an Indemnitor under this Agreement
with respect to Claims of any third party that are subject to the
indemnification provided for in this Article 18. ("Third Party Claims")
will be governed by the following additional terms and conditions: if an
Indemnitee receives notice of any Third Party Claim, the Indemnitee will
give the Indemnitor notice of such Third Party Claim pursuant to clause (b)
above, and the Indemnitor may, at its option, assume and control the
defense of such Third Party Claim at the Indemnitor's expense and through
counsel of
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the Indemnitor's choice that is reasonably acceptable to the Indemnitee. In
the event the Indemnitor assumes the defense against any such Third Party
Claim as provided above, the Indemnitee will have the right to participate
at its own expense in the defense of such asserted liability, will
cooperate with the Indemnitor in such defense and make available on a
reasonable basis to the Indemnitor all witnesses, pertinent records,
materials and information in its possession or under its control relating
thereto as is reasonably required by the Indemnitor. In the event the
Indemnitor does not elect to assume the defense against any such Third
Party Claim, the Indemnitor will pay all reasonable costs and expenses of
such defense as incurred and will cooperate with the Indemnitee (and be
entitled to participate) in such defense and make available on a reasonable
basis all such witnesses, records, materials and information in its
possession or under its control relating thereto as is reasonably required
by the Indemnitee. Except for the settlement of a Third Party Claim that
involves the payment of money only and for which the Indemnitee is totally
indemnified by the Indemnitor, no Third Party Claim may be settled without
the prior written consent of the Indemnitee, which consent will not
unreasonably be withheld or action with respect thereto unduly delayed. No
Indemnitee shall be entitled to any indemnification under this Agreement
from the Indemnitor for any Third Party Claim that it settles without the
prior written consent of the Indemnitor in each instance.
19. NON-WAIVER OF DEFAULTS.
19.1. Any failure by either party at any time, or from time to time, to enforce
or require the strict keeping and performance of any of the terms or
conditions of this Agreement, or to exercise a right hereunder, shall not
constitute a waiver of such terms or conditions.
20. FORCE MAJEURE.
20.1. Any loss or damage or delay in, or failure of performance of either party
shall not constitute default hereunder or give rise to any claims for
damages if and to the extent that such loss, damage, delay or failure is
caused by "Force Majeure."
20.2. In this Agreement "Force Majeure" shall denote any event the happening of
which could not be prevented even though a person against whom it happened
or threatened to happen were to take such appropriate care as might be
expected of a Reasonable and Prudent Operator, as hereinafter defined.
"Reasonable and Prudent Operator" when used to describe the standard of
care to be exercised by a party in performing its obligations means the
degree of diligence and prudence and foresight reasonably and ordinarily
exercised by experienced operators engaged in the same line of business
under the same or similar circumstances and conditions and when used to
determine the action that would be required of a party means the action an
experienced commercial operator engaged in the same line of business under
the same or similar circumstances and conditions would take in the exercise
of such due diligence, prudence and foresight. Notwithstanding Article
20.1., Force Majeure shall not release either party from any obligation to
give a notice or make any payment (including, in particular, any payment of
Hire) under this Agreement except where the making of a payment is
prevented by a Force Majeure event affecting the transfer of monies by the
payor. Any payments which are so prevented from being made by reason of
Force Majeure shall, upon the cessation of the Force Majeure event, be made
as soon as practicable thereafter in addition to any other amounts which
may then be payable by such party under this Agreement.
20.3. Events which may, subject to Article 20.2., be considered Force Majeure
events shall include but not be limited to acts of government, strikes,
lock-outs, acts of public enemy, wars whether declared or undeclared,
blockades, insurrection, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, washouts, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, freezing of
wells or lines of pipe, partial or entire failure of wells, inability to
obtain necessary materials or supplies due to changes in laws and
regulations and material changes in the obligations of the concessionaire
under the Concession Agreement, as herein defined, imposed
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unilaterally by the Government of Thailand and inability of PTT to accept
delivery of gas delivered to PTT under the Gas Sales Agreement where such
inability constitutes an event of Force Majeure under the Gas Sales
Agreement which has been declared.
20.4. A party claiming relief on account of Force Majeure shall:
(a) as soon as practicable give notice to the other party of the happening
said to constitute Force Majeure, such notice to include full
information about the circumstances and a statement of the steps and
time believed necessary to remedy the failure but neither party shall be
obligated to settle or prevent any strike or other industrial action
except on terms which, in its sole judgment, are acceptable to it; and
(b) proceed as a Reasonable and Prudent Operator at its own expense to
remedy the failure as rapidly as possible.
21. LAW AND ARBITRATION.
21.1. This Agreement shall be construed and governed in accordance with the
maritime law of the United States of America and, to the extent such law is
inapplicable, with the laws of the State of New York excluding any conflict
of law rules. In connection with the interpretation of any exhibit hereto,
the choice of law of this Agreement shall prevail.
21.2. Any dispute arising under or in connection with this Agreement shall be
settled by arbitration in New York City under the rules of the American
Arbitration Association. The party requesting arbitration shall serve upon
the other party a written demand for arbitration with the name and address
of the arbitrator appointed by it, and such other party shall, within ten
(10) days thereafter, appoint an arbitrator, and the two arbitrators so
named, if they can agree, shall appoint a third. If the two arbitrators
cannot agree, a third arbitrator shall be appointed by the American
Arbitration Association. The decision or award of any two arbitrators shall
be final and binding upon the parties. In no event shall any dispute or
consolidated group of disputes be determined by more than three
arbitrators. Should the party upon whom the demand for arbitration is
served fail or refuse to appoint an arbitrator within ten (10) days, the
single arbitrator shall have the right to decide alone, and his decision or
award shall be final and binding upon the parties. The arbitrator(s) shall
have the discretion to impose the cost of the arbitration proceedings,
including reasonable attorney's fees upon the losing party, or divide it
between the parties on any terms which may appear just; PROVIDED, HOWEVER,
that in no event may the arbitrator(s) award any punitive, special or
exemplary damages.
21.3. Judgment upon the arbitration award rendered may be entered in any Court
having either personal or in rem jurisdiction, or application may be made
to such Court for a judicial acceptance of the award and an Order of
Enforcement, as the case may be. In this regard, Lessor and Charterer
hereby submit to the jurisdiction of the federal and state courts located
in Houston, Harris County, Texas.
22. NOTICES.
22.1. Notices or other communications required to be given by either party
pursuant to this Agreement shall be written in English and delivered
personally or sent by mail or by facsimile to the address of the other
party set forth in Article 22.2. below, or to such other address as may
from time to time be designated by the other party through notification of
such party. The dates on which notices shall be deemed to have been
effectively given shall be determined as follows:
22.1.1 Notices given by personal delivery shall be deemed effectively
given on the date of personal delivery;
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22.1.2 Notices given by mail shall be deemed effectively given on the
seventh day after the date mailed (as indicated by the postmark) by
registered airmail, postage prepaid, or the third day after
delivery to an internationally recognized courier service;
22.1.3 Notices given by facsimile shall be deemed effectively given on the
first business day following the date of transmission, as indicated
on the document in question.
22.2. Except as otherwise provided in Article 22.1., the parties shall give all
notices and send all invoices and communications under this Agreement to:
22.2.1 If to Lessor:
Watertight Shipping B.V.
Einstein Building
Kabelweg 21
1014 BA Amsterdam
The Netherlands
Attention: Mr. Jacob Sajet
Fax: 31-20-684-7552
22.2.2 If to the Charterer:
Thaipo Limited
Thai Romo Limited
Palang Sophon Limited
B8/32 Partners Limited
18th Floor, B.B. Building
54 Soi Asoke, Sukhumvit 21 Rd.
Kwaeng Klongtoey Nua, Khet Klontoey
Bangkok 10110, Thailand
Attn: Resident Manager
(662) 260-7151 (phone)
(662) 260-7150 (fax)
22.2.3 All references in this Agreement to a Business Day shall refer to a
day other than Saturdays and Sundays or other days on which banks
in New York City and Bangkok are required or authorized to be
closed for business.
23. PURCHASE OPTION.
23.1. Provided that an Event of Default by Charterer under Article 30. of this
Agreement is not existing, Charterer shall have the right to exercise an
option (the "Purchase Option") to purchase the FSO (including its on-board
spare parts) from the Lessor free from all encumbrances (except
encumbrances created by Charterer),
(a) at the expiration of the Initial Term for a price of Twelve Million Six
Hundred Twenty-Eight Thousand Dollars (US $12,628,000.00); or
(b) at any time during the Initial Term at a price to be determined by
reference to APPENDIX C-1, or
(c) at any time during the Initial Term, if an Event of Default by Lessor
has occurred under Article 30. of this Agreement and Charterer has
elected, pursuant to Article 31.1.(b) hereof to exercise this Purchase
Option for a price determined by reference to APPENDIX C-2; or
(d) if, in the opinion of Charterer (and, if requested by Lessor, in the
opinion of Charterer's outside counsel), such purchase is required by
relevant governmental authorities pursuant to
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applicable laws, rules, regulations or agreements with such governmental
authorities, for a price determined by reference to APPENDIX C-1.
23.2. Lessor agrees that if Charterer exercises any option pursuant to this
Article 23. to purchase the FSO, Lessor will on or before the scheduled
closing of such purchase cause all liens with respect to the FSO (except
liens caused by the Charterer Group) to be lifted.
23.3. Except with respect to Article 23.1.(c), in the event that Charterer
exercises its Purchase Option, such purchase price shall be reduced by any
amounts due from Lessor under this Agreement which have been mutually
agreed or determined pursuant to the terms of Article 21. at the time of
such purchase.
23.4. If Charterer is exercising its Purchase Option pursuant to Article
23.1.(a), (b) or (c) above, Charterer shall provide notice of its intent to
do so in accordance with the relevant provisions of this Agreement. If
Charterer is exercising its Purchase Option pursuant to Article 23.1.(d)
above, Charterer shall provide notice of its intent to do so at the
earliest reasonable practicable opportunity.
23.5. In the event the Purchase Option is exercised, unless agreed otherwise
between Charterer and Lessor, Lessor shall sell the FSO and Charterer shall
purchase the FSO "as is," safely afloat, at the time and place of
redelivery of the FSO pursuant to Article 25., at which time:
(a) Lessor shall deliver to Charterer:
(i) A certificate signed by a duly authorized executive of Lessor to
the effect that the FSO is free from all encumbrances (except
encumbrances created by Charterer),
(ii) A certificate signed by the appropriate government official of
the Country of Registry showing Lessor as the sole owner of the
FSO and no liens of record other than encumbrances to be
satisfied out of the FSO's sales proceeds,
(iii) A legal bill of sale for the FSO free from all encumbrances and
maritime liens and any other debts whatsoever, duly notorially
attested and legalized by the appropriate authority and a letter
of undertaking to provide for the deletion of the FSO from the
Panamanian registry of vessels within thirty (30) days of the
date of delivery of the FSO to Charterer,
(iv) Copies of class and trading certificates (where relevant to its
class) for the FSO valid at the time of delivery,
(v) All government approvals necessary to transfer the FSO to
Charterer and, if requested by Charterer, to delete the FSO from
registry in the Country of Registry and any country claiming
jurisdiction over Lessor's power to sell the FSO,
(vi) Copies of all log books, classification certificates, manuals and
other documents in the Lessor's possession or control arising out
of or related in any way to the FSO's design, engineering,
construction, operation and maintenance, and
(vii) Physical possession of the FSO.
(b) On delivery, Charterer shall pay the purchase price to Lessor or its
designee by transfer to Lessor's account then designated for receipt of
Hire payments. Payment of any Thailand sales, VAT or other taxes
attributable the sale shall be the responsibility of Charterer. At the
time of delivery, if there are no unpaid claims which have been asserted
hereunder, Charterer shall promptly return the Performance Guaranty to
the issuer thereof.
(c) Each party shall deliver to the other party such additional
documentation or take such additional action as such other party may
reasonably request or as may be customary at the time with respect to
the sale of vessels registered in the Country of Registry and which is
not in
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conflict with the provisions of this Agreement, provided that Lessor
shall not be required to arrange or pay for a dry-docking or inspection
of the FSO for purposes of said sale and purchase.
24. GUARANTY.
24.1. Lessor has delivered to Charterer a Guaranty and Indemnity Agreement
("Lessor Parent Company Guaranty") in the form of APPENDIX B-1 hereto,
executed by its ultimate corporate parent, Omni Offshore Holdings, Limited,
a company organized under the laws of Liberia, guaranteeing the performance
by Lessor of its obligations hereunder.
24.2. Upon Delivery, Lessor or its designee shall provide to Charterer, at
Lessor's sole expense, an irrevocable and unconditional letter of credit in
favor of Charterer in the amount of Five Million Dollars (US $5,000,000) to
guarantee the due, proper and full performance by Lessor of its obligations
under this Agreement (the "Performance Guaranty"). The Performance Guaranty
shall be (i) executed on a form attached hereto as APPENDIX B-2 with such
modifications as are acceptable to Charterer, (ii) issued by a bank
acceptable to Charterer, and (iii) valid and available to Charterer until a
date not less than ninety (90) days after the end of the Initial Term;
PROVIDED, HOWEVER, that the term of the Performance Guaranty shall
initially be for a period of one (1) year, but shall be continually renewed
and extended, each renewal and extension to be for a period of one year if,
as of ten (10) days prior to the expiration of the initial term of the
Performance Guaranty, or any renewal or extension thereof, the term of the
Performance Guaranty is less than ninety (90) days more than the Initial
Term. In addition to any other rights Charterer may have to draw upon the
Performance Guaranty, Charterer shall have the immediate right to draw upon
the Performance Guaranty in full prior to its expiration if (i) Lessor has
not timely renewed and extended the Performance Guaranty in accordance with
the immediately preceding sentence or (ii) Lessor attempts to terminate the
Performance Guaranty prior to ninety (90) days after the expiration of the
Initial Term; PROVIDED, HOWEVER, that if Lessor subsequently delivers a new
Performance Guaranty and there is no other existing Event of Default by
Lessor, Charterer shall promptly pay to Lessor any amounts drawn by
Charterer pursuant to this sentence. In the event that Lessor or its
Guarantor or its or their subcontractors fail to comply with any of their
obligations under this Agreement and Charterer, as a result, shall have the
right at any time under this Agreement either to (i) be reimbursed or
indemnified by Lessor or its Guarantor for any loss or expenditure incurred
by Charterer or (2) receive any contractual damages (including liquidated
damages) from Lessor, then Charterer shall have the right to draw on the
Performance Guaranty on its first demand and thereafter from time to time
in such amount as needed to satisfy such obligation of Lessor or its
Guarantor to Charterer. In the event of a draw on the Performance Guaranty,
other than a draw in connection with the termination of the Agreement,
Lessor shall, within ten (10) Business Days from the date of such draw,
restore the Performance Guaranty to Five Million Dollars (US $5,000,000).
Any draw on the Performance Guaranty shall be effected by the member of the
Charterer that is at the time such draw the field operator pursuant to the
Concession Agreement (the "Field Operator").
25. REDELIVERY OF FSO.
The FSO shall at the expiration or termination or as provided in Article
31.2.(b) of this Agreement (unless lost or a constructive total loss or
under requisition or purchased by Charterer) be redelivered to Lessor at
the Offshore Site (the "Redelivery"), as is - where is, in accordance with
the following conditions. The FSO shall be redelivered to Lessor properly
documented and in class with no recommendations, fair wear and tear not
affecting class excepted. Charterer shall have discharged substantially all
free crude oil (other than tank bottoms) from the FSO. Any expenses of
degassing or demucking upon Redelivery shall be borne by Lessor. The FSO
shall upon Redelivery have her class certificates valid. Charterer will
render the FSO available to Lessor at the time of
21
<PAGE>
Redelivery for survey, inspection, testing and inventory check at Lessor's
expense. Charterer at its expense shall meet its Redelivery obligations and
the charter period shall be extended for the period necessary to make any
deficiencies good. During any such period the compensation payable under
Article 9. before Redelivery shall not be so payable provided Charterer's
obligations herein are met promptly and expeditiously. Prior to and during
the Redelivery of the FSO, Charterer shall provide such reasonable
assistance to Lessor as Lessor requests in order to effect taking
Redelivery of the FSO, including but not limited to temporary office
facilities onshore and transportation from Charterer's shore base to the
FSO and vice versa for Lessor's personnel and supplies as is reasonable
under the circumstances. On Redelivery, Lessor shall be free (i) to cut and
either remove or abandon the anchor chains, the risers, buoyancy tanks and
the control umbilicals (but so as to leave no hazard to shipping and to
avoid damage to Charterer's wells, wellheads, pipelines, PLEM or other
equipment) and to remove the FSO from the Offshore Site but without having
any obligation to remove subsurface equipment or materials including piling
or any other obligation to clear the Offshore Site and (ii) to remove any
free crude oil not previously removed by Charterer at Charterer's expense.
26. REQUISITION.
26.1. If the FSO is seized, expropriated, confiscated, nationalized or
requisitioned by any authority (other than the government, or any
department, commission or agency thereof, of the Country of Registry,
whether a legally constituted governmental authority or otherwise), and
such seizure, expropriation, confiscation, nationalization or requisition
has continued for a period of at least 30 consecutive days, this Agreement,
at the option of Charterer, may continue in force or may be terminated at
any time during the period of seizure, expropriation, confiscation,
nationalization or requisition, provided that in the event Charterer elects
to terminate, notice shall be given to Lessor by Charterer and
compensation, as specified in Article 9., shall cease as of the date
occurring 30 days prior to the date of notice of termination and the FSO
shall be deemed to have been Redelivered to Lessor by Charterer. If
Charterer has previously paid any or all of such compensation in respect of
such 30 day period, Lessor shall promptly refund such amount to Charterer.
26.2. In the event the FSO is seized, expropriated, confiscated, nationalized
or requisitioned (collectively, an "Expropriation") by the government, or
any department, commission or agency thereof, of the Country of Registry,
whether a legally constituted governmental authority or otherwise, this
Agreement shall be deemed terminated and compensation, as specified in
Article 9.1., shall cease as of the date of Expropriation and the FSO shall
be deemed to have been redelivered to Lessor by Charterer; PROVIDED, THAT,
the provisions of this Article 26.2. with respect to termination of this
Agreement shall not become applicable until the earlier of (a) one (1)
month after such Expropriation or (b) the date that Lessor and, if
applicable, Charterer have agreed that the FSO cannot be released from such
Expropriation.
26.3. In the event any seizure, expropriation, confiscation, nationalization or
requisition of the FSO occurs, Lessor shall use its best efforts to arrange
the release of the FSO therefrom (including, without limitation, changing
the Country of Registry of the FSO) and shall afford Charterer the
opportunity to join in any such action.
27. GENERAL AND PARTICULAR AVERAGE.
General average if any shall be adjusted according to the York-Antwerp
Rules 1994 or any subsequent modification thereof current at the time of
the casualty.
28. SALVAGE.
All salvage and towage shall be for Lessor's benefit and the cost of
repairing damage occasioned thereby shall be borne by Lessor.
22
<PAGE>
29. AUDIT.
Lessor shall maintain its records which pertain to Articles 9. and 11.
hereof in accordance with generally accepted international accounting
principles and will keep copies of all applicable documents, forms and
third-party invoices, etc., and will permit Charterer to inspect such
records at any time upon request during regular business hours.
30. DEFAULT.
The following events by either party hereto or any guarantor ("Guarantor")
under the Lessor Parent Company Guaranty shall constitute an Event of
Default:
(a) failure to observe any material covenant, condition or agreement to be
performed or observed by said party hereunder or any Guarantor under the
Lessor Parent Guaranty; or
(b) any representation or warranty made herewith or pursuant hereto or
pursuant to the Lessor Parent Company Guaranty shall prove to be
incorrect at any time in any material respect; or
(c) said party or Guarantor shall become insolvent or bankrupt or consent
to the appointment of a trustee or receiver, or a trustee or receiver
shall be appointed for said party or for a substantial part of its
property without its consent and shall not be dismissed for a period of
thirty (30) days, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against said party and, if
instituted against said party, shall not be dismissed for a period of
thirty (30) days, and at any time thereafter so long as the same shall
be continuing; PROVIDED, THAT, in any such case, no other Guarantor has
agreed within such thirty (30) day period to accept and fulfill the
obligations of such insolvent, reorganizing or bankrupt party or
Guarantor; or
(d) A Force Majeure Event shall have occurred preventing payment by
Charterer of amounts due hereunder and such failure to pay continues
unremedied for a period of 60 consecutive days.
31. REMEDIES.
31.1. Upon the occurrence of an Event of Default of Lessor or its affiliate and
at any time thereafter so long as the same shall be continuing, Charterer
may, at its option, upon ninety (90) days' (or in the case of a failure to
maintain or renew the full amount of the Performance Guaranty, two (2)
Business Days') notice thereof to Lessor, declare this Agreement to be in
default; and, at any time thereafter, so long as Lessor shall not have
remedied or have commenced and at all times thereafter diligently acted to
remedy all outstanding Events of Default, Charterer may:
(a) terminate this Agreement, compensation as specified in Article 9.1.
shall cease as of the date of termination and Charterer shall redeliver
the FSO to Lessor as if the FSO were being redelivered pursuant to
Article 25. hereof; or
(b) exercise its right to exercise the Purchase Option at a price to be
determined by reference to APPENDIX C-2 (offsetting any damages which
have been established at the time of such purchase against the purchase
price of the FSO to the extent provided below) and terminate
compensation under Article 9.1.
In either case, Charterer shall also have the additional right to draw upon
the Performance Guaranty as provided in Article 24.2.
If Charterer exercises its Purchase Option under sub-clause (b) above, it
will not offset any damages against the price set forth in APPENDIX C-2
except to the extent that (i) no additional drawings under the Performance
Guaranty are available, and (ii) Charterer's damages exceed the difference
between the amount set forth in APPENDIX C-1 minus the amount set forth in
APPENDIX C-2 as of the date of purchase of the FSO; PROVIDED, HOWEVER, that
the foregoing limitation on offset of
23
<PAGE>
damages shall not in any manner limit or diminish Charterer's claim for
damages under this Agreement, the Performance Guaranty or the Lessor Parent
Guaranty.
In addition to all other remedies available at law or in contract (and
otherwise permitted by this Agreement), Lessor shall be liable for any and
all damages to Charterer resulting from termination of this Agreement and
for all legal fees and any other costs and expenses whatsoever incurred by
Charterer by reason of the occurrence of any Event of Default or by reason
of the exercise by Charterer of any remedy hereunder, including, without
limitation, any costs and expenses incurred by Charterer in connection with
Redelivery of the FSO. Notwithstanding the remedies available to Charterer
under this Article 31., the provisions of Article 18.9. shall apply so as
to limit the damages of Charterer, PROVIDED that if Lessor shall breach its
obligation other than for reasons wholly outside its control to sell the
FSO to Charterer if Charterer exercises its Purchase Option under
sub-clause (b) above, Lessor shall be liable to the Charterer for direct
damages to Charterer arising from such breach. Charterer must use
reasonable efforts to mitigate its damages.
31.2. Upon the occurrence of an Event of Default of Charterer (provided that
such Event of Default did not arise out of or result from actions, or
omissions to act, of Operator under the Operating Agreement) and at any
time thereafter so long as the same shall be continuing, Lessor may, at its
option, upon ninety (90) days' notice (or, in the case of an Event of
Default based on a failure to pay money when due (including a failure by
reason of Force Majeure), thirty (30) days' notice) thereof to Charterer,
declare this Agreement to be in default; and, at any time thereafter, so
long as Charterer shall not have remedied or (except as to an Event of
Default based on a failure to pay money when due) have commenced and at all
times thereafter diligently acted to remedy all outstanding Events of
Default, Lessor may do, and Charterer shall comply with, one or more of the
following, as Lessor in its sole discretion shall so elect, to the extent
permitted by, and subject to compliance with any mandatory requirements of
applicable law then in effect:
(a) Lessor may terminate this Agreement.
(b) Upon written demand, Lessor may cause Charterer to, and Charterer
hereby agrees that it will, redeliver the FSO to Lessor within a
reasonable period of time not to exceed 45 days and in the same manner
and in the same condition as if the FSO were being redelivered pursuant
to Article 25. hereof; or Lessor or its agent, at Lessor's option, may,
but shall be under no obligation to, retake the FSO irrespective of
whether Charterer or any other person may be in possession of the FSO,
upon 24 hours prior notice but without prior demand and without legal
process, and for that purpose Lessor or its agent may take possession
thereof.
(c) Lessor or its agent may sell the FSO at public or private sale, with
notice to Charterer, or otherwise may dispose of, hold, use, operate,
charter (whether for a period greater or less than the balance of what
would have been the charter period for the FSO in the absence of the
termination of Charterer's rights to the FSO) to others or keep idle,
all on such terms and conditions and at such place or places as Lessor
may determine.
Notwithstanding the foregoing, in the event of an Event of Default by
Charterer under Article 30., the Event of Default of Charterer shall be
deemed to be cured for all purposes if any member of Charterer which has
not caused the Event of Default of Charterer pursuant to Article 30. shall
increase its respective Concessionaire Percentage so that the
Concessionaire Percentages of all members of Charterer which have not
caused the Event of Default of Charterer pursuant to Article 30. shall
total 100% and no amounts are due and owing by Charterer under this
Agreement.
In addition, Charterer shall be liable for and shall pay to Lessor within
thirty days after Lessor takes redelivery or possession of the FSO a lump
sum equal to the discounted present value (discounted at an annually
compounded percentage rate of twelve percent (12%) per annum) of any and
all remaining Hire payable during the Initial Term, as well as the actual
amount of all legal fees and
24
<PAGE>
any other costs and expenses whatsoever incurred by Lessor by reason of the
occurrence of any Event of Default of Charterer or by reason of the
exercise by Lessor of any remedy hereunder, including, without limitation,
any costs and expenses incurred by Lessor in connection with the Redelivery
or retaking of the FSO. Lessor must use reasonable efforts to mitigate its
damages and shall apply any amounts received from the sale or re-charter
(for a period equal to the remainder of the term of this Agreement) of the
FSO (after deducting Lessor's direct out-of-pocket expenses of making the
FSO ready for sale or re-charter) to reduce the amount of any charter hire
and other amounts payable by Charterer to Lessor pursuant to the last
paragraph of this Article 31.2.
31.3. Each party's remedies referred to in this Article 31. are intended to be
the exclusive remedies of such party under this Agreement; PROVIDED,
HOWEVER, that either party may enforce performance of these remedies by all
legal or equitable means.
31.4. No express or implied waiver by either party of any Event of Default
shall be in any way, or be construed to be, a waiver of any further or
subsequent Event of Default.
32. MISCELLANEOUS.
32.1. (a) All terms and conditions of this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Any purported assignment in
contravention of Article 9.1. or this Article 32. shall be null and
void.
(b) Charterer shall be entitled to assign its rights, duties and
obligations hereunder to an affiliate without the consent of Lessor;
PROVIDED, THAT, such assignment shall not relieve Charterer for any of
its obligations under this Agreement.
(c) Any member of Charterer shall be entitled to pledge and/or assign its
rights under this Agreement by way of security to any lending
institution providing financing for the transactions contemplated hereby
or related to the development of the concession or a collateral agent on
their behalf provided that any such pledge or assignment does not
release the assignor of the assignor's obligations hereunder, from any
of their respective obligations to the Lessor.
(d) Charterer shall not subcharter the FSO to any party including an
affiliate without the prior written consent of Lessor such consent not
to be unreasonably withheld.
Save as specifically provided above and in Articles 9.1. and 13.1.(d),
neither party hereto shall be entitled to assign any rights or obligations
under this Agreement without the prior consent of the other party, not to
be unreasonably withheld. Charterer shall maintain a written record that
identifies Lessor as the person entitled to payments under this Agreement.
In the event of a permitted assignment by Lessor of any of its rights under
this Agreement, such assignment will be reflected on the record maintained
by Charterer.
32.2. This Agreement may be executed in one or more counterparts, all of which,
taken together, shall constitute one original document.
32.3. Except as specifically provided herein to the contrary, each party hereto
intends that this Agreement shall not benefit or create any right or cause
of action to any person other than parties hereto or their permitted
assignees.
32.4. This Agreement may be amended or modified and any condition herein
specified may be waived by mutual consent of the parties by a written
instrument executed on behalf of the parties.
32.5. The captions contained in this Agreement are for convenience of reference
only and do not form a part of this Agreement and shall not affect the
interpretation hereof.
32.6. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future law effective during the term hereof,
such provision shall be fully severable. This Agreement
25
<PAGE>
shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof and the remaining
portions hereof shall remain in full force and effect and shall not be
effected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
32.7. Each of the parties hereto intends this Agreement will be treated as a
lease of the FSO from Lessor to Charterer. Neither Charterer, Lessor, nor
any of their respective affiliates will take any action nor file any
document with any governmental authority including, without limitation, any
tax return, which is inconsistent with such characterization of this
Agreement as a lease.
32.8. Termination of this Agreement, regardless of cause, shall not relieve
either party of its respective obligations and limitations arising from or
incident to this Agreement prior to its termination including, without
limitation, each parties indemnification obligations hereunder.
26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate as of the day, month and year just written above.
LESSOR: CHARTERER:
Watertight Shipping B.V. Thaipo Limited
/s/ JACOB SAJET /s/ STEPHEN R. BRUNNER
------------------------------ ------------------------------
Name: Jacob Sajet Name: Stephen R. Brunner
Title: Managing Director Title: Director
By: By:
Thai Romo Limited
/s/ DAVID CHAVENSON
------------------------------
Name: David Chavenson
Title: Managing Director
By:
Palang Sophon Limited
/s/ CHARN SOPHONPANICH
------------------------------
Name: Charn Sophonpanich
Title: Director
By:
/s/ SIRITAS
PRAESERT-MANUKITCH
------------------------------
Name: Siritas
Praesert-Manukitch
Title: Director
By:
B8/32 Partners Limited
/s/ DAVID CHAVENSON
------------------------------
Name: David Chavenson
Title: Director
By:
/s/ JEFFREY SEVERIN
------------------------------
Name: Jeffrey Severin
Title: Director
By:
/s/ SIRITAS
PRAESERT-MANUKITCH
------------------------------
Name: Siritas
Praesert-Manukitch
Title: Director
By:
27
<PAGE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
Thaipo Limited Thailand
B8/32 Partners Limited Thailand
Arch Petroleum Inc. Delaware
Pogo Canada Ltd. Alberta, Canada
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 19, 1999 included in this Annual
Report on Form 10-K, into Pogo Producing Company's previously filed
Registration Statement File Nos. 33-54969, 333-04233 and 333-72129.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 1999
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the use of our
name in the Annual Report on Form 10-K for the year ended December 31, 1998.
We further consent to the inclusion of our estimate of reserves and present
value of future net reserves in such Annual Report.
/s/ RYDER SCOTT COMPANY
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
February 25, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
I, JERRY M. ARMSTRONG, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 28th day of
January, 1999.
/s/ Jerry M. Armstrong
---------------------------------
Jerry M. Armstrong
<PAGE>
POWER OF ATTORNEY
I, TOBIN ARMSTRONG, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ Tobin Armstrong
---------------------------------
Tobin Armstrong
<PAGE>
POWER OF ATTORNEY
I, JACK S. BLANTON, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ Jack S. Blanton
---------------------------------
Jack S. Blanton
<PAGE>
POWER OF ATTORNEY
I, W.M. BRUMLEY, JR., in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ W.M. Brumley, Jr.
---------------------------------
W.M. Brumley, Jr.
<PAGE>
POWER OF ATTORNEY
I, JOHN B. CARTER, JR., in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ John B. Carter, Jr.
---------------------------------
John B. Carter, Jr.
<PAGE>
POWER OF ATTORNEY
I, WILLIAM L. FISHER, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ William L. Fisher
---------------------------------
William L. Fisher
<PAGE>
POWER OF ATTORNEY
I, GERRIT W. GONG, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 27th day of
January, 1999.
/s/ Gerrit W. Gong
---------------------------------
Gerrit W. Gong
<PAGE>
POWER OF ATTORNEY
I, J. STUART HUNT, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ J. Stuart Hunt
---------------------------------
J. Stuart Hunt
<PAGE>
POWER OF ATTORNEY
I, FREDERICK A. KLINGENSTEIN, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ Frederick A. Klingenstein
---------------------------------
Frederick A. Klingenstein
<PAGE>
POWER OF ATTORNEY
I, JACK A. VICKERS, in my individual capacity and as a director of
Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN
and THOMAS E. HART, and each of them severally, my true and lawful attorney
or attorneys with power to act with or without the other, and with full power
of substitution and resubstitution, to prepare, execute and file, in my name,
place and stead in my individual capacity and as a director of the Company,
such documents, reports and filings as may be necessary or advisable under
the Securities Exchange Act of 1934, as amended (the "Act"), the Securities
Act of 1933, as amended (the "Securities Act") or any other federal, state or
local law regulating the Company, including, without limitation, the
Company's Annual Report of Form 10-K for the fiscal year ended December 31,
1998, as prescribed by the Securities and Exchange Commission (the
"Commission") pursuant to the Act, and the rules and regulations promulgated
thereunder, with any and all exhibits and other documents relating thereto,
any and all amendments to said Annual Report and all instruments as said
attorneys or any of them shall deem necessary or incidental in connection
therewith and to file the same with the Commission.
Each of said attorneys shall have full power and authority to do and
perform in my name and on my behalf any act whatsoever to accomplish the
purpose and intent of the forgoing that said attorneys deem may be necessary
or desirable to be done in the premises as fully and to all intents and
purposes as I might or could do in person, and by my signature hereto, I
hereby ratify and approve any and all of such acts of said attorneys and each
of them.
IN WITNESS WHEREOF, I have executed this instrument on this 26th day of
January, 1999.
/s/ Jack A. Vickers
---------------------------------
Jack A. Vickers
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF POGO PRODUCING COMPANY,
INCLUDING THE CONSOLIDATED BALANCE SHEETS AS OF 12-31-1998 AND THE CONSOLIDATED
STATEMENTS OF INCOME FOR THE 12 MOS. ENDED 12-31-1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 7,959
<SECURITIES> 0
<RECEIVABLES> 63,031
<ALLOWANCES> 0<F1>
<INVENTORY> 11,563
<CURRENT-ASSETS> 85,367
<PP&E> 1,718,284
<DEPRECIATION> 992,759
<TOTAL-ASSETS> 862,396
<CURRENT-LIABILITIES> 107,479
<BONDS> 434,947
0
0
<COMMON> 40,136
<OTHER-SE> 209,524
<TOTAL-LIABILITY-AND-EQUITY> 862,396
<SALES> 202,895<F2>
<TOTAL-REVENUES> 202,803
<CGS> 71,213<F3>
<TOTAL-COSTS> 71,213<F3>
<OTHER-EXPENSES> 188,810<F4>
<LOSS-PROVISION> 0<F5>
<INTEREST-EXPENSE> 24,682
<INCOME-PRETAX> (70,849)
<INCOME-TAX> 27,751
<INCOME-CONTINUING> (43,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,098)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
<FN>
<F1>THIS AMOUNT IS NOT DISCLOSED ON THE FACE OF THE CONSOLIDATED FINANCIAL
STATEMENTS DUE TO LACK OF MATERIALITY, BUT IS INCLUDED AS A CONTRA-ASSET IN
ACCOUNTS RECEIVABLE.
<F2>DOES NOT INCLUDE GAINS OR LOSSES ON PROPERTY SALES.
<F3>INCLUDES LEASE OPERATING EXPENSE AND NATURAL GAS PURCHASES AND PIPELINE
OPERATIONS, BUT EXCLUDES GENERAL AND ADMINISTRATIVE, EXPLORATION, DRY HOLE AND
IMPAIRMENT AND DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES.
<F4>INCLUDES GENERAL AND ADMINISTRATIVE, EXPLORATION, DRY HOLE AND IMPAIRMENT AND
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES.
<F5>THIS AMOUNT IS NOT DISCLOSED ON THE FACE OF THE CONSOLIDATED FINANCIAL
STATEMENTS DUE TO LACK OF MATERIALITY, BUT IS INCLUDED IN OIL AND GAS REVENUES.
</FN>
</TABLE>
