<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
COMMISSION FILE NUMBER 1-1059
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-0550682
(State or jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
ONE NORTH CHARLES STREET, BALTIMORE, MARYLAND 21201
(Address of principal executive offices) (Zip Code)
410-539-7400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO_____
The number of shares outstanding at October 31, 1998 of the Registrant's $5
par value Class A and Class B Common Stock was 4,817,394 shares and
5,253,638 shares, respectively.
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
September 30, 1998 and December 31, 1997 3-4
Consolidated Condensed Statements of
Operations Three and nine months ended
September 30, 1998 and 1997 5
Consolidated Condensed Statements of Cash
Flows Nine months ended September 30, 1998
and 1997 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 21
Exhibit 20 - Interim Report to Stockholders
for the three and nine months ended
September 30, 1998
Exhibit 27 (a) - Financial Data Schedule
for the nine months ended
September 30, 1998
Exhibit 27 (b) - Financial Data Schedule
for the nine months ended September 30,
1997 - revised
SIGNATURE 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
1998 1997
---------- ----------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 64,368 $ 43,586
Accounts receivable - net 70,845 102,529
Recoverable income taxes 3,819
Inventories 125,954 109,279
Other current assets 3,493 2,097
-------- --------
TOTAL CURRENT ASSETS 264,660 261,310
INVESTMENTS AND DEFERRED CHARGES 44,409 44,448
PROPERTY, PLANT AND EQUIPMENT 658,025 635,063
Less allowance for depreciation 357,031 339,854
-------- --------
NET PROPERTY, PLANT AND
EQUIPMENT 300,994 295,209
-------- --------
$610,063 $600,967
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
1998 1997
--------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts Payable:
Crude oil and refined products $ 84,608 $104,391
Other 30,823 27,330
Accrued Liabilities 95,295 46,766
Current portion of long-term
debt 2,432 1,498
---------- ---------
TOTAL CURRENT LIABILITIES 213,158 179,985
LONG-TERM DEBT 130,046 127,506
DEFERRED INCOME TAXES 33,128 43,854
OTHER DEFERRED LIABILITIES 38,607 42,267
COMMON STOCKHOLDERS' EQUITY
Common stock, Class A - par value
$5 per share:
Authorized shares -- 7,500,000;
issued and outstanding
shares -- 4,817,394 in 1998
and 1997 24,087 24,087
Common stock, Class B - par value
$5 per share:
Authorized shares -- 7,500,000;
issued and outstanding
shares -- 5,253,638 in 1998 and
5,240,774 in 1997 26,268 26,204
Additional paid-in capital 92,150 94,655
Unearned restricted stock (2,270) (5,291)
Retained earnings 54,889 67,700
----------- ---------
TOTAL COMMON STOCKHOLDERS'
EQUITY 195,124 207,355
----------- ---------
$ 610,063 $ 600,967
=========== =========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended
September 30
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Sales and operating
revenues $ 312,461 $ 414,473
OPERATING COSTS AND EXPENSES
Costs and operating
expenses 268,211 362,903
Selling expenses 21,198 19,334
Administrative expenses 5,775 3,944
Depreciation and
amortization 8,619 7,896
Sales of property,
plant and equipment (179) (260)
--------- ----------
303,624 393,817
--------- ----------
OPERATING INCOME (LOSS) 8,837 20,656
Interest and other income 527 519
Interest expense (3,806) (3,635)
--------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 5,558 17,540
INCOME TAX EXPENSE (BENEFIT) 2,475 6,275
--------- ----------
NET INCOME (LOSS) $ 3,083 $ 11,265
========= ==========
NET INCOME (LOSS) PER SHARE:
Basic $ .31 $ 1.16
========= ==========
Diluted $ .31 $ 1.12
========= ==========
(Unaudited)
Nine Months Ended
September 30
1998 1997
------- ----------
REVENUES
Sales and operating
revenues $ 979,254 $ 1,203,654
OPERATING COSTS AND EXPENSES
Costs and operating
expenses 884,952 1,068,921
Selling expenses 63,340 57,798
Administrative expenses 16,284 13,543
Depreciation and amortization 25,237 23,219
Sales of property, plant and
equipment (430) (413)
--------- -----------
989,383 1,163,068
========= ===========
OPERATING INCOME (LOSS) (10,129) 40,586
Interest and other income 2,297 1,920
Interest expense (10,977) (10,652)
--------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (18,809) 31,854
INCOME TAX EXPENSE (BENEFIT) (5,998) 11,958
---------- -----------
NET INCOME (LOSS) $ (12,811) $ 19,896
========== ===========
NET INCOME (LOSS) PER SHARE:
Basic $ (1.30) $ 2.04
========= ==========
Diluted $ (1.30) $ 2.03
========= ==========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Nine Months Ended September 30
1998 1997
--------- ---------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash from operations before
changes in assets and
liabilities $ 2,635 $ 52,373
Net changes in assets and
liabilities 45,889 (12,859)
-------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 48,524 39,514
-------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Capital Expenditures (25,839) (20,372)
Proceeds from sales of
property, plant
and equipment 785 5,215
Investments in subsidiaries 164 136
Capitalization of software costs (3,035) (2,986)
Deferred turnaround maintenance (2,496) (12,994)
Other charges to deferred assets (1,668) (479)
-------- ---------
NET CASH (USED IN)
INVESTMENT ACTIVITIES (32,089) (31,480)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt and credit
agreement borrowings 64,729 26,316
(Repayments) of debt and
credit agreement borrowings (61,295) (26,982)
Net cash flows from long-term
notes receivable 316 616
Issuance of common stock 597 580
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,347 530
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 20,782 $ 8,564
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
September 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Management, all adjustments considered necessary for a fair and comparable
presentation have been included. Operating results for the three and nine
months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The
enclosed financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
The Company has no material items of other comprehensive income as defined
by Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", for the three and nine months ended September 30,
1998 and 1997.
To conform to the 1998 presentation, the Consolidated Condensed Statements
of Operations for the three and nine months ended September 30, 1997 have
been restated. Service station rental income and certain other retail
marketing recoveries, which had previously been reported as a reduction of
Selling and administrative expenses, have been reclassified and are now
reported as components of Sales and operating revenues, and Costs and
operating expenses, respectively. Additionally, beginning with the three
months ended March 31, 1998, the Company began reporting Selling expenses
and Administrative expenses as separate amounts in the Consolidated
Condensed Statements of Operations. Selling and administrative expenses as
originally reported in the Company's Form 10-Q for the three and nine
months ended September 30, 1997, have been restated to reflect these
changes. These reclassifications had no effect on the net income or net
income per share amounts as originally reported.
To conform to the 1998 presentation, certain balance sheet amounts at
December 31, 1997 have been restated.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS No. 132), which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, eliminates certain disclosures required by former guidance and
requires additional disclosures not included in the former guidance. This
Statement is effective for fiscal years beginning after December 15, 1997.
The Company will adopt SFAS No. 132 for the fourth quarter of 1998.
In June 1998, The FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133), which requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that those
instruments shall be measured at fair value. SFAS No. 133 also prescribes
the accounting treatment for changes in the fair value of derivatives which
depends on the intended use of the derivative and the resulting
designation. Designations include hedges of the exposure to changes in the
fair value of a recognized asset or liability, hedges of the exposure to
variable cash flows of a forecasted transaction, hedges of the exposure to
foreign currency translations, and derivatives not designated as hedging
instruments. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company expects to adopt SFAS No. 133 in the first
quarter of the year 2000. The financial statement impact of adopting SFAS
No. 133 has not yet been determined.
<PAGE>
Net changes in assets and liabilities presented in the Unaudited
Consolidated Condensed Statements of Cash Flows is comprised of the
following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1997
-------- --------
<S> <C> <C>
(thousands of dollars)
Decrease in accounts receivable $ 31,685 $ 13,568
(Increase) in inventories (16,675) (44,540)
(Increase) decrease in
prepaid operating expenses
and other current assets (1,396) 10,558
(Decrease) in crude oil and
refined products payable (19,783) (7,102)
Increase in other accounts payable 3,493 17,623
Increase (decrease) in accrued
liabilities and other deferred
liabilities 44,578 (5,498)
Decrease in recoverable and
deferred income taxes 3,987 2,532
-------- ---------
$ 45,889 $(12,859)
======== =========
</TABLE>
<TABLE>
<CAPTION>
NOTE B - INVENTORIES
Inventories consist of the following:
September 30 December 31
1998 1997
---------- ---------
<S> <C> <C>
thousands of dollars)
Crude oil $ 49,688 $ 42,164
Refined products 68,882 79,905
-------- --------
Total inventories at FIFO
(approximates current cost) 118,570 122,069
LIFO allowance (6,698) (25,586)
-------- --------
Total crude oil and refined
products 111,872 96,483
-------- --------
Merchandise inventory at FIFO
(approximates current cost) 7,573 6,806
LIFO allowance (1,929) (1,929)
-------- --------
Total merchandise 5,644 4,877
-------- --------
Materials and supplies inventory
at FIFO 8,438 7,919
-------- --------
TOTAL INVENTORY $125,954 $109,279
======== ========
</TABLE>
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO projections must be based on Management's
estimates of expected year-end inventory levels and values. At September
30, 1998, approximately 2.3 million barrels of crude oil and refined
products inventory, which are valued at the lower of cost (first-in, first-
out) or market, were held in excess of anticipated year-end quantities
prior to considering the impact on anticipated quantities of the Crude oil
Processing Agreement executed in October 1998.
NOTE C - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
As of September 30, 1998, under the terms of the First Restated Credit
Agreement dated as of August 1, 1997, as amended (Credit Agreement), the
Company had outstanding irrevocable standby letters of credit in the
principal amount of $5.3 million. The Company had no outstanding cash
borrowings as of September 30, 1998 under the Credit Agreement. As of
September 30, 1998, the Company was in compliance with all covenants and
provisions of the Credit Agreement, as amended, and reasonably believes,
but there can be no assurance that, it will remain in compliance with the
Credit Agreement until the end of November 1998, when an amended or
successor agreement is expected to become effective.
<PAGE>
As of September 30, 1998, the Company had outstanding $125 million of
unsecured 10.875% Senior Notes (Notes), which were issued in January 1995
under an Indenture. As of September 30, 1998, the Company was in
compliance with the terms of the Indenture. The Indenture includes certain
restrictions and limitations customary with senior indebtedness of this
type, including, but not limited to the amount of additional indebtedness
the Company may incur outside of the Credit Agreement, the payment of
dividends and the repurchase of capital stock. As of September 30, 1998,
the Indenture substantially restricted the Company from effecting
additional borrowings and precluded the payment of dividends. The Company
has not paid a dividend on its shares of common stock since the first
quarter of 1992.
NOTE D - CRUDE OIL AND REFINED PRODUCT HEDGING ACTIVITIES
The net deferred loss from futures contracts included in crude oil and
refined product hedging strategies was approximately $.9 million at
September 30, 1998. Included in these hedging strategies are futures
contracts maturing from October 1998 to February 1999. The Company is
using these contracts to defer the pricing of approximately 5.7% of crude
oil commitments for the aforementioned period.
NOTE E - INTEREST AND OTHER INCOME
Interest and other income as shown in the Consolidated Condensed Statements
of Operations consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
September 30
1998 1997
-------- -------
<S> <C> <C>
(thousands of dollars)
Interest income $ 756 $ 697
Equity (loss) in
unconsolidated subsidiaries (314)
Other income (expense) 85 (178)
----- -----
Total Interest and
other income $ 527 $ 519
===== =====
Nine Months Ended
September 30
1998 1997
------ -------
(thousands of dollars)
Interest income $ 1,814 $ 1,858
Equity (loss) in
unconsolidated subsidiaries (414)
Other income (expense) 897 62
------- --------
Total Interest and
other income $ 2,297 $ 1,920
======= ========
</TABLE>
This space intentionally left blank
<PAGE>
NOTE F - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
The average outstanding and equivalent shares used to calculate basic
earnings per share excludes 231,750 and 260,700 shares of Performance
Vested Restricted Stock (PVRS) registered to participants in the 1994 Long-
Term Incentive Plan (Plan) at September 30, 1998 and 1997, respectively.
The PVRS shares are not considered outstanding for basic earnings per share
calculations until the shares are released to the Plan participants.
The following tables provide a reconciliation of the basic and diluted
earnings per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
1998 1997
----------- -----------
<S> <C> <C>
(dollars in thousands,
except per share data)
INCOME APPLICABLE TO COMMON SHARES
- ----------------------------------
Net income $ 3,083 $ 11,265
=========== ============
Common shares outstanding at
July 1, 1998
and 1997, respectively 10,071,032 9,995,180
Restricted shares held by
the Company at July 1,
1998 and 1997, respectively (231,750) (260,700)
Weighted average effect of
shares of common stock
issued for stock option
exercises 13,694
----------- ------------
Weighted average number of
common shares outstanding,
as adjusted at September 30,
1998 and 1997,respectively:
Basic 9,839,282 9,748,174
Effect of Dilutive Securities:
Contingent issuance
- Performance Vested
Restricted Shares 52,972
Employee stock options 248,526
----------- ------------
Weighted average number of
common shares outstanding,
as adjusted at September 30,
1998 and 1997,
respectively:
Diluted 9,839,282 10,049,672
=========== ============
EARNINGS PER SHARE:
- ------------------
Net income - Basic $ .31 $ 1.16
=========== ===========
- Diluted $ .31 $ 1.12
=========== ===========
</TABLE>
This space intentionally left blank
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
------ --------
<S> <C> <C>
(dollars in thousands,
except per share data)
(LOSS) INCOME APPLICABLE TO COMMON SHARES
- ----------------------------------------
Net (loss) income $ (12,811) $ 19,896
========== =========
Common shares outstanding
at January 1, 1998
and 1997, respectively 10,058,168 9,983,180
Restricted shares held by
the Company at January 1,
1998 and 1997, respectively (260,700) (249,700)
Weighted average effect of
shares of common stock
issued for stock option
exercises 32,215 5,341
----------- ----------
Weighted average number of
common shares outstanding,
as adjusted at
September 30, 1998 and 1997,
respectively:
Basic 9,829,683 9,738,821
Effect of Dilutive Securities:
Contingent issuance -
Performance Vested
Restricted Shares 62,210
Employee stock options 15,954
----------- ----------
Weighted average number
of common shares outstanding,
as adjusted at September 30,
1998 and 1997,respectively:
Diluted 9,829,683 9,816,985
=========== ==========
EARNINGS PER SHARE:
- -------------------
Net (loss) income - Basic $ (1.30) $ 2.04
=========== ==========
- Diluted $ (1.30) $ 2.03
=========== ==========
</TABLE>
At September 30, 1998, the Company had non-qualified stock options and
performance vested restricted awards outstanding representing 231,750 total
potential common shares that were not included in the diluted earnings per
share calculation since doing so would have been anti-dilutive.
NOTE G - LITIGATION AND CONTINGENCIES
Except as noted in Part II, Item 1 - Legal Proceedings of this Quarterly
Report on Form 10-Q for the quarterly period ended Septemner 30, 1998,
there have been no material changes in the status of litigation and
contingencies as discussed in Note I of Notes to Consolidated Financial
Statements in the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
<PAGE>
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's Sales and operating revenues decreased $102 million or 24.6%
in the third quarter of 1998 from the comparable period in 1997. The
decrease in Sales and operating revenues was primarily attributable to a
28.3% decrease in the average sales price per gallon of petroleum products
which was partially offset by a 1.1% increase in petroleum product sales
volumes. Additionally, merchandise sales for the three months ended
September 30, 1998 increased 7.5% from the same 1997 period. Sales and
operating revenues decreased $224.4 million or 18.6% for the nine months
ended September 30, 1998 compared to the nine months ended September 30,
1997. The year to date decrease is primarily attributable to a 32.6%
decrease in the average sales price per gallon of petroleum products which
was partially offset by a 7% increase in petroleum product sales volumes.
The increases in petroleum product sales volumes for the three and nine
month periods ended September 30, 1998 compared to the respective 1997
periods was due principally to the expiration of the processing agreement
with Statoil North America, Inc. which effectively increased the Company's
refined product available for sale in 1998. Merchandise sales for the year
to date period ended September 30, 1998 increased 6.3% from the same 1997
period.
Costs and operating expenses decreased $94.7 million or 26.1% in the third
quarter of 1998 from the comparable period in 1997. The decrease was
primarily due to a decrease in the average cost per barrel consumed of
crude oil and feedstocks. Costs and operating expenses decreased $184
million or 17.2% for the nine months ended September 30, 1998 from the
comparable period in 1997 due primarily to a decrease in the average cost
per barrel consumed of crude oil and feedstocks. These third quarter and
year to date decreases were partially offset by increases in volumes sold
as previously discussed.
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, futures, forwards and exchange traded
options are used to minimize the exposure arising from fluctuations in the
price of crude oil and refined products and to help manage the price risk
inherent in purchasing crude oil in advance of delivery or in carrying
finished product inventory. The Company's hedging strategies are generally
intended to reduce volatility and to capture an acceptable profit margin.
During the first half of 1998, the Company held long positions,
particularly with respect to finished product, that exceeded its hedging
requirements and as a result incurred losses in a falling market. The net
recognized loss from these long trading positions included in cost of goods
sold for the nine months ended September 30, 1998 was approximately $9
million. Management subsequently implemented a policy to limit the use of
commodity derivatives to transactions that hedge underlying recognized
assets or liabilities or firm commitments as those terms are defined by
Generally Accepted Accounting Principles. The long positions that were
previously noted have been closed. As a result of this policy, the effect
of holding long positions that exceed hedging requirements was not material
to the results of operations for the three months ended September 30, 1998.
The results of operations were significantly affected by the Company's use
of the LIFO method to value inventory, which in a period of falling prices
increased the Company's gross margin $.22 per barrel ($3.1 million) and
$.44 per barrel ($18.9 million), respectively for the third quarter and
year to date periods ended September 30, 1998. Similarly, the use of the
LIFO method increased the Company's gross margin $.35 per barrel ($15
million) for the nine months ended September 30, 1997. The third quarter
of 1997 was characterized by rising prices which decreased the Company's
gross margin $.12 per barrel ($1.7 million).
<PAGE>
The aforementioned decrease in Sales and operating revenues coupled with
the decrease in Costs and operating expenses resulted in an overall
decrease in gross margin of $7.3 million and $40.4 million, respectively,
for the three and nine months ended September 30, 1998 compared to the same
1997 periods. The decreases in average sales price per gallon of petroleum
products reflected similar industry-wide decreases due to excess supply of
refined petroleum products, principally distillates, due primarily to the
unseasonably warm winter in the Company's marketing areas. Additionally,
decreases in the cost of the Company's crude oil and purchased feedstocks
reflect industry-wide decreases in prices of these products, however,
these decreases were not as significant as the decreases in finished
product sales prices. As a result, the Company's refining gross margin
decreased from $3.18 per barrel for the nine months ended September 30,
1997 to $1.77 per barrel for the nine months ended September 30, 1998.
Similarly, the Company's refining gross margin decreased from $4.16 per
barrel for the third quarter of 1997 to $2.57 per barrel for the comparable
period in 1998. However, this realized gross margin of $2.57 per barrel
for the third quarter of 1998 compares favorably with the industry average
3-2-1 crack spread of $2.52 per barrel for the same period. Such
performance reflects the Company's ability to produce above market
performance in a challenging refining environment.
Gasoline gross margin (gasoline gross profit as a percent of gasoline
sales) at the Company's retail locations increased significantly from $.092
per gallon for the three months ended September 30, 1997 to $.129 per
gallon for the three months ended September 30, 1998 while increasing
slightly from $.105 per gallon from the nine months ended September 30,
1997 to $.118 per gallon for the nine months ended September 30, 1998.
Aggregate gasoline gross profit on a same store basis increased 35.6% for
the three months ended September 30, 1998 from the comparable period in
1997 while gasoline gallons sold measured on a same store basis decreased
2%. For the year to date period ended September 30, 1998 compared to the
same 1997 period, aggregate gasoline gross profit on a same store basis
increased 9.3% while gasoline gallons sold measured on a same store basis
decreased 2.5%.
Merchandise gross margin (merchandise gross profit as a percent of
merchandise sales) increased slightly to 30.6% for the third quarter of
1998 from 30.1% for the comparable 1997 period while increasing slightly to
30.8% for the nine months ended September 30, 1998 from 30.6% for the
comparable period in 1997. Monthly merchandise sales, on a same store
basis, averaged $8.1 million per month, an increase of 4.1% for the nine
months ended September 30, 1998 compared to the same 1997 period and has
contributed to a $1.7 million or 7% increase in merchandise gross profit.
Aggregate year to date merchandise gross profit on a same store basis
increased by 1.1% in 1998 compared to the same 1997 period.
Yields of gasoline decreased from 95,100 barrels per day (bpd) (60.2% of
production) for the third quarter 1997 to 90,200 bpd (56.9%) for the third
quarter 1998 while distillate production increased slightly from 49,100 bpd
(31.1%) for the third quarter 1997 to 51,800 bpd (32.7%) for the same
period in 1998. Yields of gasoline decreased slightly from 89,900 bpd
(56.5%) for the nine months ended September 30, 1997 to 88,600 bpd (56%)
for the same period in 1998 and distillate yields decreased slightly from
51,900 bpd (32.7%) for the nine months ended September 30, 1997 to 50,300
bpd (31.8%) for the nine months ended September 30, 1998. The Company's
1998 refining yield was adversely impacted by two separate unit shutdowns
at the Pasadena refinery which negatively impacted yields and increased
operating costs by approximately $3.3 million for the nine month period
ended September 30, 1998. The Company's 1998 refining yield was negatively
impacted by two separate unit shutdowns at the Pasadena refinery which
adversely impacted yields and increased operating costs resulting in a
decrease in operating of approximately $3.3 million for the nine month
period ended September 30, 1998.
Selling expenses increased $1.9 million or 9.6% for the third quarter of
1998 compared to the same period in 1997 while increasing $5.5 million or
9.6% for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997. These increases are principally due to
increases in expenses for technology enhancements at the Company's retail
sites and in retail support locations and to increases in labor costs at
retail sites. Additionally, marketing promotion related expenses increased
slightly in the third quarter and year to date periods ended September 30,
1998 compared to the same periods of 1997.
Administrative expenses increased $1.8 million or 46.4% and $2.7 million or
20.2%, respectively, for the three and nine months ended September 30, 1998
compared to the same periods in 1997. These increases are primarily due to
increases in labor costs at the Company's administrative offices.
<PAGE>
Depreciation and amortization expenses in the third quarter of 1998
increased $.7 million or 9.2% from the comparable 1997 period. Similarly,
Depreciation and amortization expenses increased $2 million or 8.7% for the
nine months ended September 30, 1998 from the comparable 1997 period.
These increases are primarily attributable to the amortization of refinery
deferred turnaround expenses related to turnarounds performed in the second
and fourth quarters of 1997 and in the first quarter of 1998.
Operating costs and expenses for the three and nine months ended September
30, 1998 included $1.6 million and $3.4 million, respectively, related to
litigation settlements. This compares to $.5 million related to litigation
settlements for the three and nine months ended September 30, 1997. Also
included in Operating costs and expenses for the three and nine months
ended September 30, 1998 were accruals for certain pending litigation of
$.9 million compared to $1 million and $1.3 million, respectively, for the
three and nine months ended September 30, 1997. Additionally, the third
quarter and year to date periods ended September 30, 1997 included
incentive plan accruals of $5 million and $6 million, respectively.
Operating costs and expenses for the nine months ended September 30, 1998
included reductions of $1.3 million in other accrued liabilities. The nine
months ended September 30, 1997 included $2.5 million in reductions of
accruals related to environmental matters.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities (including changes in assets and
liabilities) totaled $48.5 million for the nine months ended September 30,
1998 compared to cash provided by operating activities of $39.5 million for
the nine months ended September 30, 1997. The 1998 inflows consist
primarily of cash inflows from changes in assets and liabilities of $45.9
million due primarily to increases in federal excise and refinery operating
tax accruals. The moratorium that was in effect at September 30, 1998
deferred the tax payments that ordinarily are paid monthly. Additional
cash inflows from working capital activities resulted from decreases in
accounts receivable and in recoverable income taxes. These working capital
inflows were partially offset by decreases in crude oil and refined
products payables and increases in the volume of crude oil and finished
product inventories, as well as, increases in prepaid operating expenses.
Additionally, cash provided by operations before changes in assets and
liabilities totaled $2.6 million for the nine months ended September 30,
1998. The 1997 inflows consist primarily of net cash provided by
operations before changes in assets and liabilities of $52.4 million.
Partially offsetting these cash inflows were cash outflows of $12.9 million
related primarily to working capital requirements resulting from increases
in the volume of crude oil and finished product inventories and decreases
in crude oil and refined products payables and in federal excise tax
accruals (net of payments). These working capital outflows were partially
offset by increases in other accounts payable primarily related to accrued
refinery turnaround expenses and to decreases in accounts receivable and in
prepaid operating expenses principally related to prepaid insurance
premiums and deferred losses on futures trading activity.
Net cash outflows from investment activities totaled $32.1 million for the
nine months ended September 30, 1998 compared to a net outflow of $31.5
million for the same 1997 period. The 1998 outflows consist primarily of
capital expenditures of $25.8 million (which includes $15.6 million
relating to the marketing area and $8.5 million for refinery operations).
Additionally, there were $3 million in capitalized software costs, $2.5
million in refinery deferred turnaround expenditures and $1.7 million in
other charges to deferred assets. These cash outflows were partially
offset by proceeds from the sale of property, plant and equipment of $.8
million. The 1997 amount consists principally of capital expenditures of
$20.4 million (which includes $11.5 million relating to the marketing area
and $6.7 million for refinery operations). Additionally, there were
refinery turnaround expenditures of $13 million and $3 million in
capitalized expenditures related to internal use software and hardware.
These cash outflows were partially offset by proceeds from the sale of
property, plant and equipment of $5.2 million.
<PAGE>
Net cash provided by financing activities was $4.3 million for the nine
months ended September 30, 1998 compared to cash provided by financing
activities of $.5 million for the nine months ended September 30, 1997.
The 1998 cash inflow consists primarily of $3.4 million in net proceeds
received from debt and credit agreement borrowings. Additionally, cash
inflows include $.6 million received from the issuance of the Company's
Class B Common Stock resulting from exercises of non-qualified stock
options granted to participants of the Company's Long-Term Incentive Plans.
The 1997 cash inflow consists principally of increases in long-term notes
receivable of $.6 million and $.6 million received from issuances of the
Company's common stock due to the exercise of stock options issued under
the Company's incentive plans. These cash inflows were partially offset by
$.7 million in amortization of the Company's capitalized lease obligations.
The ratio of current assets to current liabilities at September 30, 1998
was 1.24:1 compared to 1.41:1 at September 30, 1997 and 1.47:1 at December
31, 1997. If FIFO values had been used for all inventories, assuming an
incremental effective income tax rate of 38.5%, the ratio of current assets
to current liabilities would have been 1.28:1 at September 30, 1998, 1.62:1
at September 30, 1997 and 1.63:1 at December 31, 1997.
The Company's principle purchases (crude oil and convenience store
merchandise) are transacted primarily under open lines of credit with its
major suppliers. The Company maintains a credit facility to finance its
business requirements and supplement internally generated sources of cash.
Under the First Restated Credit Agreement effective August 1, 1997, as
amended (Credit Agreement), as of November 12, 1998, the Company had
outstanding irrevocable standby letters of credit in the principal amount
of $1.9 million for purposes in the ordinary course of business. As
indicated in Note C, the Company had no outstanding cash borrowings as of
September 30, 1998 under the Credit Agreement and there have been no cash
borrowings through November 12, 1998. The Company was in compliance with
all covenants and provisions of the Credit Agreement at September 30, 1998,
and reasonably believes that it will remain in compliance with the Credit
Agreement through the end of November 1998 when an amended of successor
agreement is expected to become effective. Meeting the covenants imposed
by the Credit Agreement or a successor is dependent, among other things,
upon the level of future earnings and cash flow.
The Credit Agreement is an unsecured credit facility with restrictive
covenants that limit its reliability as a source of short-term liquidity.
The Company believes that similarly rated companies in the petroleum
industry generally have secured working capital credit facilities with more
flexible terms and conditions. Consequently, one of the options which the
Company is pursuing is replacing the Credit Agreement with an agreement
that will provide for a senior security interest in the Company's current
assets (the "Secured Credit Agreement").
The Company's 10 7/8% Senior Notes due 2005 (the "Notes") are unsecured
with lien restrictions that generally provide the Note holders with equal
and ratable security interests in the Company's assets. In order to
provide a senior secured position to the financial institutions who would
participate in the Secured Credit Agreement, the Company issued a Consent
Solicitation to the Note holders on October 16, 1998, whereby the Note
holders would be paid a fee to grant the proposed senior credit position to
the banks (the "Consent"). The Consent Solicitation will expire at 5:00
p.m., New York time, on November 16, 1998, unless extended by the Company.
The Secured Credit Agreement or amended Credit Agreement is anticipated to
be finalized by the end of November 1998.
At the Company's option, the Unsecured 10.875% Senior Notes (Notes) may be
redeemed at 105.438% of the principal amount at any time after January 31,
2000 and thereafter at an annually declining premium over par until
February 1, 2003 when they are redeemable at par. The Notes were issued
under an Indenture which includes certain restrictions and limitations
customary with senior indebtedness of this type including, but not limited
to, the payment of dividends and the repurchase of capital stock. There
are no sinking fund requirements on the Notes. As of September 30, 1998,
the Indenture substantially restricted the Company from effecting
additional borrowings and precluded the Company from paying any dividends.
The Company has not paid a dividend on its shares of common stock since the
first quarter of 1992.
At September 30, 1998, the Company had gross borrowings of $6.4 million
under the Purchase Money Lien dated August 11, 1997 which is secured by
service station and convenience store land, buildings and equipment having
a cost basis of $9.1 million at September 30, 1998.
<PAGE>
The Company's management is involved in a continual process of evaluating
growth opportunities in its core business as well as its capital resource
alternatives. Total capital expenditures and deferred turnaround costs in
1998 are projected to approximate $36 million. The capital expenditures
relate primarily to retail unit improvements, additional retail units and
planned enhancements at the Company's refineries.
Effective October 15, 1998, the Company executed a Crude Oil Processing
Agreement (Processing Agreement) with Statoil Marketing and Trading (US)
Inc., (Statoil) whereby the Company will process a monthly average of
35,000 barrels per day of crude oil owned and supplied by Statoil at the
Company's Pasadena, Texas refinery. The Company will receive a specified
fee per barrel processed and will return to Statoil a specified mix of
finished petroleum products. This Processing Agreement is scheduled to
expire on October 14, 2000. As a result of this Processing Agreement, the
Company expects to decrease the level of crude oil and finished product
inventories maintained and owned by the Company as well as the level of
accounts receivable owed to the Company. These anticipated decreases in
working capital needs are expected to generate positive cash flows
approximating $15-$18 million based upon the prices prevailing at the
execution of the Processing Agreement.
The Company believes, but there can be no guarantee, that cash provided
from its operating activities, together with other available sources of
liquidity, including the Credit Agreement or a successor agreement, will be
sufficient over the next several years to meet the Company's capital
requirements.
The Company faces intense competition in all of the business areas in which
it operates. Many of the Company's competitors are substantially larger
and therefore, the Company's earnings can be affected by the marketing and
pricing policies of its competitors, as well as changes in raw material
costs.
Merchandise sales and operating revenues from the Company's convenience
stores are seasonal in nature, generally producing higher sales and net
income in the summer months than at other times of the year. Gasoline
sales, both at the Crown multi-pumps and convenience stores, are also
somewhat seasonal in nature and, therefore, related revenues may vary
during the year. The seasonality does not, however, negatively impact the
Company's overall ability to sell its refined products.
The Company maintains business interruption insurance to protect itself
against losses resulting from shutdowns to refinery operations from fire,
explosions and certain other insured casualties. Business interruption
coverage begins for such losses in excess of $1 million.
The Company has disclosed in Item 3. Legal Proceedings of the Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, and in Part II,
Item 1 - Legal Proceedings of this Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998,various contingencies which
involve litigation, environmental liabilities and examinations by the
Internal Revenue Service. Depending on the occurrence, amount and timing
of an unfavorable resolution of these contingencies, the outcome of which
cannot reasonably be determined at this time, it is possible that the
Company's future results of operations and cash flows could be materially
affected in a particular quarter or year. However, the Company has
concluded, after consultation with counsel, that there is no reasonable
basis to believe that the ultimate resolution of any of these contingencies
will have a material adverse effect on the Company. Additionally, as
discussed in Item 3. Legal Proceedings of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, the Company's collective
bargaining agreement at its Pasadena refinery expired on February 1, 1996,
and on February 5, 1996, the Company invoked a lock-out of employees in the
collective bargaining unit. The Company has been operating the Pasadena
refinery without interruption since the lock-out and intends to continue to
do so during the negotiation period with the collective bargaining unit.
<PAGE>
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results have been, and will continue to be,
affected by a wide variety of factors that could have an adverse effect on
profitability during any particular period, many of which are beyond the
Company's control. Among these are the demand for crude oil and refined
products, which is largely driven by the condition of local and worldwide
economies, although seasonality and weather patterns also play a
significant part. Governmental regulations and policies, particularly in
the areas of energy and the environment, also have a significant impact on
the Company's activities. Operating results can be affected by these
industry factors, by competition in the particular geographic markets that
the Company serves and by Company-specific factors, such as the success of
particular marketing programs and refinery operations.
In addition, the Company's profitability depends largely on the difference
between market prices for refined petroleum products and crude oil prices.
This margin is continually changing and may significantly fluctuate from
time to time. Crude oil and refined products are commodities whose price
levels are determined by market forces beyond the control of the Company.
Additionally, due to the seasonality of refined products and refinery
maintenance schedules, results of operations for any particular quarter of
a fiscal year are not necessarily indicative of results for the full year.
In general, prices for refined products are significantly influenced by the
price of crude oil. Although an increase or decrease in the price for
crude oil generally results in a corresponding increase or decrease in
prices for refined products, often there is a lag time in the realization
of the corresponding increase or decrease in prices for refined products.
The effect of changes in crude oil prices on operating results therefore
depends in part on how quickly refined product prices adjust to reflect
these changes. A substantial or prolonged increase in crude oil prices
without a corresponding increase in refined product prices, a substantial
or prolonged decrease in refined product prices without a corresponding
decrease in crude oil prices, or a substantial or prolonged decrease in
demand for refined products could have a significant negative effect on the
Company's earnings and cash flows.
The Company is dependent on refining and selling quantities of refined
products at margins sufficient to cover operating costs, including any
future inflationary pressures. The refining business is characterized by
high fixed costs resulting from the significant capital outlays associated
with refineries, terminals and related facilities. Furthermore, future
regulatory requirements or competitive pressures could result in additional
capital expenditures, which may or may not produce desired results. Such
capital expenditures may require significant financial resources that may
be contingent on the Company's continued access to capital markets and
commercial bank financing on favorable terms.
Purchases of crude oil supply are typically made pursuant to relatively
short-term, renewable contracts with numerous foreign and domestic major
and independent oil producers, generally containing market-responsive
pricing provisions. Futures, forwards and exchange traded options are used
to minimize the exposure of the Company's refining margins to crude oil and
refined product fluctuations. The Company also uses the futures market to
help manage the price risk inherent in purchasing crude oil in advance of
the delivery date, and in maintaining the inventories contained within its
refinery and pipeline system. Hedging strategies used to minimize this
exposure include fixing a future margin between crude and certain finished
products and also hedging fixed price purchase and sales commitments of
crude oil and refined products. While the Company's hedging activities are
intended to reduce volatility while providing an acceptable profit margin
on a portion of production, the use of such a program can effect the
Company's ability to participate in an improvement in related product
profit margins. Although the Company's net sales and operating revenues
fluctuate significantly with movements in industry crude oil prices, such
prices do not have a direct relationship to net earnings, which are subject
to the impact of the Company's LIFO method of accounting discussed below.
The effect of changes in crude oil prices on the Company's operating
results is determined more by the rate at which the prices of refined
products adjust to reflect such changes.
<PAGE>
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define a particular year. These computer
programs include both information technology such as software programs and
non-information technology systems such as embedded microcontrollers in
equipment. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities. The Company initially commenced its Year 2000
readiness program in early 1995.
In 1993, the Company began a long-term project which encompassed an in-
depth evaluation of all current business processes and the redesign of any
of these processes where significant opportunity for improvement was
identified. One of the results of this project was the decision to purchase
and implement an enterprise-wide state-of-the-art fully integrated software
package (SAP R/3 "Trademark") which was selected in connection with re-
designing business practices to further enhance operating and record
keeping efficiencies. This software is year 2000 ready. Due to the
enterprise-wide scale of the project, the majority of the Company's year
2000 issues will be resolved as an added benefit of this software
implementation. The following paragraphs address those computer systems
that are not encompassed within the SAP R/3 "Trademark" system.
The evaluation of the Company's state of readiness relating to its year
2000 issues is a continual process emphasizing a constant awareness of
computer systems and business relationships that may be sensitive to year
2000 issues. Management has categorized the activities necessary to solve
the year 2000 issues into the assessment phase, the remediation phase, and
the testing and contingency planning phase. The assessment phase includes
the evaluation of all of the Company's information technology systems and
embedded microcontrollers (collectively referred to as computer programs)
to identify those computer programs that contain date sensitive features.
Those computer programs that contain such features are then further
evaluated and categorized as either mission critical or non-mission
critical based upon their relative importance to the uninterrupted
continuation of the Company's daily operations. Mission critical computer
programs gain top priority when allocating the available resources to solve
year 2000 issues. With the exception of the Company's two refineries, as
of September 30, 1998, the Company has completed the assessment of all of
its mission critical information technology (IT) systems and embedded
microcontrollers and the majority of those not deemed to be mission
critical. The Company's management is currently in the process of
interviewing potential consulting groups to assist with the further
assessment of the embedded microcontrollers at the Pasadena and Tyler
refineries. The Company expects to complete the assessment of the
remainder of its own IT systems and embedded microcontrollers by the end of
the first quarter of 1999.
The assessment phase also includes the identification of and communication
with hardware and software vendors with whom the Company transacts
business, third parties with whom the Company exchanges information
electronically, major or sole source suppliers, and major customers. The
focus of these communications is to determine the state of readiness of
each of these third parties with respect to their own year 2000 issues and
how their progress may impact the Company. The majority of responses
received to third party inquiries indicate that they are working on their
year 2000 issues without elaborating specific details. Follow-up action
related to material third party inquiries and responses is expected to
continue into 1999 as these material third parties progress in their own
year 2000 readiness projects. No material third party suppliers have been
identified that could not be replaced by alternative suppliers in the event
of non-compliance by a particular party.
The remediation phase includes the repair, upgrade or replacement of all
computer programs identified as non-compliant in the assessment phase.
These activities will include all computer programs that have not been
scheduled to be repaired, upgraded or replaced as well as those that had
been scheduled but whose timing of repair, upgrading or replacement was
accelerated to resolve the Company's year 2000 issues. The Company's
primary strategy for correcting year 2000 issues is to replace all non-
compliant technology with newly purchased technology that, in addition to
being year 2000 compliant, provide enhanced business functionality and
capabilities. This phase has been on-going since 1995 and is expected to
be substantially completed by June 30, 1999. Total costs of upgrading or
replacing computer software and upgrading computer hardware are expected to
approximate $1.5 million, respectively.
<PAGE>
The testing and contingency planning phase includes testing the computer
programs worked on in the remediation phase for accuracy as well as
concurrently developing contingency plans that may be placed into effect in
the event that significant deficiencies are identified. Contingency
planning also encompasses developing alternative sources of supply in the
event of failure by material third parties to remedy their own year 2000
issues. Testing of computer programs is expected to be completed as
remediation or replacement of individual programs is completed. Due to the
number of computer programs utilized by the Company and the need to begin
remediation, replacement, and testing of mission critical programs in a
timely manner, any or all of the phases identified may be performed
concurrently. Testing of implemented technologies will be a continual
process with the expectation that all of the Company's mission critical
systems will be tested by the end of the third quarter of 1999.
Contingency plans will be formulated as the need arises.
While the Company' management anticipates that all mission critical
computer programs will be assessed, remedied and tested by the dates set
forth in the preceding paragraphs, there can be no assurance that all will
be completely error free. We rely on third party software, equipment and
services to conduct our business. While the Company has made reasonable
efforts to address this issue, third party compliance efforts are not fully
within our control.
The most reasonably likely worst case scenario of failure to remedy all
year 2000 issues would be the failure of the control systems at the
Company's refineries. Until the Company has completed the assessment of
the embedded microcontrollers at the Pasadena and Tyler refineries, which
as previously stated is scheduled for the end of the first quarter of 1999,
no estimate can be made concerning the financial impact to the Company.
Additionally, the most likely possibility of material third party non-
compliance would result from the loss of utility services at either of the
Company's refineries or in any of the Company's marketing areas. Insurance
coverage available at this time is limited to business interruption
resulting from fire, explosion, or related perils which are caused by a
year 2000 system failure.
The failure to correct a material year 2000 problem or the inability of any
key customer, key supplier or a governmental agency to make the necessary
computer system changes on a timely basis, the inaccuracy of responses
received from these third parties, and the potential shortage of skilled
human resources to install and test upgraded software and equipment could
result in interruptions to Company operations or business activities. Such
interruptions could have a material adverse impact on the Company's results
of operations , liquidity or financial condition. Due to the general
uncertainty inherent in the year 2000 issue, particularly as it relates to
the readiness of the Company's key customers and suppliers, and of
governmental agencies, the Company cannot ascertain at this time whether
the consequences of the year 2000 failures will have a material impact on
the Company's results of operations, liquidity or financial condition.
The foregoing year 2000 discussion constitutes a "forward-looking"
statement within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. It is based on management's current expectations,
estimates and projections, which could ultimately prove to be inaccurate.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In August of 1998, the Pasadena refinery was issued an Agreed Order by the
Texas Natural Resource Conservation Commission (TNRCC) pertaining primarily
to alleged exceedances of concentration standards for hydrogen sulfide and
air emissions of sulfur dioxide from the refinery. (Agreed Order Docket No.
97-1088-AIR-E) Substantially all of the alleged violations covered by the
Agreed Order were included in the Notice of Violation previously discussed
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. The Company paid a penalty of $1.1 million and agreed
to hire a consultant to study the cause of the exceedances and to implement
corrective measures recommended by the study. By the time the Agreed Order
was entered, the Company had already upgraded certain equipment and
installed backup equipment to improve the removal efficiencies of hydrogen
sulfide and disulfides from certain operating processes at a cost of
approximately $.4 million. On September 30, 1998, Texans United for a Safe
Economy Education Fund and several individuals, filed suit against the
TNRCC in the District Court of Travis County, Texas requesting the court
modify or set aside the Agreed Order and that TNRCC be required to assess
additional penalties against the Company based on economic benefit
considerations. TEXANS UNITED FOR A SAFE ECONOMY EDUCATION FUND, ET AL.,
98-11008 (126th Judicial District, Travis Co., Tex.) The Company plans to
seek to intervene in this case. The Company does not reasonably expect
that the plaintiffs will prevail.
On October 5, 1998, the Company was served in a lawsuit naming it as an
additional defendant in an existing lawsuit filed by approximately 5,500
Houston Ship Channel area residents against approximately 11 other
refineries and petrochemical plant operators. CRYE ET AL. VS. REICHHOLD
CHEMICALS, INC., ET AL., 97-24399 (334th Judicial District, Harris Co.,
Tex.). The plaintiffs claim they are adversely affected by the noise,
light, emissions and discharges from defendants' operations and seek
unspecified damages and injunctive relief for alleged nuisance, trespass,
negligence, and gross negligence. The Company has answered and intends to
vigorously defend this lawsuit. The ultimate determination of the matter,
in the opinion of management, is not expected to have a material adverse
effect on the Company.
There have been no other material changes in the status of legal
proceedings as previously reported in Item 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and in Part II,
Item 1 - Legal Proceedings of the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, is not expected to
have a material adverse effect on the Company.
ITEM 5 - OTHER INFORMATION
Edward L. Rosenberg, Executive Vice President - Supply & Transportation,
has announced that he will resign his position with the Company effective
December 31, 1998, to be actively involved in family business interests.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
10 Crude oil processing agreement between the
Registrant and Statoil Marketing and Trading
(US) Inc.is filed as part of the Quarterly
Report on Form 10-Q. Certain portions of the
Agreement have been
omitted because of their confidential nature,
and have been filed separately with the
Securities and Exchange Commission marked
"Confidential Treatment".
20 - Interim Report to Stockholders for the three and
nine months ended September 30, 1998.
27 (a) - Financial Data Schedule for the nine months ended
September 30, 1998.
27 (b) - Financial Data Schedule for the nine months
ended September 30, 1997 - revised.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed with the Securities and Exchange
Commission during the three
months ended September 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-Q for the quarter
ended September 30, 1998 to be signed on its behalf by the undersigned
thereunto duly authorized.
CROWN CENTRAL PETROLEUM CORPORATION
/s/--Jan L. Ries
-------------------------------
Jan L. Ries
Controller
Chief Accounting Officer
and Duly Authorized Officer
Date: November 16, 1998
<PAGE>
EXHIBIT 10
October 29, 1998
Mr. Sigurd Jansen
Statoil Marketing & Trading (US) Inc.
225 High Ridge Road
Stamford, CT 06905
Dear Sigurd:
To confirm our conversation today regarding the Crude Oil Processing
Agreement signed by you on October 23, 1998, we have agreed to the
following additional provision regarding Statoil's rights in Article
3(ii)(c)(B)(a) (page 7):
Upon receiving notice of an amendment, supplement or other modification to
either the Indenture or the Credit Agreement, Statoil has 10 business days
following receipt of Crown's written notification to exercise its right to
suspend or terminate the contract. Should Statoil desire to exercise this
option, Crown may prevent termination or suspension of the contract by
providing within 10 business days, a letter of credit in the same manner as
provided in Article 19 (page 39). This additional provision does not
supercede any provisions in Article 3 other than 3(ii)(c)(B)(a).
I would appreciate you returning a signed copy of this letter to me as
part of the executed contract.
Sincerely,
/s/ - - Randall M. Trembly
--------------------------
Randall M. Trembly
RMT/cmk
/s/ - - Randall M. Trembly 10/29/98
- -------------------------- --------
Randall M. Trembly Date
/s/ - - Sigurd Jansen 10/30/98
- ------------------------- --------
Sigurd Jansen Date
<PAGE>
CRUDE OIL PROCESSING AGREEMENT
between
STATOIL MARKETING AND TRADING (U.S.) INC.
and
CROWN CENTRAL PETROLEUM CORPORATION
1998-2000
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
PROCESSING AGREEMENT 1
ARTICLES
1. DEFINITIONS 2
2. DURATION 5
3. PROCESSING LEVELS 6
4. TYPE AND QUALITY OF CRUDE OIL 9
5. PRODUCT YIELDS 10
6. PRODUCT SPECIFICATION 11
7. PROCESSING FEES AND PENALTIES 12
8. TAXES AND OTHER CHARGES 14
9. PAYMENT 15
10. CRUDE OIL SUPPLY AND NOMINATION PROCEDURE 16
11. PRODUCT LIFTING SCHEDULE 19
12. BERTH, DISCHARGE AND LOADING CONDITIONS,
AND DEMURRAGE 21
13. STORAGE RIGHTS AND OBLIGATIONS 24
14. FINAL SETTLEMENT 25
15. TITLE, RISK OF LOSS AND CUSTODY 26
16. QUANTITY AND QUALITY DETERMINATION 28
17. AUDITING 35
18. SUSPENSION AND TERMINATION 36
19. CREDIT CONDITIONS 39
20. INDEMNITY 41
21. REFINERY CLOSURE 42
22. FORCE MAJEURE 44
23. LAW 46
24. REPRESENTATIONS, WARRANTIES, AND COVENANTS
OF STATOIL 47
25. REPRESENTATIONS, WARRANTIES, AND COVENANTS
OF CROWN 49
26. SAFETY AND HEALTH 51
27. ASSIGNMENT 52
28. STATEMENTS 53
29. COMPLIANCE WITH EPA REFORMULATED GASOLINE
& ANTI-DUMPING REGULATIONS 54
30. LIABILITIES 55
31. MISCELLANEOUS 56
ADDENDUM ONE 58
ADDENDUM TWO 63
<PAGE>
PROCESSING AGREEMENT
- --------------------
This Agreement is made as of the 14th day of October , 1998, between
Statoil Marketing and Trading (US) Inc. of Stamford, Connecticut,
(hereinunder called "Statoil")
and Crown Central Petroleum Corporation of Baltimore, Maryland,
(hereinunder called "Crown").
Whereas Statoil agrees to supply Crude Oil to Crown at the Pasadena
Refinery, located at 111 Red Bluff Road, Pasadena, TX 77506, herein
referred to as the "Refinery," and Crown agrees to process such Crude Oil
as defined and make available Products to Statoil at the Refinery.
Now, therefore, in consideration of the premises and the mutual promises
herein contained, Crown and Statoil agree as follows:
<PAGE>
ARTICLE 1
- ---------
DEFINITIONS
- -----------
Where used in this Agreement, except as otherwise required by the context,
the words defined in the following sections of this Article 1 shall have
the meanings respectively ascribed thereto.
(i) "Affiliate" shall mean a person which owns a Party (Parent),
which is owned by a Party (Subsidiary), or which is owned by a person which
owns a Party. Ownership means the ownership, directly or indirectly,
through one or more intermediaries, of fifty (50) percent or more of the
issued shares or voting rights in a company, partnership, or legal entity.
(ii) "API" shall mean the American Petroleum Institute.
(iii) "ASTM" shall mean the American Society for Testing and Materials.
(iv) "Barrel" shall mean a barrel of forty-two U.S. gallons measured
at 60 degrees Fahrenheit, and "B/CD" shall mean Barrels per calendar day.
(v) "Crude Oil" shall mean the Crude Oil specified in Article 4
hereof, or raw materials which can be considered technically and
commercially as Crude Oil.
(vi) "Dollar", "USD" and the symbol "$" shall refer to the United
States Dollar.
(vii) "Environmental Laws" shall mean all Laws and Regulations, as
defined in this Article, which involve, relate to, or affect the
environment in any way, including, but not limited to, any of which purport
to govern air emissions, water discharges, spills, hazardous or toxic
substances, solid or hazardous waste, and occupational health and safety,
as may be amended from time to time, and including all Environmental Laws
applicable in the State of Texas.
(viii) "Gallon" shall mean a U.S. standard gallon of 231 cubic inches at
60 degrees Fahrenheit.
(ix) "Governmental Authority" shall mean any federal, state, or local
governmental body or agency or subdivision thereof, including, but not
limited to, any legislative, administrative, or judicial body which has
jurisdiction to exercise authority or control over Statoil and Crown; over
all or any part of the Refinery Facilities; or over all or any part of the
transactions and services to be performed under this Agreement.
(x) "Independent Inspector" shall mean a licensed person or entity
which will perform sampling, quality analysis, and quantity determination
of Crude Oil and/or Products, either at loading or at the discharge as
described in this Agreement.
<PAGE>
(xi) "Laws and Regulations" shall mean all applicable treaties,
statutes, regulations, codes, laws, ordinances, licenses, decisions,
orders, directives, decrees, agreements, concessions and arrangements with
Governmental Authorities, interpretations, or license, permit or compliance
requirements (a) which apply to the Refinery Facilities or to the
performance of either Party of any obligation under this Agreement, or (b)
which may be enforced or issued by any Governmental Authority with
jurisdiction over the operation of the Refinery Facility.
(xii) "Liabilities" shall mean losses, claims, charges, damages,
deficiencies, assessments, interests, penalties, costs, and expenses of any
kind (including, without limitation, related attorneys' fees and other
fees, court costs, and other disbursements), whether or not liquidated,
directly or indirectly arising out of or related to any suit, proceeding,
judgment, settlement or judicial or administrative order, including without
limitation, any liabilities with respect to the Environmental Laws.
(xiii) "NSV" shall mean the Net Standard Volume of oil reduced to a
standard temperature of 60 degrees Fahrenheit and expressed in Barrels.
The Net Standard Volume is the volume of oil after all Free Water, Water in
suspension, and sediments have been deducted.
(xiv) "Part Cargo" shall mean when a Cargo is discharged in more than
one Discharge Port, or received by more than one receiver at the Discharge
Port.
(xv) "Party" shall mean Statoil or Crown.
(xvi) "Processing Period" shall mean the period of duration of the
processing contract as set forth in Article 2.
(xvii) "Product(s)" shall mean any finished petroleum Products (liquid
or gas) of the general type that can be manufactured at the Refinery,
including petroleum Products described in Article 6 hereto and any
petroleum material which at any time is determined to be a Product pursuant
to the provisions of Article 6 hereto.
(xviii) "Refinery" shall mean the petroleum Refinery of Crown Central
Petroleum, located at Pasadena, Texas.
(xix) "Refinery Facilities" shall mean all the facilities of Crown
located at the Refinery in Pasadena, Texas, or any associated or adjacent
facility owned or operated by Crown, which shall be used by Crown to carry
out the terms of this Agreement. Refinery Facilities shall include, but
not be limited to, the Refinery, Crude Oil receiving, and Products delivery
facilities, pipelines, and storage tanks .
(xx) "Refinery Stock" shall mean Crude Oil in tank and available for
Processing at the Refinery,
(xxi) "Taxes" shall mean any and all federal, state, and local taxes,
duties, fees, charges, and dues of every description on or applicable to
Crude Oil and Products owned by Statoil, including without limitation, all
motor fuels, special fuels, excise, business and occupation, gross
receipts, environmental or spill taxes, coastal protection fees, Superfund
taxes, loading fees, sales and use taxes, ad valorem taxes, payments in
lieu of ad valorem property taxes, however designated, except for taxes on
income.
<PAGE>
(xxii) "TCV" shall mean the Total Calculated Volume of oil reduced to a
standard temperature of 60 degrees Fahrenheit and expressed in Barrels.
The Total Calculated Volume is inclusive of all Free Water, Water in
suspension, and sediments.
(xxiii) "Vessel" shall mean any craft designed for the waterborne
transportation of oil including, but not limited to, ships and barges.
<PAGE>
ARTICLE 2
- ---------
DURATION
- ---------
This Agreement shall be in effect from October 15, 1998, until October 14,
2000, in accordance with the provisions described below.
Statoil shall supply Crown with a minimum quantity of twenty one million
Barrels of Crude Oil prior to October 14, 2000, provided, however, that
Statoil shall be relieved of the obligation to deliver the minimum quantity
in the event of an early termination of this Agreement pursuant to the
terms of Articles 3, 10, 18, 19, 21, or 22, or if the Parties shall agree
to a reduction in the minimum quantity.
Subject to Article 11 (Products Lifting Schedule), Statoil shall lift all
Products to which it is entitled under this Agreement by December 14, 2000,
or within two (2) months from the date of the last Crude Oil
delivery,whichever is earlier.
<PAGE>
ARTICLE 3
- ---------
PROCESSING LEVELS
- -----------------
(i) The first cargo Statoil shall deliver under this Agreement shall be
##CONFIDENTIAL TREATMENT##, an Other Grade as defined in Article 4. For
the period between the delivery of the first Other Grade Crude Oil and the
delivery of the first ##CONFIDENTIAL TREATMENT##, the quantity of Crude Oil
to be processed by Crown for Statoil in the Refinery under this Agreement
shall be deemed to be 17,500 B/CD.
Once the first cargo of ##CONFIDENTIAL TREATMENT## is delivered under this
Agreement, the quantity of Crude Oil to be processed by Crown for Statoil
in the Refinery under this Agreement shall be deemed to be a total of
35,000 B/CD, 17,500 B/CD of ##CONFIDENTIAL TREATMENT## and 17,500 B/CD of
Other Grades , Refinery Stock permitting. Should either ##CONFIDENTIAL
TREATMENT## or Other Grades Refinery Stock be deemed to be drawn to zero,
before the arrival of the next cargo from Statoil, but the total deemed
inventory is positive, then Crown shall continue to deem 17,500 B/CD of
##CONFIDENTIAL TREATMENT## and 17,5000 of Other Grades as being processed
under this Agreement. Should the total Refinery Stock be deemed to be
drawn down to zero, before the arrival of the next cargo from Statoil,
subject to Article 10 (iv), then the deemed processing shall be suspended
until the next cargo arrives at the Refinery, unless it is mutually agreed
to continue processing with Statoil owing Crown the Crude Oil. Products
deemed produced from previous Crude Oil cargoes supplied by Statoil and
held in Stock may still be lifted by Statoil during this period of
suspension.
Notwithstanding the above, the quantity of Crude Oil to be actually
processed by Crown for Statoil in the Refinery during the period shall
average 35,000 B/CD over the course of each month. Crown's actual daily run
rate of Statoil's Crude Oil may be less than 35,000 B/CDat Crown's
discretion. If such a reduction has occurred, the daily run rate may then
be increased for a period to make up for day(s) when the actual run rate
was lower. However, for any other reason than to make up for a lower run
rate, Crown cannot run higher than 35,000 B/CD of Statoil's Crude Oil.
Crown must provide Statoil a weekly inventory schedule showing actual and
deemed Crude Oil inventory and actual and deemed Products inventory
including tank identification numbers and volumes in each tank. This
inventory accounting will include any inventory exchanges as permitted
under Article 13 (i) herein. In addition, Statoil may also request a daily
accounting of Statoil's inventory including tank identification, grades and
volumes. Crown may advise Statoil's actual Products inventory as volumes
of unfinished components.
(ii) Statoil shall always have title to Crude Oil inventories and to
Products as they are deemed to have been processed for Statoil under this
Processing Agreement; provided, however, that:
a) Statoil shall not have, or assert any claim to, title over, or
any other interest in, any inventory not owned by Statoil with which the
Crude Oil inventories owned by Statoil are commingled in storage or
processing, and
b) The Products to which Statoil shall have title shall be limited
to the Products which Statoil is, pursuant to this Contract, entitled to
receive with respect to the Crude Oil processed or deemed to have been
processed, and when such Crude Oil has been processed or deemed to have
been processed, Statoil shall cease to have any title or interest therein,
and shall only have title to the Products processed or deemed to have been
processed from such Crude Oil, and
<PAGE>
c) Nothing in the Processing Agreement shall be deemed to grant
title to, or create a security interest in, any asset of Crown (including
without limitation any inventory, partially refined Products, or refined
Products) in violation of any of the undertakings, covenants, or
obligations of Crown or its subsidiaries set forth in:
A) Crown's Indenture, dated as of January 24, 1995, with
respect to $125,000,000 in principal amount of 10-7/8% Senior Notes due
2005, as such indenture may be amended, renewed, extended, substituted,
refinanced, restructured, replaced, supplemented, or otherwise modified
from time to time, including, without limitation, any successive
amendments, renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations, or other modifications of
the foregoing (hereinafter the "Indenture"), or
B) Crown's $110,000,000 First Restated Credit Agreement,
dated as of August 1, 1997 with NationsBank of Texas, N.A., as
Administrative Agent and Letter of Credit Agent, and with Boston Bank N.A.
as Documentation Agent, as such credit agreement may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented, or
otherwise modified from time to time, including, without limitation, any
successive amendments, renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations, or other modifications of
the foregoing (hereinafter the "Credit Agreement"),
provided, however, that Crown shall not make or effect any
amendment, supplement, or other modification to either the Indenture or the
Credit Agreement which adversely affects the rights or interests of Statoil
hereunder, without giving Statoil a minimum of ten (10) business days prior
written notice thereof. Should Crown make or effect any such amendment,
supplement, or other modification which in Statoil's sole judgment
adversely affects its rights or interests, Statoil may, at its sole
discretion: (a) suspend or terminate this Agreement in accordance with
Article 18; and (b) require that each of the parties secured under the
amended Credit Agreement provide Statoil with a directly enforceable
written acknowledgment, in a form and substance satisfactory to
Statoil,that they (x) will not claim any security interest in the Crude Oil
and Products in which Statoil has title or deemed ownership, in the
proceeds therefrom, or in any of Statoil's rights or interests under this
Agreement; (y) agree to expressly exclude from any collateral covered by
the facility any of Statoil's Crude Oil, Products or proceeds therefrom in
which Statoil has an interest; and (z) to the extent that a security
interest in Statoil's Crude Oil or Products may arise operation of law or
order of a court, bankruptcy trustee or other authority, agree not to
assert such interest and to grant Statoil a first priority interest as may
be required to protect Statoil's rights and interests under this Agreement.
d) Crown shall not have or assert any claim to, title over, or any
other interest in, or cause or allow any claim to, title over or any other
interest in, any of Statoil's Crude Oil or Products with which the crude
oil or product inventories owned by Crown are commingled in storage or
processing. Nothing in this Agreement shall be deemed to grant Crown or
any person claiming by, through or against Crown, title to or create a
security interest in, any assets of Statoil (including Statoil's Crude Oil,
Products and the proceeds therefrom). Crown authorizes Statoil to sign and
file on a protective basis a UCC-1 financing statement covering Statoil's
ownership in the
<PAGE>
Products under this Agreement with the governmental authorities under the
Texas Uniform Commercial Code.
(iii) Crude Oil shall be processed for Statoil at the deemed yields
specified in Article 5.
(iv) Crown shall not be required to process 17,500 Barrels per day of
##CONFIDENTIAL TREATMENT## Crude Oil, if thirty(30) days written notice is
given to Statoil that, for technical reasons, the Refinery can no longer
continue to process ##CONFIDENTIAL TREATMENT## Crude Oil at a rate of
17,500 Barrels per day, which fact is verified to Statoil by a qualified
independent third party. If such notice is given to Statoil, then Statoil
shall have the following options:
a) Statoil may elect to continue to deliver the quantity of
##CONFIDENTIAL TREATMENT## Crude Oil that the Refinery can process. In the
event the quantity of ##CONFIDENTIAL TREATMENT## Crude Oil deemed to be
processed is between 15,000 Barrels per day and 17,500 Barrels per day,
then the terms in Articles 10, 11, and 13 of this Agreement remain
unchanged. In the event the quantity of ##CONFIDENTIAL TREATMENT## Crude
Oil deemed to be processed is less than 15,000 Barrels per day, then
Statoil shall have the right to deliver parcels of ##CONFIDENTIAL
TREATMENT## up to 550,000 Barrels as per Article 10 (ii) . Statoil must
then wait until this quantity has been ratably processed to a remaining
inventory level of approximately 100,000 Barrels, or less, before delivery
another parcel.
b) Statoil may elect to deliver Other Grades in addition to
##CONFIDENTIAL TREATMENT## Crude Oil up to 35,000 Barrels per day
processing level. The quantity and quality of Other Grades may vary from
time to time at Statoil's option. The deemed processing yield will remain
the same for all Other Grades and the processing fee will be as defined in
Article 7 (i).
ARTICLE 4
- ---------
TYPE AND QUALITY OF CRUDE OIL
- -----------------------------
The Crude Oil to be supplied to the Refinery under this Agreement shall be
##CONFIDENTIAL TREATMENT## Crude Oils. Statoil may substitute alternate
Crude Oils upon mutual agreement of Crown, including other acidic Crude
Oils substituting ##CONFIDENTIAL TREATMENT##.
The intention of this Agreement is for Statoil to process approximately one
half of the total volume as ##CONFIDENTIAL TREATMENT## Crude Oil
("##CONFIDENTIAL TREATMENT##") and the balance of the volume as one grade
or a combination of grades of ##CONFIDENTIAL TREATMENT## Crude Oils ("Other
Grades"), at Statoil's option. Statoil shall have theoperational
flexibility to deliver between forty five percent (45%) ##CONFIDENTIAL
TREATMENT##/fifty five percent (55%) Other Grades and fifty five percent
(55%) ##CONFIDENTIAL TREATMENT##/forty five percent (45%) Other Grades.
<PAGE>
ARTICLE 5
- ---------
PRODUCT YIELDS
- --------------
Regardless of actual Refinery yields at the Refinery, the deemed Refinery
yields of Products (expressed as volume percentage per Barrel of Crude Oil
supplied), for the Crude Oil processed for Statoil by Crown under this
Agreement, shall be the following:
##CONFIDENTIAL TREATMENT##
------------------ ---------------------
Premium Gasoline ##CONFIDENTIAL TREATMENT##
Regular Gasoline ##CONFIDENTIAL TREATMENT##
No. 2 Fuel Oil ##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
<PAGE>
ARTICLE 6
- ---------
PRODUCT SPECIFICATION
- ----------------------
(i) The quality of the Products shall be in accordance with the Colonial
Pipeline Products Specifications latest issue.
Premium Gasoline V grade *
Regular Gasoline M grade *
No. 2 Fuel Oil 85 grade (as proposed by Colonial
Pipeline as of August 01, 1996)
(Crown shall make best efforts to deliver the 85 grade Product, dyed
or undyed, on a case by case basis, at Statoil's request).
* Gasoline RVP is to be as per Colonial Pipeline "southern" grade
and to change on a seasonal basis as required by the Colonial Pipeline VOC
(Volatile Organic Compounds) control schedule for RVP (Reid Vapor
Pressure), in conjunction with the Colonial Pipeline scheduling constraints
as published and notified by Colonial Pipeline.
(ii) The specifications referred to in this Article may be revised, by
mutual agreement at Statoil's request, if technically possible for the
Refinery and feasible in that specific period of time, taking into
consideration possible operational limits.
(iii) Any additional cost involved in the supply of a revised
specification, as per paragraph (ii) above, will be debited to Statoil
according to a formula later to be agreed upon by the Parties.
(iv) Any possible savings involved in the supply of a revised
specification, as per paragraph (ii) above, will be credited to Statoil
according to a formula later to be agreed upon by the Parties.
<PAGE>
ARTICLE 7
- ---------
PROCESSING FEES AND PENALTIES
(i) During the term of this Agreement, Statoil will pay Crown a fee for
each Barrel of Crude Oil processed for Statoil by Crown (the "Processing
Fee") as follows:
##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
##CONFIDENTIAL TREATMENT##
The Processing Fee will be calculated based upon the net Barrels of
Crude Oil supplied to Crown's tankage as measured in accordance with
Article 16.
(ii) The Processing Fee is based upon the Products yield tables specified
in Article 5, the Products lifting provisions specified in Article 11, and
the payment provisions specified in Article 9. In addition, the Processing
Fee shall cover the cost of the following:
a) Receipt, handling, and storage of Crude Oil at the Refinery
Facilities.
b) Supply of linefill to maintain all Crude Oil and Products
pipelines in a full condition, both within Crown's facilities, as well as
between Crown's facilities and the GATX, Pasadena facility ("GATX") and the
Oil Tanking Houston ("Oil Tanking") storage facility.
c) Processing of Crude Oil.
d) Handling, storage as provided in Article 13, and delivery of
Products from the Refinery Facilities to the locations and at the costs
identified in Article 11(ii), except for the costs identified in paragraph
(iii) below.
e) Use of Crown's vapor recovery system when loading Products at
Crown's dock.
f) Supplying sufficient Products in Refinery shore tanks to ensure
that Statoil can lift all Products due, in accordance with this Agreement,
and without having to leave Products in storage at the Refinery in the form
of inaccessible "tank heels."
g) Any cleaning/removal/handling of Crude Oil "dead bottoms"
resulting from the storage of Refinery Stock.
h) All other applicable costs related to the processing of Crude
Oil and delivery of Products.
i) Cost of certification according to Article 29.
<PAGE>
(iii) The Processing Fee does not include and Statoil shall be responsible
for the following other costs:
a) Importation of Crude Oil from Vessel to Refinery Facilities.
b) Cost of accessing Explorer, Texas Eastern, or any pipelines
other than Colonial through third party storage.
c) Throughput costs for finished Products at third party terminals
other than GATX.
d) Cost of regrading 85 grade No. 2 Fuel Oil as defined in
paragraph (iv) below.
e) Ad valorem property taxes, and payments in lieu of ad valorem
property taxes, on Crude Oil owned by Statoil that is not yet deemed to be
processed on the assessment date, and on Products owned by Statoil that
have been deemed to be processed as of the assessment date.
(iv) At Statoil's request, and if available to Crown, Crown will
substitute 86 grade No. 2 Fuel Oil(Heating Oil) for 85 grade at Crown's
actual cost. Crown will advise Statoil of the cost prior to any regrading
and provide documentation to support the cost.
(v) Statoil has the option to utilize Crown's throughput agreement for
Crude Oil and other feedstocks with Oil Tanking, under the same terms and
conditions as such throughput is available to Crown except for Article 5
Liability and Damages and Article 24 Pollution, as part of this Agreement.
Crown will charge Statoil at the rate Crown pays to Oil Tanking, including
any storage costs up to ten (10) days of storage incurred to accommodate
deliveries exceeding 550,000 Barrels. Crown shall provide Statoil a copy of
Crown's throughput agreement with Oil Tanking.
<PAGE>
ARTICLE 8
- ---------
TAXES AND OTHER CHARGES
- -----------------------
(i) The Processing Fee does not include either port expenses such as,
for example, ships agent fees,tug expenses, and Taxes, or any other similar
charges levied on Crude Oil at the time of import or that are due on the
Products delivered from the Refinery.
(ii) All Taxes on the import of the Crude Oil owned by Statoil and
received at the Refinery, and Products delivered by Crown that are owned by
Statoil, shall be Statoil's responsibility. Statoil shall reimburse Crown
for the amount of any Taxes, for which Crown is required to pay or for
which Crown may be legally liable, and interest on such taxes, provided
Statoil is notified immediately when such taxes are due, and that such
taxes are always paid as and when instructed by Statoil. Statoil shall
reimburse Crown, for such taxes and interest on taxes, only against proper
presentation of supporting documents, whether determined during the
duration of this Agreement or on audit after termination, provided,
however, that Statoil's obligation to reimburse Crown for Taxes shall
expire on a date that is three years from the date the liability for a
specific tax arose. Statoil shall, at its expense, have the right to cause
Crown to appeal any amounts determined under audit. Statoil shall pay
Crown, upon presentation of Crown's invoice, for any Taxes and interest
arising from audit, provided Statoil is always notified immediately when
any taxes are due and that such taxes are always paid as and when
instructed by Statoil. Statoil shall file all returns and pay all Taxes
for which it is directly liable.
(iii) Statoil represents that it has a federal 637 number, 06-97-00019-S-
H, issued by the IRS District at New Haven, Connecticut, and will provide
Crown with proper notification certificates. Statoil represents that it
currently has Texas gasoline and diesel fuel supplier certificates,
Taxpayer number 1-06-1492962-7. At any time, collection of the Texas
Coastal Protection fee has not been suspended, Statoil represents that it
will reimburse Crown, or any marine terminal operator who is registered
with the Comptroller to remit the Texas Coastal Protection Fee, for such
Fees that may be imposed upon Crude Oil owned by Statoil which is
transferred to or from a marine terminal in Texas. Statoil agrees to
provide Crown with a resale certificate for the period covered by the
Agreement as may be provided by law.
(iv) Statoil represents that it is the position holder of all Products
covered by the Agreement, and that in all cases Statoil will take the
necessary steps to be identified as the owner of any Crude Oil or Products
on the books and records of any third party storage facility.
<PAGE>
ARTICLE 9
- ---------
PAYMENT
- -------
(i) The Processing Fee for each parcel of Crude Oil supplied by Statoil
to the Refinery, as described in Article 7, shall be payable by Statoil to
Crown on the 15th and on the last day of each month, against Crown's
invoice for such Processing Fee.
In accordance with Article 3 (i), prior to delivery of the first
##CONFIDENTIAL TREATMENT## Crude Oil delivery, Crown's invoice shall be
calculated based on a process rate of 17,500 B/CD. Once the first
##CONFIDENTIAL TREATMENT## delivery has been effected, Crown's invoice
shall be calculated based on a process rate of 35,000 B/CD, Refinery Stocks
permitting, based on the deemed processing rate of 17,500 B/CD of
##CONFIDENTIAL TREATMENT## and 17,500 B/CD of Other Grades. Crown's
invoice shall be based on "first in - first out" principle when calculating
the Processing Fee related to Other Grades. The first invoice, and any
invoice submitted following a suspension of processing as provided for in
Article 3 (i), shall include a Processing Fee for the day on which the
first cargo or the next cargo, as the case may be, arrives at the
Refinery, and shall include a Processing Fee for every day from that day
forward, to and including the invoice date, Refining Stocks permitting.The
invoice shall not include a Processing Fee for any day on which processing
shall be deemed to be suspended pursuant to Article 3 (i), but may include
a Processing Fee for those Barrels deemed to be processed on the day that
the Refining Stock is deemed to be drawn down to zero, even if the number
of Barrels is less than 35,000.
Payment shall be by wire transfer, and payment will be due two (2)
business days following receipt of invoice from Crown as submitted above.
In the event the payment due date falls on a non-banking day, then payment
shall be made on the first banking day immediately after the due date.
(ii) In the event that Statoil utilizes Crown's throughput agreement with
Oil Tanking in order to supply Crude Oil to the Refinery, as provided for
in Article 7 (v), then Statoil shall reimburse Crown for actual throughput
fees. Payment for such throughput fees shall be due two (2) business days
following receipt of the invoice from Crown, providing such invoice is
accompanied by supporting documentation and the invoice from Oil Tanking to
Crown.
(iii) If payment is not made on the due date, the Party who is in default
of payment shall pay the other Party interest on any sum which is overdue.
Interest shall be calculated based on the Prime Rate in effect on the date
the payment was due, as quoted in the Wall Street Journal, plus two (2)
percent. In the event the Wall Street Journal does not publish a Prime
Rate which is effective for the date payment was due, then the published
rate effective for the date immediately preceding the payment due date
shall be used. The overdue amount plus interest shall be paid immediately
by the appropriate Party.
<PAGE>
ARTICLE 10
CRUDE OIL SUPPLY AND NOMINATION PROCEDURE
(i) Statoil shall nominate and supply Crude Oil to the Refinery. The
quantity of Crude Oil supplied by Statoil under this Agreement shall be
determined as specified in Article 16.
(ii) The Crude Oil shall be supplied to the Refinery either through
Crown's dock facilities or through a third party storage terminal at
Statoil's option. Crude Oil deliveries to Crown's dock will be made either
by ship or by single "Ocean Going" barge. ##CONFIDENTIAL TREATMENT## Crude
Oil shall be supplied to the Refinery in parcels of between 100,000 Barrels
and 550,000 Barrels. Other Grades of Crude Oil shall be supplied in
parcels of between 100,000 and 1,100,000 Barrels.
(iii) The first parcel of Crude Oil shall be supplied by Statoil during
the second half of October 1998.
(iv) For planning purposes, Statoil shall inform Crown of an estimated
ten (10) day arrival window at Crown's dock or arrival at third party
terminal facilities fifty (50) days prior to the first day of the estimated
ten (10) day arrival window for deliveries of approximately 550,000
Barrels. For deliveries of approximately 1,100,000 Barrels of Other Grades
Crude Oil Statoil will give Crown an arrival window of five (5) days fifty
(50) days prior. Statoil will indicate volume and grade (##CONFIDENTIAL
TREATMENT## Crude Oil or Other Grades of Crude Oil). Crown shall promptly
confirm Statoil's estimated delivery window or advise of any problems they
envision as follows:
(I) Crown shall advise Statoil if the deemed Crude Oil
inventory shall be excessive during the planned five (5) or ten (10) day
arrival window
(ii) Crown shall be able to alert Statoil that, due to previous
minor Refinery problems (technical problems which last less than ten (10)
days), Crown has been unable to process Crude Oil as expected, and requests
Statoil to delay, or reduce, a future delivery (either the cargo currently
being planned or the next cargo after that, at Statoil's option). Statoil
agrees that, in this situation, they will make their best effort to
formulate a plan for the upcoming deliveries that is acceptable to both
parties. Statoil shall have the option to either receive, or not receive,
Products during any period when Statoil's deemed Crude Oil inventory is
reduced to zero (0), as a result of Crown's request to delay the delivery
of a Crude Oil cargo. If Statoil so elects to receive Products when
Statoil's deemed Crude Oil inventory is zero (0), Crown shall continue to
show that Statoil has processed Crude Oil at a rate of 35,000 B/CD, even
though the deemed inventory may indicate that Statoil has zero (0) Crude
Oil available for processing. If Statoil does not elect to receive
Products when Statoil's deemed Crude Oil inventory is zero (0), then the
Crude Oil processing shall be suspended until the next actual delivery of
Crude Oil.
Statoil, at its sole discretion, shall have the option to
terminate this Agreement in accordance with Article 18 if Crown asks to
delay Crude Oil deliveries, due to minor Refinery problems, more than
twice. If the minor Refinery problems cause Statoil to be unable to
deliver the minimum quantity of Crude Oil by October 14, 2000, then Statoil
shall be able to deliver the Crude Oil after October 14, 2000.
<PAGE>
(v) Statoil shall nominate a cargo size of between 100,000 Barrels and
550,000 Barrels for ##CONFIDENTIAL TREATMENT## Crude Oil and Other Grades
Crude Oil (planned as per paragraph (iv) above or as unplanned deliveries)
at least thirty (30) days prior to the first day of a five (5) day window
of arrival at Crown's dock, or arrival at third party storage terminal
facilities. No later than fifteen (15) days prior to the first day of the
delivery window, Statoil will narrow the delivery window to three (3) days.
Following this nomination, but no later than eight (8) days prior to the
first day of the delivery window, Statoil can reduce (not increase) the
nominated parcel size by up to 500,000 Barrels but in no event can a parcel
be reduced to less than 100,000 Barrels. This three (3) day delivery window
can be up to two (2) days outside the original five (5) day window (i.e.,
if the original window was October 16-21, then the three (3) day window
could be anywhere between and including October 14-23). If Statoil elects
to reduce the nominated volume, Statoil shall deliver a volume equal to the
reduction and of a similar grade within eight (8) days after the arrival of
the first part of the nominated volume. At the same time as Statoil informs
Crown of a reduction in the delivered volume Statoil shall nominate a three
(3) day arrival window for delivery of the reduced volume.
It is mutually understood, that both Crown and Statoil shall show
best efforts to accommodate either party by having a close contact through
the course of the initial nomination of Crude Oil up to the actual
delivery.
(vi) In the event a third party terminal is used, Crude Oil shall, to the
extent operational conditions permit, be pumped to the Refinery immediately
upon completion of discharge and determination of quantity and quality
shall be carried out at this time. Statoil shall keep Crown advised of
which third party facility is being used, and Crown, with Statoil's prior
approval on each parcel, shall make the arrangements with such third party
terminal to promptly facilitate the transfer of Crude Oil to the Refinery.
Crown shall keep Statoil informed of all scheduling changes, so Statoil can
arrange for inspections and any other requirements. In the event the Crude
Oil is not completely transferred to the Refinery prior to any storage
costs being incurred, or within 120 hours from the time the third party
terminal facility starts the clock on arrival of Statoil's Vessel,
whichever is later, and the reasons or fault are due to Crown, then Crown
shall be responsible and pay for any additional storage costs Statoil may
incur. If the reasons or fault are due to Statoil including arrival of
Statoil's Vessel outside of the nominated window specified in paragraph (v)
above, then Crown shall make best efforts to facilitate the transfer of the
Crude Oil as expediently as possible, and Statoil shall be responsible for
any additional costs. If the reasons or fault are due to the third party
terminal facility, then neither Statoil nor Crown shall be responsible.
(vii) Crude Oil supplied to the Refinery shall be deemed to be in Crown's
custody under the following circumstances:
a) If the Crude Oil is shipped through Oil Tanking, Crown takes
custody when the Crude Oil passes through Oil Tanking's outbound pipeline
meter.
b) If the Crude Oil is shipped through Seaway, Crown takes custody
when the Crude Oil passes through Crown's meter from Rancho Pipeline into
Crown's Refinery tankage.
c) If the Crude Oil is delivered to Crown's Refinery Dock, Crown
takes custody when the Crude Oil passes the delivery Vessel's discharge
manifold flange and the Refining Dock's receiving manifold flange.
<PAGE>
d) If a connection is made between HFOTI and Crown's Refinery,
Crown and Statoil will mutually agree on a custody transfer point.
(viii) Statoil shall advise Crown promptly in writing of any significant
change in the estimated time of arrival of a parcel of Crude Oil nominated
under this Agreement.
(ix) Scheduling of Crude Oil Vessels nominated to discharge Crude Oil at
third party storage terminals, prior to the Crude Oil being supplied to the
Refinery, will be done by Statoil, unless such third party terminal is Oil
Tanking, and Statoil is exercising their option to use Crown's throughput
agreement as per Article 7 (v), in which case, the scheduling will be done
between Crown and Oil Tanking.
<PAGE>
ARTICLE 11
PRODUCTS LIFTING SCHEDULE
- -------------------------
(i) Statoil will be entitled to lift Products beginning with the fifth
calendar day after a parcel of Crude Oil has been received at the
Refinery, and then at the rate of the deemed Products yields specified in
Article 5 for the processing levels specified in Article 3 (35,000 B/CD).
However, if Statoil supplies a parcel of Crude Oil five (5) days or more
prior to the depletion of existing Refinery Stock, then such Crude Oil will
not be processed concurrently with existing Refinery Stock. Statoil's
entitlement to lift the Products processed from this later Crude Oil supply
will commence, without interruption, immediately following depletion of
existing Refinery Stock.
(ii) Crown will make all Products available to Statoil into the following
facilities on the basis specified for each facility:
a) Third party pipeline accessed at Crown Refinery -
FOB pipeline at Crown Refinery.
b) Third party pipeline accessed at GATX - FOB GATX.
c) Third party pipeline accessed at Oil Tanking - FOB
Crown Refinery.
d) Crown's dock - FOB Vessel at Crown's dock.
e) GATX terminal - FOB GATX.
f) Oil Tanking terminal - FOB Crown Refinery.
In Article 11 (ii) (b) and (e) above, the costs of delivery to GATX
are for the account of Crown, but if storage at GATX is at Statoil's
option, then the cost of storage at GATX is for the account of Statoil.
The costs for such delivery to Colonial, Crown's Dock, and GATX are
part of the Processing Fee, but the costs set forth in Article 7 (iii) (b)
and (c) are not.
(iii) Statoil will schedule all Products liftings on a mutually agreed
basis. Crown will not unreasonably reject any Statoil nomination. For
planning purposes, Statoil will give notice to Crown of a proposed lifting
schedule (not fixed or final) on the first working day of each month for
the period beginning with the fifteenth day of the same month, through the
end of that month, and on the fifteenth day of each month for the period
beginning with the first day of the next month, through the fifteenth day
of the next month. Crown will make best efforts to accommodate all short
notice liftings and changes. If Crown does not receive an indication from
Statoil by noon (Houston time) on the last day of scheduling, as to whether
Statoil will ship or exercise storage options, Crown shall have the right
to schedule or dispose of these same barrels. Statoil's nomination shall
state:
a) Whether it will lift to pipeline or ship
b) If pipeline: (i) which pipeline and
(ii)which cycle.
c) If waterborne, Statoil will nominate a five (5) day loading
window, to be narrowed to a three (3) day laycan, at least five (5) days
prior to the first day of the original five (5) day window.
<PAGE>
(iv) For waterborne Products liftings, Crown will provide all the
necessary shipping documentation according to instructions which must be
given with adequate notice by Statoil.
(v) For pipeline Products liftings, Crown will provide all relevant
documentation, including pipeline meter tickets from Colonial and Texas
Eastern.
(vi) Irrespective of the location and method of how and where Statoil
elects to lift Products, Crown shall provide all applicable Material Safety
Data Sheets (MSDS) for Products lifted from and delivered from Crown's
Refinery.
(vii) Crown shall be responsible for all applicable Environmental
Protection Agency anti-dumping and reformulated gasoline program reporting
requirements, as outlined under 40-CFR Part 80 (regulation of fuels and
fuel additives; Standards for reformulated and conventional gasoline; Final
rule) in its latest version, with respect to the refining of Products for
Statoil and the transfer of Products from Crown to Statoil only.
<PAGE>
ARTICLE 12
- ----------
BERTH, DISCHARGE AND LOADING CONDITIONS, AND DEMURRAGE
- ------------------------------------------------------
For the discharge of Crude Oil at the Refinery or loading of the Products
at the Refinery, as the case may be:
(i) Crown shall provide a berth which a nominated Vessel, accepted in
accordance with Articles 10 and 11, can safely reach, discharge Crude Oil,
or load Products and leave, and at which such Vessel can always lie safely
afloat.
(ii) Vessel shall tender notice of readiness ("NOR") for discharge or
loading, as the case may be, to Crown or its representatives (as the case
may be), on arrival at the customary anchorage or at the pilot station,
whichever is applicable. The NOR can be tendered at any time by letter,
telegraph, wireless, or telephone, either directly or through the Vessels
agents; but for daylight restricted Vessels the NOR will not be deemed to
be effective until the pilot boards the Vessel, provided that any delay in
such pilot boarding is expressly and solely as a result of said daylight
berthing restriction.
(iii) An allowance of six (6) continuous hours shall be given to the
Refinery before loading or discharging, starting from the time the NOR
becomes effective.
(iv) For Vessels tendering the NOR within their nominated date ranges,
laytime shall commence, berth or no berth, upon the expiration of the six
(6) hours under paragraph (iii) above or when a Vessel is securely moored,
whichever is the earlier.
(v) Delays caused because passage in the Houston Ship Channel is
prevented by adverse weather or prohibited by Governmental Authority shall
not be included in the six (6) hours allowed under paragraph (iii) above,
or in the laytime provided for in paragraph (vi) below, or in time on
demurrage, as long as the occurrence of the above mentioned delays did not
begin while a Vessel was waiting at a customary anchorage due to Crown's
fault.
(vi) The laytime allowed to Crown (Sundays and holidays included) for the
discharging or loading of each cargo shall be the following :
Discharging-
-----------
Crude Oil 48 hours running hours (prorata for a Part
Cargo) when discharging at Crown's dock.
Loading-
--------
Laytime shall be determined using the following minimum
loading rates:
Gasoline Crown shall load Vessels at a minimum rate
of 2,500 Barrels per hour.
Heating Oil Crown shall load Vessels at a minimum rate
of 4,000 Barrels per hour.
In addition, Crown shall be able to load Products Vessels with two
grades simultaneously, provided that the Vessels' gasoline vapor space can
be connected to Crown's vapor recovery equipment.
(vii) If, at Crown's request, the Vessel anchors/waits, which results in
additional time of shifting from anchor/waiting place to berth after
load/discharge date range has commenced, such additional shifting time
shall not be deducted from laytime or time on demurrage.
<PAGE>
(viii) For all Vessels such laytime shall cease as follows:
a) For Products Vessels, laytime shall cease upon disconnection of
hoses. Following the disconnection of hoses, Crown has two (2) hours to
deliver documentation on board the Vessel.
b) For Crude Vessels, laytime shall cease upon the disconnection
of hoses ("Completion of Discharge").
(ix) In the event that the Laytime is exceeded, Crown shall pay to
Statoil demurrage in respect of the excess time based on the Vessel's
charter party demurrage rate per Day, or in the case of a lightering
Vessel, the contract overtime rate per Day, or in the absence thereof, at
Worldscale at the Average Freight Rate Assessment (AFRA) appropriate to the
size of the Vessel, as provided by the London Tanker Brokers Panel, and
current on the date of commencement of Laytime. Payment for undisputed
demurrage shall be made within thirty (30) days upon receipt of Statoil's
invoice. However, in no event shall Crown's payment to Statoil exceed
demurrage cost incurred by Statoil.
(x) Crown shall not be liable to pay demurrage due to fault or failure
of the Vessel, or if the discharge or loading is suspended for Vessels
purposes, or for delays due solely to Statoil's reasons (except if there is
an event of force majeure, in which case demurrage shall be paid at half
the charter party demurrage rate).
(xi) If the Vessel shifts berth for any reason, other than a reason on
the part of Statoil or the Vessel, then the time taken to shift berth shall
count against Laytime or time on demurrage.
(xii) Any claims resulting from demurrage incurred by the Vessel must be
received with relevant supporting documents, including claims received from
the ship owners, unless a time chartered Vessel is involved, to Crown
within ninety (90) days from the date of loading or unloading at Crown's
Refinery. If Statoil is unable to support a demurrage claim within ninety
(90) days of the bill of lading or completion of discharge date at the
Refinery, Crown agrees to accept a telex notification of a forthcoming
claim within ninety (90) days from these dates.
(xiii) Vessels, which arrive outside the layday period nominated by
Statoil, and confirmed by Crown in accordance with Article 10, shall be
handled as follows:
a) In the case of a Vessel arriving before the agreed laydays,
Crown undertakes to use their best endeavors to minimize the delays to the
Vessel; however, Crown shall only be responsible for having accepted the
NOR to load or discharge from 00.01 hours on the first day of the accepted
laydays (unless Crown allows the Vessel to proceed to berth without protest
before this time, in which case laytime will start when the Vessel is all
fast).
b) In the case of a Vessel arriving after the agreed laydays,
Crown shall not be obliged to accept the NOR, or proceed with loading or
discharging, until a berth becomes available without causing undue delays
to other Vessels. However, Crown undertakes to use their best endeavors to
minimize the delays to any Vessel.
<PAGE>
(xiv) Demurrage shall be payable in U.S. Dollars.
<PAGE>
ARTICLE 13
- ----------
STORAGE RIGHTS AND OBLIGATIONS
- ------------------------------
(i) During the term of this Agreement, Crude Oil deliveries shall be
made in accordance with Article 10 (ii). Crown will ensure that the Crude
Oil delivered to the Refinery by Statoil for processing under this
Agreement will be segregated and identified so that Statoil can maintain a
secured interest in its Crude Oil which is in storage awaiting for
processing. Statoil shall be entitled to segregated storage at the
Refinery to handle deliveries of up to 550,000 Barrels of ##CONFIDENTIAL
TREATMENT## and up to 550,000 Barrels of Other Grades of Crude Oil.
However, to facilitate deliveries of up to 1,100,000 Barrels of Other
Grades of Crude Oil, any amount delivered in excess of 550,000 Barrels
("Additional Crude Oil") which cannot be held in segregated storage for the
length of time required to process the Crude Oil on a ratable basis will be
exchanged with other Barrels of crude oil in the Refinery which are owned
by Crown. This exchange feature will enable Crown to transfer title to
Crude Oil in other segregated storage tanks to Statoil. In the event that
Crown does not have enough crude oil to exchange for Statoil Barrels, title
to segregated product inventories owned by Crown may also be transferred to
Statoil. Crown shall deem the oil processed under this Agreement from the
Additional Crude Oil volumes first. This exchange does not in any way
alter Crown's responsibility to deliver the prescribed product volumes, nor
does it alter the processing fee associated with the type of Crude Oil
delivered by Statoil. The cost of such storage shall be included in the
Processing Fee as per Article 7.
(ii) As per Article 11, Statoil has the option to lift Products on a
ratable basis once such Products are deemed to be produced and Statoil is
entitled to them. Statoil also has the option to build up inventory of
Products at the Refinery, up to 325,000 total Barrels, which can be
composed of a maximum of 200,000 Barrels of 85 grade and 125,000 Barrels of
regular gasoline. Statoil's entitlement to 125,000 Barrels of regular
gasoline storage does not begin until Crown has completed repairs to
storage tank(s). The time to repair the storage tank(s) shall not exceed
November 30, 1998. In the event Crown has not completed the repairs
beginning December 1, 1998 and Statoil elects to use its storage right,
then Crown, at their expense, shall lease the required tankage at GATX
terminal to meet Statoil's storage requirements. Until such time Products
need to be shipped, they can be stored as unfinished Products. On a case
by case basis, Products can be stored on exchange with Statoil's prior
approval. If Statoil intends to ship more than 200,000 Barrels of 85
grade, or 125,000 Barrels of regular gasoline, at any time, Statoil will
accumulate the volume in GATX and such costs will be for Statoil's account.
Crown will make best efforts to store Statoil's Products (finished or
unfinished) in segregated tankage. Crown shall identify whether
Statoil's Products are stored in segregated or commingled storage on the
weekly inventory reports as per Article 28.
(iii) During the spring gasoline season, for the transition from high RVP
gasoline to low RVP gasoline (from approximately mid-February to early
April), Statoil must nominate and lift gasoline on a ratable basis, and
will not be able to store gasoline due Statoil on a ratable basis from a
high RVP gasoline cycle or date range into a lower RVP gasoline pipeline
cycle or date range, without Crown's permission.
<PAGE>
ARTICLE 14
- ----------
FINAL SETTLEMENT
- ----------------
It shall be assumed at the end of this Agreement, that all Crude Oil
supplied by Statoil to the Refinery shall have been processed. Since the
Colonial Pipeline requires a minimum shipment of 25,000 Barrels, the final
off take of Products upon expiration of the term of this Agreement shall be
settled as follows:
(i) If Statoil's available volume is 12,499 Barrels or less for any
grade, then Crown shall purchase
Statoil's entitlement for that grade at the price(s) specified below.
Title and ownership of said Products will transfer from Statoil to Crown at
00.01 hours on the first day immediately following the day Statoil has
removed the last Products taken under this Agreement.
(ii) If Statoil's available volume is 12,500 Barrels or more, but under
25,000 Barrels for any grade, then Statoil shall purchase from Crown the
volume taken to meet the 25,000 Barrels minimum requirement at the price(s)
specified below.
The price to be paid for the balancing quantities specified above shall be
determined based on the mean of the price quotations for the relevant grade
as published in Platts Oilgram under the heading, "Gulf Coast Pipeline for
all grades, except for 85 grade Heating Oil." The price for 85 grade
Heating Oil shall be based on the low price quotation in Platts Oilgram
under the heading, "Gulf Coast Pipeline for No. 2."
The price(s) for paragraph (i) above will be determined using the
quotations effective for the published day Statoil removes the last
Products to which it is entitled under this Agreement. In the event this
day is a non-published day, then the price will be determined using the
quotations effective for the first published day immediately after the day
Statoil removes the last Products to which it is entitled under this
Agreement.
The price(s) for paragraph (ii) above will be determined using the
quotations effective for the date the Product
is pumped into the Colonial Pipeline, or if this is a non-published date,
then the price(s) will be determined
using the first published day immediately following the date the Product is
pumped into the Colonial Pipeline.
Payment for paragraph (i) above shall be made by Crown to Statoil within
two (2) business days after the title has transferred and upon receipt of
Statoil's invoice.
Payment for paragraph (ii) above shall be made by Statoil to Crown within
two (2) business days after the Colonial Pipeline pump date and upon
receipt of an invoice from Crown.
<PAGE>
ARTICLE 15
- ----------
TITLE, RISK OF LOSS, AND CUSTODY
- --------------------------------
Statoil shall at all times have title to and ownership of the Crude Oil
supplied by Statoil to Crown, the Crude Oil transferred from Crown to
Statoil pursuant to Article 13 (i), the Products delivered by Crown to
Statoil, as they are deemed to have been processed for Statoil under this
Processing Agreement, and the Products transferred by Crown to Statoil
pursuant to Article 13 (i). Any crude oil bottoms or heels in the
segregated tanks to be used by Statoil which are present prior to Statoil
deliveries shall be deemed to be owned by Statoil while Statoil Crude Oil
is stored in such tanks and ownership shall revert back to Crown when a
tank is no longer in use for Statoil Crude Oil. Provided that Crude Oil is
available for processing, Statoil shall be deemed to acquire title to
Products at the Products Yield set forth in Article 5, at the processing
rate of 35,000 B/CD, in accordance with the processing levels set forth in
Article 3. Consistent with the foregoing provisions with respect to legal
and equitable ownership, Crown shall have custody of the Crude Oil and
Products solely as a bailor. Crown shall bear all risk of loss of all
Crude Oil upon delivery to the Refinery, and shall bear all risk of loss of
all Products until delivery to Statoil, as provided in this Agreement. In
the event of a loss, Crown shall reimburse Statoil as follows:
(i) In the event of Crude Oil losses, Crown shall always deliver, and
Statoil shall always own, Products quantities equal to the Products Yields
specified in Article 5 for the quantity of Crude Oil supplied under this
Agreement, or shall promptly reimburse Statoil at fair market price for the
Crude Oil plus freight and other related costs.
(ii) In the event of Products losses or contamination, Crown shall
immediately make up the loss or contamination by transferring Products
equal in quantity and quality to Statoil. In the event of a large Products
loss or contamination, Crown shall also have the option to promptly
reimburse Statoil for the Products at the prices established in Article 14.
Crown shall carry and maintain in force the following insurance(s)
with companies satisfactory to Statoil:
a) Crown shall carry and maintain in force Worker's Compensation
and Employer's Liability Insurance for all its employees engaged in
performing work hereunder.
b) Crown shall carry and maintain in force its normal and
customary comprehensive general liability insurance coverage for injury,
death, or property damage, including any Liabilities under any
Environmental Laws or for any environmental damages. Crown advises that
the following coverages are in force, and will remain in force, throughout
the duration of this Agreement:
Oil Insurance Ltd. (OIL) ##CONFIDENTIAL TREATMENT##
OCIL ##CONFIDENTIAL TREATMENT##
commercial carriers ##CONFIDENTIAL TREATMENT##
------------------- --------------------------
Total pollution insurance ##CONFIDENTIAL TREATMENT##
c) Crown shall carry and maintain in force insurance consistent
with industry practice and subject to a maximum deductible of USD 3
million covering Crown's legal liability for the Crude Oil and Products of
Statoil, while such Crude Oil and Products are in the care, custody, and
control of Crown. Statoil shall be named as an `additional insured as its
<PAGE>
interests may appear' on Crown's comprehensive or commercial general
liability
policies.
d) Crown shall indemnify Statoil for all Liabilities relating to
the condition or operations of the Refinery Facilities, as well as all
claims and damages resulting from, but not limited to, a spill of Statoil's
Crude Oil and Product(s), fire, explosion, or other hazard, while such
Crude Oil and Product(s) are in Crown's custody and care. Crown will clean
up and mitigate, and will pay for the clean up and mitigation of any spill,
fire, explosion, or other hazard which occurs to Statoil's Crude Oil and/or
Product(s) while in Crown's custody at the Refinery Facilities. Crown
warrants that it possesses adequate insurance to cover all such claims and
Liabilities, and will maintain this insurance for the term of this
Agreement.
e) Upon request by Statoil, Crown shall have its insurance
carrier(s) furnish to Statoil certified copies of their insurance policies
and/or insurance certificates specifying that no insurance will be
canceled, or its terms materially changed, during the term of this
Agreement, unless Statoil is given at least thirty (30) days notice prior
to cancellation or prior to a material change becoming effective.
<PAGE>
ARTICLE 16
- ----------
QUANTITY AND QUALITY DETERMINATION
- ----------------------------------
PART I. "CRUDE OIL"
Determination of quantity and quality of the Crude Oil supplied to the
Refinery, pursuant to the provisions of this Agreement, shall be in
accordance with the latest API and ASTM standards and principles in effect
at the time of supply.
All measurements of Crude Oil quantity and quality shall be determined by a
mutually acceptable Independent Inspector, appointed by Statoil. The costs
of this inspection shall be borne equally between Statoil and Crown.
I. Quantity:
The net quantity of Crude Oil supplied by Statoil for Processing, and upon
which Statoil's entitlement of refined Products is to be evaluated, will be
determined by measuring the TCV quantity supplied to the Refinery and
reducing this quantity to NSV as detailed below:
A) Crude Oil being supplied via Third Party Terminal:
--------------------------------------------------
1) The TCV quantity of the Crude Oil supplied shall be determined
by proven meters at the Third Party Terminal. In the event that the third
party terminal is not Oil Tanking Terminal, the location of the proven
meters and the method of quantity determination will be discussed between
Statoil and Crown, and agreed to on a case by case basis.
2) If meters are unavailable, not functioning correctly, or
determined by the Independent Inspector to be inaccurate, THEN the supplied
quantity shall be based upon static shore tank up gauge measurements at the
Refinery (subject to Article 16, Part I, (I) (A) (4) below), in full
accordance with API Chapters 17.1, 17.2, and 3.1A, with all receiving shore
tanks complying with the following:
(i) All receiving shore tanks shall, if possible, contain
sufficient Crude Oil, prior to receipt, to ensure that the floating roofs
are afloat and clear of the critical zone by a minimum of twelve (12)
inches. If this situation is not practical, then the receiving shore tanks
shall contain sufficient Crude Oil, prior to receipt, to ensure that the
liquid level can be accurately measured in the main body of the tank and
clear of the tank bottom calibrations.
(ii) All receiving shore tanks shall be calibrated for critical
measurement as set forth by API 2.2 ASTM designation 1220.
3) If the receiving shore tank(s) at the Refinery are active, do
not meet the requirements specified above, the Independent Inspector cannot
verify the measurements prior to or after receipt, or the Independent
Inspector determines that these shore tank measurements are not
representative of the volume delivered from the Third Party Terminal, THEN
the supplied quantity shall be based upon static shore tank down gauges at
Third Party Terminal, as calculated by the Independent Inspector.
4) If the TCV quantity of the Crude Oil supplied to the
<PAGE>
Refinery is to be determined by shore tank up gauge measurements at the
Refinery (as detailed in Article 16, Part I, (I) (A) (2) above), THEN it
shall be recognized that it is not practical to verify the fullness of the
pipeline, between the third party terminal and the Crown Refinery, prior to
commencement of transfer, nor is it practical to verify the integrity of
this pipeline. Such lack of line verification, prior to the transfer,
shall be considered by the Independent Inspector when determining whether
the shore tank measurements at the Refinery are representative of the
volume delivered from the Third Party Terminal. The shore tank down gauges
at the third party terminal shall always be manually taken, and the volumes
delivered shall be compared to the volume received at the Refinery. Such a
comparison shall be taken into account by the Independent Inspector in
determining whether or not these Refinery up gauges shall be deemed
representative.
B) Crude Oil being supplied via dock at Crown Refinery:
----------------------------------------------------
1) The TCV quantity of the Crude Oil supplied shall be determined
by proven meters at the Refinery.
2) If meters are unavailable, not functioning correctly, or
determined by the Independent Inspector to be inaccurate, THEN the supplied
quantity shall be based upon shore tank up gauge measurements the Refinery,
in full accordance with API Chapters 17.1, 17.2, and 3.1A, with all
receiving shore tanks complying with the following:
(i) All receiving shore tanks shall, if possible, contain
sufficient Crude Oil, prior to receipt, to ensure that the floating roofs
are afloat and clear of the critical zone by a minimum of twelve (12)
inches. If this situation is not practical, then the receiving shore tanks
shall contain sufficient Crude Oil, prior to receipt, to ensure that the
liquid level can be accurately measured in the main body of the tank and
clear of the tank bottom calibrations.
(ii) All receiving shore tanks shall be calibrated for critical
measurement as set forth by API 2.2 ASTM designation 1220.
3) If the receiving shore tank(s) are active, do not meet the
requirements specified above, the Independent Inspector cannot verify the
measurements prior to or after receipt, or the Independent Inspector
determines that the shore tank measurements are not representative, THEN
the Vessel's arrival figures, less Remaining On Board ("ROB"), adjusted by
the Vessel's experience factor ("VEF"), as calculated by the Independent
Inspector, shall be used. The Independent Inspector's determination of
quantity, including the results of the line displacement detailed below,
shall be binding upon both parties and used for invoicing purposes.
4) If the TCV quantity of the Crude Oil supplied to the Refinery
is to be determined by shore tank measurements at the Refinery (as detailed
in Article 16, Part I, (I) (B) (2) above) then:
In the event that the Crude Oil is being supplied via Crown's dock
at the commencement of discharge, after the opening shore tanks gauges have
been established, the mutually appointed Independent Inspector shall
monitor the performance of a line displacement consisting of the delivering
Vessel pumping to the furthest receiving shore tank. The line displacement
is to be carried out in accordance with API Chapter 17.6.10.3. The
quantity to be displaced shall be 120 percent of the combined capacity of
all designated Vessel and shore transfer lines (API Chapter 17.6.10.3.5).
In accordance with API Chapter 17.6.10.1.4, the volume tolerance for
the line displacement will be derived from the
<PAGE>
"precision of measurement" indicated in Chapter 17.6.11, that is 1/8 inch
(or 3 mm). Therefore, the accepted tolerance for a line displacement shall
be the total of the volume equating to 1/4 inch in the receiving shore tank
calibrations, plus the volume equating to 1/4 inch in the delivering Vessel
tank calibrations. This tolerance represents the measurement precision
limit (1/8 inch) for the opening and closing gauges, for both the receiving
shore tank and the delivering Vessel tank.
If the difference between the volume that the shore tank received,
and the volume that the Vessel delivered, is within the accepted tolerance
stated above, or if the volume that the shore tank received is in excess of
the volume that the Vessel delivered, then the shore line is to be
considered full.
If the volume that the shore tank received is less than the volume
that the Vessel delivered by an amount greater than the accepted tolerance
described above, then the line shall be considered slack. In cases when
the line is found to be slack, then entire difference between the shore
tank received volume and the Vessel delivered volume shall be credited to
the final outturn volume.
If the shore and Vessel volumes differ by more than the accepted
tolerance described above, the receivers may exercise the option of
carrying out a second line displacement (as detailed in API Chapter
17.6.10.3.7, step 4). If the Vessel delivered/shore received volume
difference for the second displacement is within the accepted tolerance,
then only the entire difference resulting from the first displacement shall
be credited to the final outturn volume. If, in the second displacement,
the volume that the shore tank received is less than the volume that the
Vessel delivered by an amount greater than the accepted tolerance, then the
entire differences resulting from the first displacement, plus the second
displacement, shall be credited to the final outturn volume.
5) The Refinery personnel present at the discharge are required to
have the necessary authority to agree to all measurements mentioned above.
Any delays incurred resulting from a dispute after the first line
displacement, including the carrying out of a second displacement, and
until discharge has resumed, is for Crown's account.
II. Quality:
The net quantity of Crude Oil supplied to the Refinery shall be calculated
by deducting, from the TCV quantity measured supplied to the Refinery,
sediment and water. The sediment and water of the Crude Oil supplied to the
Refinery will be as determined by analysis, carried out by the Independent
Inspector, on a representative sample of the Crude Oil being supplied as
detailed below:
A) In the event that the Crude Oil is being supplied from Oil Tanking
Terminal:
1) The representative sample used shall be taken during the
transfer of the Crude Oil, from the Oil Tanking Terminal (OTTI) facility to
the Refinery, by the automatic inline sampler situated on the transfer line
in the vicinity of the OTTI meter/manifold.
2) However, in the event that this inline sampler is not fitted,
is out of order, malfunctions during the transfer, or in cases where the
results of such in-line sampler are more than 0.15% different (either
greater or lesser) from the S&W of the material being delivered out of OTTI
(based on delivering OTTI shore tanks S&W and Free Water measurements),
then the sediment and water deduction shall be determined from a
representative sample taken during the importation of the Crude Oil, into
the Oil Tanking Terminal facility, by the automatic inline sampler located
at or near the jetty. However both parties agree to review the OTTI Shore
Tank S&W and Free Water content (before importation, after importation and
after transfer) in order to determine if the total S&W of the imported
material has been affected during the throughput via the OTTI tanks.
<PAGE>
3) However, in the event that such 'importation' inline sampler is
not fitted, is out of order, malfunctions during the transfer, then the
sediment and water deduction shall be determined from a representative
composite sample, taken from the OTTI delivering shore tanks prior to
transfer from OTTI to the Refinery plus quantity of free water delivered
from OTTI tanks as based on shore tank Free Water measurements taken before
and after the transfer to the Refinery.
B) In the event that the Crude Oil is being supplied from a third party
terminal, other than Oil Tanking Terminal, or via Crown's dock:
1) The representative sample used shall be taken by an automatic
inline sampler. Such a sampler shall be located at the third party storage
facility or at the Refinery. In the event that the inline sampler is
located at the Refinery, then provisions must be made to ensure that the
shore line contents, in the case when the Crude Oil is being supplied via a
third party terminal, are not sampled as part of the supplied Crude Oil.
2) However, in the event that an inline sampler is not fitted, is
out of order, malfunctions during the transfer, or the Independent
Inspector deems that the samples drawn by said inline sampler are not
representative of the Crude Oil supplied (by making comparisons to free
water and sediment and water (S&W) content of Crude Oil delivered by
Vessel), then the sediment and water deduction shall be determined by:
(i) In the event that the Crude Oil is being supplied via
Crown's dock, then the sediment and water deduction shall be determined
from a representative Vessel composite sample, taken from the Vessel prior
to discharge, plus quantity of free water delivered by the Vessel, as
measured on board the Vessel before starting and after completing unloading
operations.
(ii) In the event that the Crude Oil is being supplied via a
third party terminal, then the sediment and water deduction shall be
determined from a representative sample based on a composite of the third
party terminal delivering shore tank(s), prior to commencement of delivery.
Certificates of quality and quantity countersigned by an Independent
Inspector will be final and binding on both parties, absent manifest error
or fraud.
<PAGE>
PART II. "PRODUCTS"
- -----------------------
Determination of quantity and quality of the Products lifted by Statoil,
pursuant to the provisions of this Agreement, shall be in accordance with
the latest API and ASTM standards and principles in effect at the time of
lifting.
Whenever it is necessary for measurements of Products quantity to be
determined by a mutually acceptable Independent Inspector, such inspector
shall be appointed by Statoil. The costs of any such inspection shall be
borne equally between Statoil and Crown.
I. Quantity:
The net quantity of the Products lifted shall be determined on the
following basis, depending upon the method of lifting:
1) If the Product is being lifted via a third party pipeline, and
the pipeline can be accessed directly from the Refinery, the quantity
lifted shall be determined by the proven meters applicable to the intake of
that pipeline.
2) If the Product is being lifted by Vessel at the Crown dock,
then the quantity lifted shall be based upon static shore tank down gauges
at the Refinery. In this case, the delivering shore tanks shall be in the
following condition for both opening and closing gauges:
(i) Floating roof tanks: the tank shall contain sufficient
Products, open and close gauges, to ensure that the floating roof is
floating and clear of the critical zone by a minimum of six (6) inches.
(ii) Non-floating roof tanks: the tank shall contain
sufficient Products, open and close gauges, to ensure that the Products
level is above the tank fill line.
All shore tank gauging should be carried out in full accordance with
API Chapters 17.1 and 17.2, guidelines for marine cargo inspection, and API
Chapter 3.1A.
If the quantity lifted is to be based upon shore tank down gauges at
the Refinery, then Crown shall provide a method, acceptable to Statoil and
the mutually accepted Independent Inspector, to verify that all pipelines
are full, prior to the commencement of transfer, in accordance with API
Chapter 17.6.
3) If the Product is being stored at a third party storage
facility, at Statoil's option, whether for subsequent shipment by pipeline
or Vessel, the quantity supplied shall be based on the static shore tank
upgauge at the third party storage facility which has received the delivery
from Crown. The measurement will be made at the time of delivery.
4) If the Product is being stored at a third party storage
facility, at Crown's option, the quantity lifted shall be based as follows:
(i) If the Product is eventually lifted via a third party
pipeline, the quantity supplied shall be determined by the proven meters
applicable to the intake of that pipeline.
<PAGE>
(ii) If the Product is eventually lifted by Vessel, the
quantity supplied shall be based on static shore tank down gauges at the
third party terminal. In this case the delivering shore tanks shall be in
the following condition for both opening and closing gauges:
a) Floating roof tanks: the tank shall contain
sufficient Products, open and close gauges, to ensure that the floating
roof is floating and clear of the critical zone by a minimum of six (6)
inches.
b) Non-floating roof tanks: the tank shall contain
sufficient Products, open and close gauges, to ensure that the Products
level is above the tank fill line.
If the quantity lifted is to be based upon shore tank down
gauges at the third party terminal, then a method shall be employed,
acceptable to Statoil and the mutually accepted Independent Inspector, to
verify that all pipelines are full, prior to the commencement of transfer,
in accordance with API Chapter 17.6.
5) If Product lifted is being delivered directly into a third
party's tanks at either GATX or Oil Tanking, then the quantity lifted shall
be based on the static shore tank up gauge measurements at these
facilities. In the event that the intended receiving shore tanks at either
GATX or Oil Tanking are active, or cannot be accurately measured due to
some other event or reason, then the quantity lifted shall be based on the
delivering shore tank down gauge measurements at the Refinery.
If Products were to be delivered directly into a terminal other
than GATX or Oil Tanking, then the lifted quantity can be determined (as
detailed in Article 16, Part II, (I) (5) above), if both Statoil and Crown
are in agreement.
6) If the Product is being lifted directly by vessel or pipeline
at a third party terminal without first storing product at that terminal
the quantity lifted shall be mutually agreed between Statoil and Crown on a
case by case basis.
II. Quality:
The quality of the Products supplied by the Refinery will be as determined
by:
1) In the case where the Product is being lifted by pipeline, and
the pipeline can be accessed directly from the Refinery, the quality will
be determined by analysis, carried out at the Refinery laboratory, of a
representative sample of the Products being lifted, as drawn from the
delivering storage tanks at the Refinery.
2) In the case where the Product is being lifted by Vessel at
Crown's dock, the quality will be determined by analysis, carried out at
the Independent Inspector's laboratory, on a representative sample of the
Products being lifted, as drawn from the delivering storage tanks at the
Refinery.
3) In the case where the Product is stored at a third party
storage facility, at Statoil's option, whether for subsequent shipment by
pipeline or Vessel, the quality will be determined by analysis, carried out
at the Independent Inspector's laboratory, on a representative sample of
the Products being supplied, as drawn from the delivering storage tanks at
the Refinery.
<PAGE>
4) In the case where the Product is stored at a third party
storage facility, at Crown's option, the quality will be determined by
analysis, carried out at the Independent Inspector's laboratory, on a
representative sample of the Products being lifted, as drawn from the
delivering storage tanks at the third party terminal.
5) In the case where the Product is delivered directly into a
third party's tanks at either GATX or Oil Tanking, the quality will be
determined by analysis, carried out at the Independent Inspector's
laboratory, on a representative sample of the Products being lifted, as
drawn from the delivering storage tanks at the Refinery.
6) If the Product is being lifted directly by vessel or pipeline
at a third party terminal without first storing product at that terminal
the quality will be determined by analysis, carried out at the Independent
Inspector's laboratory, of a representative sample of the Products being
lifted, as mutually agreed between Statoil and Crown on a case by case
basis.
The costs of this analysis shall be borne equally between Statoil and
Crown.
Certificates of quality and quantity, countersigned by an Independent
Inspector, will be final and binding on both parties, absent manifest error
or fraud.
Samples of Crude Oil supplied and Products lifted will be retained, by the
party carrying out the sampling and analysis, for a period of forty-five
(45) days from the completion of supply date, in respect of Crude Oil being
supplied, and from Bill of Lading date in respect of Products being lifted.
<PAGE>
ARTICLE 17
- ----------
AUDITING
- --------
Statoil, and its duly authorized representatives, shall have access to the
accounting records and other documents maintained by Crown, or any
subcontractors, which relate to this Processing Agreement, and shall have
the right to inspect or audit such records at any reasonable time or times
during the term of this Agreement, or within two (2) year after the
termination of this Agreement. Crown shall preserve, and shall cause all
subcontractors to preserve, all of the aforesaid documents for a period of
at least two (2) year after completion of contract supplies under this
Agreement.
Upon request by Crown, Statoil shall provide Crown with all documents and
records in Statoil's possession that relate to performance under this
Agreement.
<PAGE>
ARTICLE 18
- ----------
SUSPENSION AND TERMINATION
- --------------------------
In addition to any rights of termination or suspension granted in Articles
3, 10, 19, 21, and 22 of this Agreement, this Agreement may be terminated
at any time as follows:
Either Party may, at its sole discretion, and in addition to any other
legal remedies it may have, in law or equity, forthwith upon giving notice
to the other Party, suspend or require the suspension of deliveries of the
Crude Oil and/or terminate the Agreement, and/or stop, or direct Crown to
stop, processing Crude Oil owned by Statoil being in the custody of Crown,
and/or direct Crown, subject to the right of Crown to offset any invoiced,
unpaid, and overdue Processing Fees or other payment due to Crown at the
market prices established in Article 21, to make all Product(s) owned by
Statoil, available for immediate lifting if:
18.1 by mutual written consent of the parties;
18.2 by either Statoil or Crown, within thirty (30) days after
receipt of notice from the other that any representation or warranty made
by the other Party is untrue in any material respect, or any condition to
such Party's obligations cannot be satisfied;
18.3 by either Statoil or Crown, should the other Party commit a
material breach in prompt performance of any of the terms or conditions of
this Agreement, and should such material breach continue for thirty (30)
days after written notice thereof by Statoil to Crown or Crown to Statoil;
18.4 by either Party, if the other files a petition or otherwise
commences or authorizes the commencement of a proceeding or case under any
bankruptcy, reorganization, or similar law, for the protection against
creditors, or has any such petition filed or proceeding commenced against
the Party;
18.5 by either Party, if the other Party becomes bankrupt or
insolvent, or makes an assignment for the benefit of its creditors (however
evidenced);
18.6 by either Party, if the other Party is unable, or in the other
Party's reasonable opinion is expected to be unable or unwilling, to pay
its debts as the same become due;
18.7 by either Party, if there is a major change in the direct or
indirect ownership of the other Party;
18.8 a receiver is appointed or an encumbrancer takes possession of
the whole or a significant part of the assets or undertaking of the other
Party;
18.9 by either Party, if the other Party fails to give adequate
assurances of its ability to perform within two (2) business days upon a
reasonable request therefore;
18.10 by either Party, if the other Party ceases, or threatens to
cease, to carry on its business or a major part thereof ,or a distress,
execution, or other process is levied or enforced or sued out upon or
against any significant part of the property of the other Party, and is not
discharged within fourteen (14) days;
18.11 by either Party, acting as a reasonable and prudent company
anticipates that the other company will come into such situation as
described above.
<PAGE>
18.12 by Statoil, if thirty (30) days written notice is given to
Crown that the facilities required for performance under this Agreement
fail to perform up to the standards required by this Agreement. This may
include, but not be limited to, the ability to meet waterborne lifting
schedules in a timely and economic fashion;
18.13 by Statoil, should the enactment and implementation of changes
in U.S. import or export Taxes, duties, or other governmental action, in
its effects or consequences, result in materially reduced economic
incentives for Statoil, associated with or related to the Crude Oil
processing hereunder (which shall be documented by Statoil), then the
parties shall at Statoil's written request meet in order to agree on
adjustment of the Agreement, which will eliminate such materially reduced
incentives. If the parties fail to agree within ninety (90) days after the
request for a meeting is received, this Agreement will terminate
immediately;
18.14 by Crown, if Crown should decide to alter the ownership of the
Refinery which results in a change of control either through a sale of
stock or refinery assets or joint venture. ##CONFIDENTIAL TREATMENT##
a) ##CONFIDENTIAL TREATMENT##
b) ##CONFIDENTIAL TREATMENT##
<PAGE>
days upon receipt of Statoil's invoice.
18.15 If the transactions contemplated by this Agreement are
terminated as provided herein:
a) all confidential information received by any Party hereto, with
respect to the other Party or any of its affiliates, shall be treated in
accordance with this Agreement; and
b) notwithstanding the foregoing, termination of this Agreement,
shall not in any way limit or restrict the rights and remedies of any Party
hereto, against any Party hereto, which has violated or breached any of the
representations, warranties, covenants, and agreements or other provisions
of this Agreement prior to termination hereof.
18.16 In the event of termination under this Article, Crown has an
obligation to purchase any Crude Oil which has not been processed, or
deemed to be processed, at a price determined in accordance with Article 21
(vii). Statoil shall have the right to immediately take delivery of all
Product(s) owned by Statoil and in accordance with Article 14, Final
Settlement.
<PAGE>
ARTICLE 19
- ----------
CREDIT CONDITIONS
- -----------------
##CONFIDENTIAL TREATMENT##
<PAGE>
##CONFIDENTIAL TREATMENT##
<PAGE>
ARTICLE 20
- ----------
INDEMNITY
- ---------
(i) Crown agrees to protect, defend, indemnify, and hold harmless,
Statoil and its Affiliates, from and against any Liabilities arising out of
this Agreement, or in connection with the receipt, storage, custody,
processing, or transfer of Crude Oil within the Refinery Facilities, or
storage, custody, processing, transfer, or delivery of Product(s) at any
time, including, without limitation, any Liabilities directly or indirectly
arising out of or related to: (a) any loss, spill, discharge, or release
of Crude Oil and/or Products, irrespective of such cause; (b) any act or
omission on the part of Crown, including Crown's employees, nominees,
agents, or any other individual or entity acting on behalf of Crown, in
connection with or related to this Agreement; (c) Liabilities arising out
of or in connection with the operation of the Refinery Facilities by Crown,
including Crown's employees, nominees, agents, or any other individual or
entity acting on behalf of Crown, or with any discharge or any emissions
from the Refinery, or the delivery, custody, or storage of the Crude Oil
and Products, or Crude Oil or Products of any other Party; or (d) any
breach or violation of Environmental Laws. This indemnification obligation
shall survive the term of this Agreement, irrespective of any permitted
assignment pursuant to this Agreement.
(ii) Statoil agrees to protect, defend, indemnify, and hold harmless,
Crown and its Affiliates, from and against any Liabilities arising out of
this Agreement, or in connection with the receipt, storage, custody, or
transfer of Crude Oil, prior to the Crude Oil being deemed to be in Crown's
custody, pursuant to Article 10 (vii), or storage, custody, use, transfer,
or delivery of Product(s), subsequent to the delivery of Products to
Statoil, pursuant to Article 11(ii), including, without limitation, any
Liabilities directly or indirectly arising out of or related to: (a) any
loss, spill, discharge, or release of Crude Oil and/or Products,
irrespective of such cause; (b) any act or omission on the part of
Statoil, including Statoil's employees, nominees, agents, or any other
individual or entity acting on behalf of Statoil, in connection with or
related to this Agreement; or (c) any breach or violation of
Environmental Laws. This indemnification obligation shall survive the term
of this Agreement, irrespective of any permitted assignment pursuant to
this Agreement.
<PAGE>
ARTICLE 21
- ----------
REFINERY CLOSURE
- ----------------
(i) Should Crown be forced to cease processing under the terms of this
Agreement, as a consequence of Labor Disputes (as defined in Article 22),
but only with respect to Crown employees at the Refinery, and therefore be
unable to provide the Products supply obligations under this Agreement, and
the situation continues for a period of five (5) days, then Crown shall
either:
a) supply Statoil with Products that Statoil is deemed to be the
owner of under this Agreement, or
b) purchase from Statoil the Products entitlement at a price(s)
specified in paragraph (v) below.
(ii) Crown shall continue to supply Statoil with Products, or purchase
from Statoil the Products entitlement, for up to twenty (20) consecutive
days of a Refinery shutdown due to labor disputes, but only with respect to
Crown employees at the Refinery. If Crown elects to purchase Statoil's
Products entitlement, the price(s) will determined as specified in
paragraph (v) below.
(iii) Notwithstanding paragraphs (i) and (ii) above, Crown will keep
Statoil updated on all labor negotiations, and the best estimate of the
settlement date and restart of this processing Agreement.
(iv) In the event the Refinery is unable to process under the terms of
this Agreement, for a period of twenty (20) consecutive days, then Statoil
shall have the option to:
a) terminate this Agreement, or
b) suspend supplies of Crude Oil, until such time as the Refinery
has settled the labor dispute, but only with respect to Crown employees at
the Refinery, and restarted Refinery operations, or
c) suspend supplies of Crude Oil, until such time as the Refinery
has restarted operations,and extend the end of the contract period, such
that the volumes not processed during the suspension of deliveries, can be
made up at the end of the current agreement period.
In the event of Article 21 (iv) (a) and (iv) (b) above, the minimum
supply of Crude Oil as specified in Article 3 shall not apply.
(v) The price to be paid by Crown in paragraphs (i) and (ii) above, if
Crown elects to purchase Statoil's Products entitlement, shall be as
follows:
a) For all grades, except 75 grade Heating Oil, the mean
quotation for the relevant Products, as quoted in Platts Oilgram under the
heading, "Gulf Coast Pipeline," effective for the date of entitlement shall
be used. In the case of weekends and non-published days, the quotation
published immediately following the date of entitlement shall be used.
<PAGE>
b) For 75 grade Heating Oil, the mean quotation, as published
in Platts Oilgram under the heading, "Gulf Coast Pipeline," effective for
the date of entitlement for No. 2 shall be used.
In the case of weekends and non-published days, the quotation
published immediately following the date of entitlement shall be used.
(vi) For Products purchased by Crown under this Article, Statoil shall
invoice Crown on a weekly basis, and payment shall be made by Crown within
two (2) business days upon receipt of invoice.
(vii) In any of the above options, Crown has an obligation to purchase any
Crude Oil which has not been processed, or deemed to be processed, during
the first twenty (20) days of shutdown, at a price equal to the value of
the Products, determined in accordance with Article 21 (v), for the
Products yields set forth in Article 5, minus the Processing Fee for the
Crude Oil subject to the purchase obligation. Payment for the Crude Oil
shall be made within two (2) business days, upon receipt of invoice from
Statoil.
<PAGE>
ARTICLE 22
- ----------
FORCE MAJEURE
- -------------
For purposes of this Agreement, the term Force Majeure Event shall mean,
and include, any of the following,that materially and adversely affect
Crown's or Statoil's ability to perform under this Agreement:
(i) Fire, earthquake, explosion, lightning, epidemic, hurricane, flood,
drought, hazardous weather, landslide, collisions, strandings, storms,
disease, pestilence, and other actions of the elements, natural calamity,
or Acts of God;
(ii) Subject to Article 21 of this Agreement, strikes, grievances or
actions by and among workers, lockout, labor dispute, or any other labor
difficulties, for whatever reason, by any labor group or individuals,
whether or not involving employees of Crown or Statoil, the Refinery
Facilities, Vessels, third party storage facilities, or subcontractor; and
whether or not such labor difficulty could be settled by acceding to any
demands of any such labor group or individuals ("Labor Disputes");
(iii) War, hostilities, whether declared or undeclared, revolution or
insurrection, civil commotion, unrest, riots or disorders, acts of the
public enemy, pirates, or other belligerents, terrorism, sabotage, blockade
or embargo;
(iv) Any act of any international, national, port, transportation, local
government, or other Governmental Authority, which prohibits or restricts
the use of the Refinery Facilities, Vessels, third party storage
facilities, or which prohibits or restricts the delivery of the Crude Oil;
(v) Any other acts, whatsoever, whether similar or dissimilar to those
above enumerated, and whether foreseeable or unforeseeable, beyond the
reasonable control of a Party (each a "Force Majeure Event").
If the performance of this Agreement, or any obligation thereunder, is
materially and adversely prevented,delayed, restricted, or interfered with,
in whole or in part, by a Force Majeure Event, the Party so affected, upon
giving prompt notice of the other Party, subject to Article 21, shall be
excused from such performance of their obligations to the extent of such
prevention, delay, restriction, or interference (and the other Party shall
likewise be excused from performance so prevented, delayed, restricted or
interfered with); provided that the Party so affected shall use its
reasonable efforts to avoid or remove such causes of nonperformance, and
all the parties shall continue performance hereunder with the utmost
dispatch whenever such causes are removed; provided further that nothing
herein contained shall be construed or interpreted as: (a) requiring any
Party to accede to any demands of employees or labor unions, which such
Party, in its sole discretion, shall consider unreasonable; or (b)
relieving any Party from its obligations to pay, when due, any amount owed
by such Party for a period prior to the occurrence of the Force Majeure
Event.
During the period of a Force Majeure Event, whether declared by Crown or
Statoil, Statoil shall not be obligated to make any Processing Fee payments
for Crude Oil not delivered or processed during the Force Majeure Event.
<PAGE>
In the event of any delay or nonperformance caused by any Force Majeure
Event, the Party affected shall provide verbal notice of the Force Majeure
Event as soon as possible, but no later than twelve (12) hours following
the time at which such Party had knowledge of the Force Majeure Event, and
shall, within two (2) business days after the time at which such Party had
knowledge of the Force Majeure Event, provide the other Party with notice
of the nature, cause, date of commencement, and anticipated extent of such
delay or nonperformance.
If performance of this Agreement is suspended due to a Force Majeure Event
that is a Labor Dispute at the Refinery, which continues for a period of
five (5) days or more, the Parties' performance obligations and options as
to termination, shall be as proved in Article 21.
If performance, by either Party of its obligations under this Agreement, is
suspended due to a Force Majeure Event which is not within Article 21, the
Parties' respective options are as follows:
a) If performance is suspended by a Force Majeure Event for less
than thirty (30) consecutive calendar days from the date notice is given,
the time, within which either Party is obligated to perform under this
Agreement, shall be extended for a period equal to such period of
suspension;
b) If performance is suspended by a Force Majeure Event for thirty
(30) consecutive calendar days or more from the date notice is given,
either Party may terminate this Agreement by giving written notice to the
other Party, and neither Party shall have any further liability to the
other, except for rights and remedies previously accrued under this
Agreement, and obligations to pay sums then due and owing.
Any Crude Oil, not processed by the date of notice of such
termination, shall be deemed to have been processed into Products which
Statoil is entitled to lift, and shall be made available to Statoil. Crown
shall deliver all Products to Statoil, including those deemed processed
from Refinery Stock existing at the time of termination, in accordance with
Article 14.
c) If this Agreement is not terminated pursuant to Article 22 (b)
above, performance shall resume to the extent made possible by the end or
amelioration of the Force Majeure Event, in accordance with the terms of
this Agreement, except that: (i) the time, within which the Parties are
obligated to perform under this Agreement, shall NOT be extended; and (ii)
the quantities of Crude Oil to be supplied, and the Products to be
delivered, under this Agreement shall be ratably reduced, by the quantity
of Crude Oil not supplied or Products not delivered, during the duration of
the Force Majeure Event.
<PAGE>
ARTICLE 23
- ----------
LAW
- ---
This Agreement shall be governed by, construed and enforced under the laws
of the State of New York without giving effect to its conflicts of laws
principles. Crown and Statoil shall agree to submit to the exclusive
jurisdiction of any court of competent jurisdiction situated in the State
of New York. Each party waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
proceedings relating to this Agreement.
<PAGE>
ARTICLE 24
- ----------
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF STATOIL
- -----------------------------------------------------
Statoil represents and warrants as follows:
24.1 Statoil is a corporation duly organized, and validly existing,
in good standing under the Laws of the State of Delaware, and has full
corporate power and authority to enter into this Agreement, and to carry
out the transactions contemplated hereby. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary corporate
action of Statoil.
24.2 This Agreement as been duly and validly executed and delivered
by Statoil, and, assuming the due authorization, execution, and delivery
hereof by Crown, constitutes a valid and binding obligation of Statoil,
enforceable against it in accordance with its terms.
24.3 Neither the execution and delivery of this Agreement by
Statoil, nor the consummation by Statoil of the transactions contemplated
hereby:
a) violates any provision of its charter documents;
b) constitutes a breach or default (or an event which, with
the giving of notice or passage of time, or both, would constitute a
default) under, or will result in the termination of, or accelerate the
performance required by, or result in the creation or imposition of any
security interest, lien, charge, or other encumbrance upon any assets of,
or any material contract, commitment, understanding, agreement,
arrangement, or restriction of any kind or character, to which Statoil is
Party, or by which Statoil or any of its assets is bound, or
c) violates any statute, Laws, regulation, or rule, or any
judgment, decree, order, writ, or injunction of any court or Governmental
Authority, applicable to Statoil, or to its business and operations.
24.4 On the date of this Agreement: (a) there are no judgments,
orders, writs, or injunctions of any court or Governmental Authority, or
other regulatory or administrative agency, commission, or arbitration
panel, domestic or foreign, presently in effect or pending or threatened
against Statoil; and (b) there are no claims, actions, suits or
proceedings, or investigations by or before any court or Governmental
Authority, or other regulatory or administrative agency, commission, or
arbitration panel, pending or threatened by or against Statoil, which, in
the case of either Article 24.4 (a) or 24.4 (b) above, would interfere with
the consummation of the transactions contemplated by this Agreement, or
would materially adversely affect its business or operations, or for which
Crown would be liable with respect to such business and operations.
24.5 Statoil is in compliance with all material Laws and Regulations
applicable to its operations, and has not received any notification that it
is not presently so in compliance.
<PAGE>
24.6 Statoil shall maintain all licenses identified in Article 8, as
may be required by law. Statoil shall promptly notify Crown of any change
in status, with respect to the licenses identified in Article 8. Should
such taxes be refundable due to exportation from either the United States
or Texas, Statoil shall seek such refunds for its own account, without
offset to Crown when payment is due to the taxing authority.
<PAGE>
ARTICLE 25
- ----------
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF CROWN
- ---------------------------------------------------
Crown represents and warrants as follows:
25.1 Crown is a corporation duly organized, and validly existing, in
good standing under the Laws of the State of Maryland, and has full
corporate power and authority to enter into this Agreement, and to carry
out the transactions contemplated hereby. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary corporate
action of Crown.
25.2 This Agreement as been duly and validly executed and delivered
by Crown, and, assuming the due authorization, execution, and delivery
hereof by Statoil, constitutes a valid and binding obligation of Crown,
enforceable against it in accordance with its terms.
25.3 Neither the execution and delivery of this Agreement by Crown,
nor the consummation by Crown of the transactions contemplated hereby:
a) violates any provision of its charter documents;
b) constitutes a breach or default (or an event which, with
the giving of notice or passage of time, or both, would constitute a
default) under, or will result in the termination of, or accelerate the
performance required by, or result in the creation or imposition of any
security interest, lien, charge, or other encumbrance upon any assets of,
or any material contract, commitment, understanding, agreement,
arrangement, or restriction of any kind or character, to which Crown is
Party, or by which Crown or any of its assets is bound, or
c) violates any statute, Laws, regulation, or rule, or any
judgment, decree, order, writ, or injunction of any court or Governmental
Authority, applicable to Crown, or to its business and operations.
25.4 On the date of this Agreement: (a) there are no judgments,
orders, writs, or injunctions of any court or Governmental Authority, or
other regulatory or administrative agency, commission, or arbitration
panel, domestic or foreign, presently in effect or pending or threatened
against Crown; and (b) there are no claims, actions, suits or proceedings,
or investigations by or before any court or Governmental Authority, or
other regulatory or administrative agency, commission, or arbitration
panel, pending or threatened by or against Crown, which, in the case of
either Article 25.4 (a) or 25.4 (b) above, would interfere with the
consummation of the transactions contemplated by this Agreement, or would
materially adversely affect its business or operations, or for which
Statoil would be liable with respect to such business and operations.
<PAGE>
25.5 Crown is in compliance with all material Laws and Regulations
applicable to its operations, and has not received any notification that it
is not presently so in compliance.
25.6 Crown warrants the Refinery Facilities are structurally sound
and safe, and that Crown does not know, and has no reason to know, of any
problems which could cause environmental danger, or be detrimental in any
material way, to the environment or to Statoil's interests.
25.7 Crown warrants and represents that, for the duration of this
Agreement, Crown shall maintain and operate the Refinery Facilities, in a
manner which fully complies in all material respects with all applicable
Laws and Regulations, including all Environmental Laws, and the
Reformulated Gasoline and Anti-Dumping Regulations, referenced in Article
29.
25.8 Crown warrants they have operational and safety manuals, and
that all appropriate personnel are familiar with the procedures in these
manuals. Crown further represents that all appropriate personnel are
routinely trained on safety and disaster procedures.
25.9 Crown warrants there are no liens on any property that is
necessary for Crown's performance of this Agreement. In addition, Crown
warrants there is no litigation pending or threatened that could reasonably
be expected to adversely affect Crown's ability to perform its obligations
under this Agreement.
<PAGE>
ARTICLE 26
- ----------
SAFETY AND HEALTH
- -----------------
Statoil has furnished to Crown (Addendum One hereto) an MSDS applicable to
the Crude Oils that Statoil may supply to Crown hereunder, including safety
and health warnings. Crown acknowledges receipt of such information, and
agrees to furnish such warnings and information to all persons whom Crown
can reasonably foresee, may be exposed to or may handle such Crude Oil,
including, but not limited to, Crown's employees, agents, contractors, and
customers.
Crown will furnish to Statoil, MSDS information on the Products to be
supplied under this Agreement.
<PAGE>
ARTICLE 27
- ----------
ASSIGNMENT
- ----------
Neither Crown, nor Statoil, may assign this Agreement in whole or in part,
except if such assignment is made to an Affiliate, without written consent
of the other Party, and providing that the assigning Party shall always
remain jointly and severally liable with the assignee for the performance
of this Agreement. This Agreement shall be binding on the respective
successors and permitted assigns of the Parties.
<PAGE>
ARTICLE 28
- ----------
STATEMENTS
- ----------
Crown will provide all necessary statements, required by Statoil, in
connection with this Agreement.
Crown is required to provide Statoil, as frequently as possible, but in no
case less than a weekly schedule, with detailed inventory records
reflecting the volume of Crude Oil held for processing, and volume of
Products stored and deemed processed for Statoil's account, as well as the
ownership and volumes of all parties who share commingled storage.
Crown is required to notify (i) the First National Bank of Boston,
NationsBank of Texas, N.A., State Street Bank, any successor Trustee under
the Indenture, any successor agent or lender under the Credit Agreement,
and any other lender and agent under any other credit facility or loan
agreement whether such agreement or loan is secured or unsecured; and (ii)
any person who holds a security interest in Crown's inventory, or in any
Crude Oil processed by Crown, or Products sold by Crown to other parties,
or to any assets of Crown which could include Crude Oil and/or Products
inventories, of the existence of this Agreement, and Statoil's title and
ownership in the Crude Oil and Products under this Agreement, and is
required to provide Statoil with evidence of such notice(s).
<PAGE>
ARTICLE 29
- ----------
COMPLIANCE WITH EPA REFORMULATED GASOLINE AND ANTI-DUMPING REGULATIONS
- ----------------------------------------------------------
Crown shall have exclusive responsibility for certification of all gasoline
refined under this Agreement, pursuant to the United States Environmental
Protection Agency's ("EPA") Reformulated Gasoline and Anti-Dumping
regulations, and shall be responsible for all refiner reports to the EPA,
pursuant to such regulations. In the event that Statoil shall be found to
have violated the EPA Reformulated Gasoline and Anti-Dumping regulations,
on account of any transaction relating to or arising from this Agreement,
and that violation is the result of a mistake, error, or omission on the
part of Crown, then Crown shall indemnify Statoil in accordance with the
provisions of Article 20.
ARTICLE 30
- ----------
LIABILITIES
- -----------
Except as elsewhere provided in this Agreement, neither Party shall be
liable for any indirect, incidental, special, or consequential damages,
specific performance, or lost profits sustained by the other Party as a
result of anything relating to this Agreement.
ARTICLE 31
- ----------
MISCELLANEOUS
- -------------
31.1 Unless otherwise agreed in writing, any notices,
statements, requests, or other communications to be given by either Party,
pursuant to this Agreement, shall be made in writing, and unless otherwise
provided herein, be sufficiently made if sent by prepaid first class post,
facsimile, or by telex, to the address of the other Party specified for
this purpose below, and shall, unless otherwise provided herein, be deemed
to have been made on the day on which such communication is sent to Statoil
and to Crown at the addresses and telex numbers specified below:
Statoil Marketing Crown Central Petroleum
and Trading (U.S.) Inc. Corporation
225 High Ridge Road P.O. Box 1759
Stamford, CT 06905 Houston, Texas 77251-1759
Attn.:Mr. Jens Grondahl Attn.:Mr. Randall M. Trembly
Executive Vice President
Telephone:(203) 978-6900 Telephone:(713) 920-4103
Telex:MCI 6819522 STATOIL Facsimile:(713) 920-3916
Facsimile:(203) 978-6952
With a copy to:
Crown Central Petroleum Corporation
4747 Bellaire Boulevard Bellaire,
Texas 77401
Attn.: Mr. W.A. Wolters
Vice President-Supply and
Transportation
Telephone: (713) 660-4555
Facsimile: (713) 660-4550
31.2 This Agreement, including the Addenda, contains the
entire understanding of the Parties with respect to its subject matter.
There are no restrictions, agreements, promises, representations,
warranties, covenants, or undertakings other than those expressly set forth
herein. This Agreement supersedes all prior agreements, including
Agreement in Principle, and undertakings between the Parties with respect
to its subject matter, except to the extent any such prior agreement is
specifically incorporated herein. This Agreement may be amended or
modified only by a written agreement duly executed by each of the Parties
hereto.
31.3 In the case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement.
<PAGE>
31.4 The Article headings contained herein are for reference
purposes only, and shall not affect in any way the meaning or
interpretation of this Agreement.
31.5 This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together
constitute one and the same instrument.
31.6 Waiver of performance of any obligation by either Party
shall not be deemed a waiver of performance of other obligations or future
waivers of the same obligation.
31.7 Nothing in this Agreement shall be construed to establish
any agency or partnership relationship among the Parties, and the Parties
specifically disclaim any intention to create such a relationship.
In witness whereof the parties have made up this Agreement in duplicate and
signed.
By:/s/S. Jansen By:/s/ Randall M. Trembly
---------------------- ----------------------
Statoil Marketing and Crown Central
Trading (U.S.) Inc. Petroleum Corporation
Name:Sigurd Jansen Name: Randall M. Trembly
Title:President Title:Executive Vice
President
Date: 10/23/98 Date: 10/27/98
------------------ -----------------
<PAGE>
<PAGE>
EXHIBIT 20
(LOGO) CROWN CENTRAL PETROLEUM CORPORATION
REFINERS / MARKETERS OF PETROLEUM PRODUCTS & PETROCHEMICALS
ONE NORTH CHARLES STREET, P.O. BOX 1168, BALTIMORE, MARYLAND 21203, (410)
539-7400
OCTOBER 29, 1998
RESULTS THIRD QUARTER 1998
- --------------------------
Dear Shareholders:
For the third quarter of 1998, Crown Central Petroleum had a net
profit of $3.1 million ($.31 per share) compared to a net profit of $11.3
million ($1.16 per share) for the same period in 1997. Sales and operating
revenues in the quarter amounted to $312.5 million compared to $414.5
million last year. For the first nine months of the year, Crown reported a
net loss of $12.8 million ($1.30 per share) on revenues of $979.3 million.
This compares to a net profit of $19.9 million ($2.04 per share) on
revenues of $1.2 billion for the same period in 1997.
A significant domestic inventory surplus, largely resulting from the
1998 mild winter coupled with high refining utilization rates, continued to
depress industry-wide refining margins. However, the Company's $2.57 per
barrel margin realized by our refineries in the third quarter compared
favorably with the market 3.2.1 crack spread of $2.52. Such performance
reflects the Company's ability to produce above market performance in a
challenging refining environment.
West Texas Intermediate crude oil prices were weak and averaged $13.98
per barrel in the third quarter, down 38% from last year's third quarter
average of $19.38. Prices did show strength towards the end of the quarter
reaching $15.97 on September 30. Currently, crude prices have
significantly fallen back to the low $14 level.
Gulf Coast storms did not seriously impact Crown's operations, but did
effect other refineries and, in fact, were partially responsible for the
price increase in late September. Our refineries at Houston and Tyler
operated well during the period at capacity utilization rates marginally
above industry averages.
Crown's retail marketing segment results were positive for the
quarter. Third quarter same store merchandise sales showed a 1.8% increase
over the same 1997 period although margins were consistent. Crown's same-
store gross retail gasoline margins increased 36% for the third quarter
while retail gasoline gallonage was down 2%.
In early 1999, Crown is anticipating a proposed rule from the
U.S. Environmental Protection Agency (EPA) which will likely require a
significant reduction in gasoline sulfur content. The amount and effective
date of that reduction will influence the timing of anticipated capital
investments at both refineries. Crown has been involved in deliberations
concerning the proposed rule and has represented its interests with EPA and
industry trade groups.
Sincerely,
/s/ - - Henry A. Rosenberg, Jr.
HENRY A. ROSENBERG, JR.
Chairman of the Board,
Chief Executive Officer and President
<PAGE>
<TABLE>
<CAPTION>
Crown Central Petroleum Corporation and Subsidiaries
Dollars in thousands, except per share data
Nine Months Ended
September 30
1998 1997
-------- ---------
<S> <C> <C>
Sales and operating revenues $979,254 $1,203,654
(Loss) income before income
taxes (18,809) 31,854
Net (loss) income (12,811) 19,896
Net (loss) income per share
Basic $ (1.30) $ 2.04
Diluted (1.30) 2.03
Weighted average shares used
in the computation of (loss)
income per share
Basic 9,829,683 9,738,821
Diluted 9,829,683 9,816,985
Three Months Ended
September 30
1998 1997
-------- ----------
<S> <C> <C>
Sales and operating revenues $312,461 $ 414,473
(Loss) income before income
taxes 5,558 17,540
Net (loss) income 3,083 11,265
Net (loss)income per share
Basic $ 0.31 $ 1.16
Diluted 0.31 1.12
Weighted average shares used
in the computation of (loss)
income per share
Basic 9,839,282 9,748,174
Diluted 9,873,177 10,049,672
<FN>
- -------------------------------------------------------------
To conform to the 1998 presentation, Sales and operating revenues for the
three and nine months ended September 30,, 1997 have been restated. These
restatements had no effect on the net income or net income per share
amounts previously reported.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION
OPERATING STATISTICS
Nine Months Ended
September 30
1998 1997
-------- --------
<S> <C> <C>
COMBINED REFINERY OPERATIONS
- ----------------------------
Production (BPD - M) 158 159
Production (MMbbl) 43.2 43.4
Sales (MMbbl) 47.4 42.8
Gross Margin ($/bbl) 1.77 3.18
Gross Profit ($MM) 84.0 136.1
Operating Cost ($/bbl) (2.12) (2.24)
Operating Cost ($MM) (100.6) (96.1)
Refining Operating (Loss) (16.6) 40.0
Profit ($MM)
RETAIL
- -------
Number Stores 342 339
Volume (pmps - Mgal) 128 130
Volume (MMgal) 395 396
Gasoline Gross Margin ($/gal) 0.118 0.105
Gasoline Gross Profit ($MM) 46.8 41.5
Merchandise Sales (pmps - $M) 27.2 25.8
Merchandise Sales ($MM) 83.7 78.7
Merchandise Gross Margin (%) 30.8 30.6
Merchandise Gross Profit ($MM) 25.8 24.1
Retail Gross Profit ($MM) 72.6 65.6
Retail Operating Costs (pmps - $M) (20.4) (18.0)
Retail Operating Costs ($MM) (62.6) (54.9)
Retail Non-Operating (Expense) ($MM) (0.6) (0.9)
Retail Operating Profit ($MM) 9.4 9.8
WHOLESALE/TERMINAL
OPERATING (LOSS) PROFIT ($MM) (4.3) (2.9)
OTHER
- ----------
LIFO Recovery (Provision) ($MM) 18.9 15.0
Corporate Overhead ($MM) (18.0) (15.2)
Net Interest (Expense) ($MM) (9.2) (8.8)
Other Income(Expense)($MM) 1.0 (6.0)
Income Tax Benefit(Expense)($MM) 6.0 (12.0)
Total Net (Loss) Income($MM) (12.8) 19.9
Depreciation & Amortization ($MM) 25.2 23.2
Net Interest Expense ($MM) 9.2 8.8
LIFO (Recovery) Provision ($MM) (18.9) (15.0)
(Gain) from Asset Disposals ($MM) (0.4) (0.4)
Income Tax (Benefit) Expense($MM) (6.0) 12.0
EBITDAAL ($MM) (3.7) 48.5
Capital Expenditures ($MM) 25.8 20.4
Three Months Ended
September 30
1998 1997
-------- --------
COMBINED REFINERY OPERATIONS
- -----------------------
Production (BPD - M) 158 158
Production (MMbbl) 14.6 14.5
Sales (MMbbl) 16.3 15.0
Gross Margin ($/bbl) 2.57 4.16
Gross Profit ($MM) 41.8 62.3
Operating Cost ($/bbl) (2.10) (2.23)
Operating Cost ($MM) (34.1) (33.4)
Refining Operating (Loss)
Profit ($MM) 7.7 28.9
RETAIL
- -----------------------
Number Stores 342 339
Volume (pmps - Mgal) 133 132
Volume (MMgal) 136 134
Gasoline Gross Margin ($/gal) 0.129 0.092
Gasoline Gross Profit ($MM) 17.6 12.3
Merchandise Sales (pmps - $M) 29.4 27.6
Merchandise Sales ($MM) 30.2 28.1
Merchandise Gross Margin (%) 30.6 30.1
Merchandise Gross Profit ($MM) 9.2 8.4
Retail Gross Profit ($MM) 26.8 20.7
Retail Operating Costs (pmps - $M) (20.1) (18.5)
Retail Operating Costs ($MM) (20.6) (18.8)
Retail Non-Operating (Expense)($MM) (0.3) (0.1)
Retail Operating Profit ($MM) 5.9 1.8
WHOLESALE / TERMINAL
OPERATING (LOSS) PROFIT ($MM) (1.1) 1.2
OTHER
- ----------
LIFO Recovery (Provision) ($MM) 3.1 (1.7)
Corporate Overhead ($MM) (6.2) (4.7)
Net Interest (Expense) ($MM) (3.1) (2.9)
Other Income(Expense)($MM) (0.7) (5.0)
Income Tax Benefit(Expense)($MM) (2.5) (6.3)
Total Net (Loss) Income($MM) 3.1 11.3
Depreciation & Amortization ($MM) 8.6 7.9
Net Interest Expense ($MM) 3.1 2.9
LIFO (Recovery) Provision ($MM) (3.1) 1.7
(Gain) from Asset Disposals ($MM) (0.2) (0.3)
Income Tax (Benefit) Expense $MM) 2.5 6.3
EBITDAAL ($MM) 14.0 29.8
Capital Expenditures ($MM) 9.1 8.2
<FN>
BPD = Barrels Per Day
bbl = barrel or barrels as applicable
gal = gallon or gallons as applicable
pmps = per month per store
M = in thousands
MM = in millions
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<CAPTION>
EXHIBIT 27 (a)
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule
(In thousands, except per share amounts)
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
<CASH> $ 5,872
<SECURITIES> 58,496
<RECEIVABLES> 71,520
<ALLOWANCES> (675)
<INVENTORY> 125,954
<CURRENT-ASSETS> 264,660
<PP&E> 658,025
<DEPRECIATION> 357,031
<TOTAL-ASSETS> 610,063
<CURRENT-LIABILITIES> 213,158
<BONDS> 130,046
0
0
<COMMON> 50,355
<OTHER-SE> 144,769
<TOTAL-LIABILITY-AND-EQUITY> 610,063
<SALES> 979,254
<TOTAL-REVENUES> 979,254
<CGS> 884,952
<TOTAL-COSTS> 884,952
<OTHER-EXPENSES> 104,206
<LOSS-PROVISION> 225
<INTEREST-EXPENSE> 10,977
<INCOME-PRETAX> (18,809)
<INCOME-TAX> (5,998)
<INCOME-CONTINUING> (12,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,811)
<EPS-PRIMARY> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<CAPTION>
EXHIBIT 27 (b)
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule - As Revised
(In thousands, except per share amounts)
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
<CASH> $ 6,503
<SECURITIES> 43,387
<RECEIVABLES> 100,535
<ALLOWANCES> (656)
<INVENTORY> 110,544
<CURRENT-ASSETS> 268,045
<PP&E> 628,042
<DEPRECIATION> 335,301
<TOTAL-ASSETS> 606,994
<CURRENT-LIABILITIES> 190,500
<BONDS> 126,483
0
0
<COMMON> 50,182
<OTHER-SE> 157,666
<TOTAL-LIABILITY-AND-EQUITY> 606,994
<SALES> 1,203,654
<TOTAL-REVENUES> 1,203,654
<CGS> 1,068,921
<TOTAL-COSTS> 1,068,921
<OTHER-EXPENSES> 94,524
<LOSS-PROVISION> (377)
<INTEREST-EXPENSE> 10,652
<INCOME-PRETAX> 31,854
<INCOME-TAX> 11,958
<INCOME-CONTINUING> 19,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,896
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.03
</TABLE>
