<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 June 30, 1998
--------------------------------------------
OR
[_] TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
COMMISSION FILE NUMBER 316456
GULF CANADA RESOURCES LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CANADA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
98-0086499
(I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE NORWEST CENTER
1700 LINCOLN STREET, SUITE 5000
DENVER, COLORADO 80203-4525
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
TELEPHONE (303) 813-3800
(REGISTRANT'S TELEPHONE CODE, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [_] NO
ON JULY 31, 1998, THERE WERE 348,938,994 ORDINARY SHARES ISSUED AND OUTSTANDING.
<PAGE>
GULF CANADA RESOURCES LIMITED
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Unaudited Consolidated
Financial Statements 3 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 14
PART II. OTHER INFORMATION 15 - 17
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GULF CANADA RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 1998 Dec. 31, 1997
- --------------------------------------------------------------------------------------
(millions of Canadian dollars) (UNAUDITED)
======================================================================================
ASSETS
CURRENT
Cash and short-term investments $ 180 $ 188
Accounts receivable 338 346
Other 143 121
- --------------------------------------------------------------------------------------
661 655
INVESTMENTS, DEFERRED CHARGES AND OTHER ASSETS 251 238
PROPERTY, PLANT AND EQUIPMENT 5,234 5,736
- --------------------------------------------------------------------------------------
$ 6,146 $ 6,629
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Short-term loans $ 24 $ 51
Accounts payable 336 420
Current portion of long-term debt 0 29
Current portion of other long-term liabilities 59 37
Other 149 129
- ---------------------------------------------------------------------------------------
568 666
LONG-TERM DEBT 2,531 2,785
OTHER LONG-TERM LIABILITIES 226 201
DEFERRED INCOME TAXES 209 307
MINORITY INTEREST 214 220
- ---------------------------------------------------------------------------------------
3,748 4,179
- ---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital
Senior preference shares 577 577
Ordinary shares 1,718 1,660
Contributed surplus 35 35
Retained earnings 64 181
Foreign currency translation adjustment 4 (3)
- ---------------------------------------------------------------------------------------
2,398 2,450
- ---------------------------------------------------------------------------------------
$ 6,146 $ 6,629
=======================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
3
<PAGE>
GULF CANADA RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(Unaudited)
Three months Six months
ended June 30, ended June 30,
(millions of Canadian dollars) 1998 1997 1998 1997
======================================================================================================
<S> <C> <C> <C> <C>
EARNINGS (LOSS)
REVENUES
Net oil and gas $ 256 $ 290 $ 538 $ 548
Net gain on asset disposals 17 41 22 48
Other 38 11 74 35
- ------------------------------------------------------------------------------------------------------
311 342 634 631
- ------------------------------------------------------------------------------------------------------
EXPENSES
Operating - production 103 100 213 179
- other 29 3 49 5
Exploration 33 30 76 51
General and administrative 17 17 38 32
Depreciation, depletion and amortization 120 115 252 206
Restructuring charges 2 4 3 5
Finance charges, net 62 58 120 103
Income tax expense 3 25 (9) 48
Minority interest (3) 0 (6) 0
- ------------------------------------------------------------------------------------------------------
366 352 736 629
- ------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FOR THE PERIOD $ (55) $ (10) $ (102) $ 2
======================================================================================================
RETAINED EARNINGS
BALANCE, BEGINNING OF PERIOD $ 127 $ 6 $ 181 $ 0
Earnings (loss) for the period (55) (10) (102) 2
Dividends declared on preference shares (8) (5) (15) (11)
- ------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 64 $ (9) $ 64 $ (9)
======================================================================================================
PER SHARE INFORMATION
EARNINGS (LOSS) (dollars per share) $(0.18) $(0.06) $(0.34) $(0.03)
======================================================================================================
Certain amounts for 1997 have been reclassified to conform with the presentation adopted for 1998.
Earnings (loss) per share is after deduction of senior preference share dividends (but does not
include the special dividends for payment of arrears which have been charged to contributed surplus).
This per share amount was calculated based upon the following:
Ordinary shares outstanding during the period (millions):
Average 348.8 268.8 347.9 266.7
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
4
<PAGE>
GULF CANADA RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
(millions of Canadian dollars)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
EARNINGS (LOSS) FOR THE PERIOD $ (55) $ (10) $(102) $ 2
NON-CASH ITEMS INCLUDED IN EARNINGS (LOSS):
Depreciation, depletion and amortization 120 115 252 206
Net gain on asset disposals (17) (41) (22) (48)
Amortization of deferred foreign exchange losses 12 3 17 6
Exploration expense 33 30 76 51
Deferred income taxes (5) 13 (23) 27
Other (5) (4) (10) 2
- -----------------------------------------------------------------------------------------------------------------
CASH GENERATED FROM OPERATIONS 83 106 188 246
Other long-term liabilities (7) (9) (6) (7)
Changes in non-cash working capital 40 15 (28) 55
Other, net 1 0 (2) 1
- -----------------------------------------------------------------------------------------------------------------
117 112 152 295
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds on asset disposals 512 55 587 73
Acquisitions (39) (7) (55) (1,066)
Capital expenditures and exploration expenses (196) (307) (461) (551)
Changes in non-cash working capital (9) (148) (6) (15)
Other, net (1) 5 (10) 72
- -----------------------------------------------------------------------------------------------------------------
267 (402) 55 (1,487)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term loans (78) 175 (27) 791
Proceeds from issue of long-term debt 49 122 146 429
Long-term debt repayments (367) (260) (377) (260)
Issue of equity 1 5 58 240
Regular dividends declared on preference shares (8) (5) (15) (11)
Special dividends declared on preference shares 0 (4) 0 (7)
Other 0 0 0 1
- ------------------------------------------------------------------------------------------------------------------
(403) 33 (215) 1,183
- ------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (19) (257) (8) (9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 199 301 188 53
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 180 44 180 44
- ------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are in integral part of this statement.
</TABLE>
5
<PAGE>
GULF CANADA RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair statement of the results
for the interim periods presented. The interim financial information and
notes thereto should be read in conjunction with the Company's latest
annual report to the shareholders. The unaudited financial statements
contained herein are prepared in accordance with Canadian generally
accepted accounting principles. The results of operations for the three-
month and six-month periods ended June 30, 1998 are not necessarily
indicative of results to be expected for the entire year.
2. CONTINGENCIES AND OTHER MATTERS
As part of Gulf's upstream operations and as a result of certain
discontinued downstream operations, Gulf has ongoing site restoration
and remediation responsibilities. Site restoration costs within upstream
operations involve the surface clean-up and reclamation of wellsites and
field production facilities to ensure that they can be safely returned
to appropriate alternative land uses. In addition, over the long-term,
certain plant facilities will require decommissioning which will involve
dismantling of facilities as well as the decontamination and reclamation
of these lands. Gulf has accrued $173 million ($34 million as current)
for future upstream site restoration costs and continues to accrue these
costs on a consistent basis.
There have been no other significant subsequent developments relating to
the downstream potential liabilities since year-end, and as such the
estimated costs and associated accrual have not changed materially since
year-end.
Gulf is involved in various litigation, regulatory and other
environmental matters in the ordinary course of business. In
management's opinion, an adverse resolution of these matters would not
have a material impact on operations or financial position.
6
<PAGE>
3. DIVESTITURES
Effective May 15, 1998, the Company completed the sale of its U.K. North
Sea assets for net cash proceeds of approximately $450 million after
reflection of the purchaser's assumption of $110 million of debt and other
closing adjustments.
4. RECLASSIFICATIONS
Certain amounts for 1997 have been reclassified to conform with the
presentation adopted for 1998.
5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("U.S. GAAP") AND ADDITIONAL DISCLOSURES REQUIRED BY
U.S. GAAP
If U.S. GAAP had been followed, the earnings (loss) and loss per
ordinary share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------------------
(MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
EARNINGS (LOSS) FOR THE PERIOD, as reported $ (55) $ (10) $ (102) $ 2
Adjustments:
Interest rate swap (b) (3) (2) (5) (4)
New asset values (a)(i) 8 (12) (50) (20)
Foreign exchange (c) (49) 4 (29) (4)
Restructuring charges (e) 0 0 (7) 0
Income tax (expense) recovery 57 6 102 (10)
------ ------ ------ ------
LOSS, as adjusted (42) (14) (91) (36)
Cumulative dividends on senior preference shares (8) (5) (15) (11)
------ ------ ------ ------
LOSS TO ORDINARY SHAREHOLDERS $ (50) $ (19) $ (106) $ (47)
====== ====== ====== ======
PER ORDINARY SHARE, as adjusted (DOLLARS) (DOLLARS)
- Loss $(0.14) $(0.04) $(0.30) $(0.15)
</TABLE>
7
<PAGE>
If U.S. GAAP were followed, amounts on the Consolidated Statements of
Financial Position would be increased (decreased) as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------------------------------------
(MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS)
<S> <C> <C>
ASSETS
Accounts receivable (b) $ 4 $ 2
Current deferred income taxes (a) (ii) 5 6
Investments, deferred charges and other assets (b)(c) 32 61
Property, plant and equipment (a) (i) 1,110 1,313
------- -------
$ 1,151 $ 1,382
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of other long-term liabilities (b) $ (12) $ (12)
Other current liabilities (a)(i)(b) 10 (1)
Long-term debt (b) 200 200
Other long-term liabilities (b) (d) (e) (f) 41 39
Deferred income taxes (a) (i) (ii) (b) (c) (f) 1,119 1,374
Share capital, ordinary shares (a) (i) (89) (89)
Deficit (118) (129)
------- -------
$ 1,151 $ 1,382
======= =======
</TABLE>
The financial statements have been prepared in accordance with
accounting principles generally accepted in Canada which, in the case of
Gulf, conform in all material respects with those in the United States
except that:
(a) The financial statements would reflect the following effects of adopting
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109).
(i) SFAS 109 requires a restatement, to pre-tax amounts, of the new asset
values reflected in the accounts in connection with the change of
control in 1986 of Gulf Canada Limited and the acquisition of new
subsidiaries. This restatement, along with differences between the tax
bases and recorded amounts of other asset transfers, would result in
property, plant and equipment (PP&E) and deferred income taxes both
being $1,110 million higher than under Canadian generally accepted
accounting principles ("Canadian GAAP") at June 30, 1998 (December 31,
1997 - $1,313 million). These differences are amortized to earnings
over the lives of the related assets or adjusted as assets are sold or
otherwise disposed. The application of previous accounting standards
at the time of the change in control results in ordinary share capital
being lower by $89 million.
8
<PAGE>
(ii) Measurement and presentation of deferred income taxes according to
SFAS 109 would result in recording current and non-current deferred
tax assets and liabilities, for a net increase in the deferred tax
liability of $85 million at June 30, 1998 (December 31, 1997 - a net
increase of $94 million).
(b) A special purpose entity has $200 million 11 per cent public debentures
issued and outstanding which mature on October 31, 2000, and assets
consisting of a $200 million oil indexed debenture maturing on October 31,
2000 and an interest rate swap. These are not included in Gulf's statement
of financial position, but under U.S. GAAP would have been included in
long-term debt and investments and other assets, respectively. Earnings
include amortization of a provision for losses on a related swap agreement
of $5 million ($3 million after tax) for the six months ended June 30, 1998
and $4 million ($2 million after tax) for the six months ended June 30,
1997.
(c) Unrealized gains or losses arising on translation of long-term liabilities
repayable in foreign funds would be included in earnings in the period in
which they arise under U.S. GAAP. The balances of such deferred losses were
$168 million at June 30, 1998 and $139 million at December 31, 1997.
(d) Under U.S. GAAP, the costs of providing all forms of post-retirement
benefits to employees would be recognized during the active service lives
of the employees rather than expensed as incurred. The accumulated post-
retirement benefit obligation at June 30, 1998 is estimated to be $44
million ($25 million after tax) using a discount rate of 7.5 per cent.
There is no material difference between the net period service cost under
U.S. GAAP and the pay-as-you-go amount under Canadian GAAP for the three-
month and six-month periods ended June 30, 1998 and 1997.
(e) Under U.S. GAAP a liability for non-contractual involuntary employee
termination benefits is not incurred until the terms of the termination are
communicated to the affected individual employees. Under Canadian GAAP, the
liability is recorded when the Company made the termination decision. As
such, under U.S. GAAP, the liability is recorded prior to employees being
notified is reversed and recognized in the year of notification.
(f) Under U.S. GAAP, as at June 30, 1998 and December 31, 1997, an additional
minimum pension liability of $8 million ($4 million after tax) must be
accrued for the deficit between the market value of the Company's pension
plan assets and its accumulated benefit obligations.
9
<PAGE>
CHANGES IN U. S. ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board released Statement
No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement No. 131 (SFAS
131), "Disclosure about Segments of an Enterprise and Related Information". Both
statements become effective for fiscal years beginning after December 15, 1997
with early adoption permitted. SFAS 130 established standards for reporting and
display of certain components of changes in equity that arise from non-owner
sources. SFAS 131 establishes standards for reporting information about
operating segments and related disclosures. Neither section addresses issues of
recognition or measurement in the financial statements, and their adoption is
not expected to have any effect on the results of operations or financial
position of the Company.
In March 1998, the Financial Accounting Standards Board issued Statement
No. 132 (SFAS 132), Employers' Disclosures about Pensions and Other
Postretirement Benefits, which is effective for fiscal years beginning after
December 15, 1997. This statement revises employers' disclosures about pension
and other postretirement benefit plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefits
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when SFAS No. 87 and No. 88 were issued. Gulf will provide these
disclosures at December 31, 1998.
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). All
statements other than statements of historical facts included in this
document, including without limitation, statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding Gulf's financial position, estimated quantities and net present
values of reserves, business strategy, plans and objectives of management of
Gulf for future operations and covenant compliance, are forward-looking
statements. Although Gulf believes that the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurances
that such assumptions will prove to have been correct. Important factors that
could cause actual results to differ materially from Gulf's expectations
("Cautionary Statements") are disclosed below and elsewhere in this document.
All subsequent written and oral forward-looking statements attributable to
Gulf or persons acting on its behalf are expressly qualified by the Cautionary
Statements.
FINANCIAL REVIEW
The following discussion and analysis has been prepared based upon the
financial results of operations as presented in this document, which were
prepared in accordance with Canadian generally accepted accounting principles.
Refer to Note 5 for differences between Canadian and U.S. generally accepted
accounting principles. All dollar amounts set forth herein are in Canadian
dollars, except where otherwise indicated.
Gulf follows the successful efforts method of accounting for oil and gas
exploration and development costs. The initial acquisition costs of oil and
gas properties and the costs of drilling and equipping successful exploratory
wells are capitalized. The costs of unsuccessful exploration wells are charged
to earnings. All other exploration costs are charged to earnings as incurred.
All development costs, including the costs of liquid injectants used in
enhanced oil recovery projects, are capitalized. Maintenance and repairs are
charged to earnings; renewals and betterments, which extend the economic life
of the assets, are capitalized. Capitalized costs of proved oil and gas
properties are amortized using the unit-of-production method based on
estimated proved oil and gas reserves. Depreciation of plant and equipment is
based on estimated remaining useful lives of the assets using either the
straight-line method or the unit-of-production method based on estimated
proved oil and gas reserves. Individually insignificant unproved properties
are amortized on a group basis at rates determined after considering past
experience and lease terms. As changes in circumstances warrant, the net
carrying values of proved properties, plant and equipment are assessed to
ensure that they do not exceed future cash flows from use. Capitalized costs
of significant unproved properties are also assessed regularly to determine
whether an impairment in value has occurred.
Gulf's revenues, cash flow, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas. Prices for oil
and gas are subject to wide fluctuations in response to relatively minor
changes in supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond the control of Gulf.
CASH GENERATED FROM OPERATIONS & EARNINGS (LOSS)
Gulf's net oil and gas revenues for the six months ended June 30, 1998 were
$538 million, down $10 million from revenues of $548 million for the first
half of 1997. Second quarter 1998 revenues of $256 million were $34 million
lower than the same period in 1997. The revenue decreases reflect the impact
of significantly lower 1998 liquids prices which more than offset volume
improvements. Daily production volumes increased by 12.9 mboe/d during the
second quarter of 1998 compared to the same period last year and 25.1 mboe/d
on a year to date basis. Volumes in both 1998 periods benefited from the third
quarter 1997 acquisition of Stampeder Exploration Ltd. but were partially
offset by volume declines in Western Canada as a result of natural declines,
asset divestitures and gas processing plant turnarounds. Price declines were
mitigated somewhat by Gulf's commodity hedging program which increased
revenues by $25 million in the first half of 1998, compared with a net loss of
$31 million on hedging activities for the same period in 1997. There was a $15
million net improvement quarter over quarter.
11
<PAGE>
The average realized liquids price for the first half of the year decreased 29
per cent from $25.37 per barrel in the first half of 1997 to $18.02 per barrel
in 1998. The Company's average realized liquids price for the second quarter
of 1998 was $17.36 per barrel, down $7.44 per barrel over the same period in
1997. Natural gas prices remained strong with the Company realizing an average
price of $2.17 per mcf for gas in the first half of 1998 compared to $1.99 per
mcf during the same period in 1997. Second quarter natural gas prices were
also improved over 1997 with the Company realizing an improvement of $0.14 per
mcf quarter over quarter.
Gulf's cash generation decreased to $188 million for the first six months of
1998, a $58 million decrease over the same period last year. Cash generated by
operating activities in the second quarter of 1998 was $83 million compared
with $106 million in the same period of 1997. Lower 1998 second quarter
operating and G&A costs on a boe basis, coupled with lower cash financing
charges for the quarter did not compensate for the impact of the lower prices.
On a segmented basis, North America conventional oil and gas operations
generated $174 million of cash for the first six months of 1998 versus $236
million the year before, while Gulf's Syncrude interest generated $20 million,
down from $33 million for the first half of 1997. Gulf's heavy oil division
and Surmont required a cash outlay of $12 million, as operating costs exceeded
revenues as a result of depressed heavy oil market prices. In Indonesia, six-
month cash generation decreased by $19 million to $40 million as lower crude
oil market prices offset the impact of lower Indonesian royalties. Cash
generated from Gulf's North Sea operations for the first half of 1998 included
$38 million from the United Kingdom and $44 million from the Netherlands
compared to $48 million and $30 million, respectively, in 1997. Cash
generation from other international operations was $11 million versus $10
million in 1997. The corporate segment, which includes general and
administrative charges, hedging, gains and losses on asset disposals, and
taxes, required cash of $127 million during the first six months of 1998
compared to $170 million in 1997.
The Company incurred a loss of $102 million during the first six months of
1998 compared with earnings of $2 million during the first half of 1997.
Higher oil and gas production was offset by a sharp decline in oil prices,
higher depreciation, depletion and amortization expense associated with the
increased production, high exploration costs, and lower net gains on asset
sales. The above factors also contributed to a net loss of $55 million in the
second quarter of 1998 compared with a net loss of $10 million in the second
quarter of last year.
During the second quarter of 1998 the Company recognized a gain on the sale of
two oil sands leases and a gain on the sale of its U.K. subsidiary. Other
revenues and other operating expenses increased in 1998 over 1997 reflecting
significantly increased activity in Gulf's contract drilling services.
Production costs for the first six months of 1998 were $213 million, compared
to $179 million for the same period in 1997, reflecting the costs associated
with Stampeder production and increased workover and plant turnaround projects
in Western Canada. Quarter over quarter production costs increased $3 million
but decreased on a unit of production basis from $6.57 per boe to $6.37 per
boe. Exploration expenses increased by $25 million to $76 million for the
first half of 1998 primarily due to dry hole costs associated with higher
onshore and offshore exploration activity in Indonesia.
General and administrative expenses in the first six months of 1998 increased
$6 million from a year ago. These costs are mainly attributable to increased
building rentals and the foreign exchange on payments.
Depreciation, depletion and amortization (DD&A) charges rose from $206 million
in 1997 to $252 million in 1998. For the quarter, DD&A rose from $115 million
in 1997 to $120 million in 1998.
Finance charges for the first half of 1998 were $120 million, up $17 million
from the first six months of 1997 due mainly to additional interest expense on
long-term debt associated with acquisitions and the amorization of translation
losses on U.S. dollar denominated debt. On a quarterly basis, net finance
charges increased by $4 million between periods at $62 million in 1998 versus
$58 million in 1997.
Volume and price information for the Company's 1998 and 1997 second quarter
and first six months oil and gas production is summarized in the following
table:
12
<PAGE>
SUPPLEMENTARY INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
====================================================================================================================================
<S> <C> <C> <C> <C>
VOLUMES SOLD /(1)/ (gross/net)
Crude oil and natural gas liquids (thousands of barrels per day)
North America
- Conventional light crude oil 35.3 / 30.4 36.7 / 30.0 37.1 / 31.3 39.8 / 32.3
- Conventional heavy crude oil 18.2 / 16.5 0.0 / 0.0 18.5 / 16.8 0.0 / 0.0
- Synthetic crude oil 21.0 / 21.0 15.8 / 17.2 18.6 / 18.6 16.3 / 16.0
- Condensate 6.0 / 4.2 5.0 / 3.2 6.1 / 4.3 5.5 / 3.7
- Other natural gas liquids 9.8 / 7.4 8.8 / 6.9 10.7 / 8.4 10.1 / 8.3
- ------------------------------------------------------------------------------------------------------------------------------------
90.3 / 79.5 66.3 / 57.3 91.0 / 79.4 71.7 / 60.3
- ------------------------------------------------------------------------------------------------------------------------------------
International
- Indonesia 19.6 / 16.0 25.6 / 18.6 20.3 / 16.7 21.6 / 15.6
- United Kingdom 9.8 / 9.2 18.9 / 18.2 14.5 / 13.7 14.0 / 13.3
- Other 4.5 / 4.5 2.0 / 1.9 3.6 / 3.5 1.4 / 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
33.9 / 29.7 46.5 / 38.7 38.4 / 33.9 37.0 / 30.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total liquids 124.2 / 109.2 112.8 / 96.0 129.4 / 113.3 108.7 / 90.5
====================================================================================================================================
Natural gas (millions of cubic feet per day)
- North America 380 / 316 377 / 300 384 / 311 390 / 319
- Netherlands 68 / 67 70 / 69 74 / 73 53 / 52
- Other international 34 / 33 25 / 22 27 / 26 18 / 16
- ------------------------------------------------------------------------------------------------------------------------------------
Total natural gas 482 / 416 472 / 391 485 / 410 461 / 387
====================================================================================================================================
Total barrels of oil equivalent per day/(2)/ 179.2 157.5 166.3 141.2 184.6 160.9 159.5 133.7
====================================================================================================================================
</TABLE>
(1) "Gross" sales include royalties; "net" sales are after royalties. Volumes
exclude:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- NGL re-injection requirements (3.6) (4.2) (3.3) (4.3)
-inventory drawdown/(build-up) (0.9) (2.3) 0.0 (1.0)
</TABLE>
(2) Canadian gas converted @ 10:1, North Sea and other international @ 6:1
<TABLE>
<CAPTION>
GROSS AVERAGE PRICES
<S> <C> <C> <C> <C>
Crude oil and natural gas liquids (dollars per barrel)
North America
- Conventional light crude oil 17.91 25.26 18.77 27.21
- Conventional heavy crude oil 7.76 0.00 6.87 0.00
- Synthetic crude oil 20.43 27.15 20.85 28.68
- Condensate 20.22 27.55 22.80 29.25
- Other natural gas liquids 10.24 17.52 12.32 20.36
International
- Indonesia 18.35 26.70 18.75 26.98
- United Kingdom 17.17 24.53 17.96 23.46
- Other international 21.58 28.47 19.73 29.16
Average - unhedged 16.56 25.29 16.96 26.40
- hedged 17.36 24.80 18.02 25.37
Natural gas (dollars per thousand cubic feet)
North America - unhedged 1.90 1.61 1.92 1.92
- hedged 1.90 1.64 1.92 1.76
International 2.86 3.23 3.11 3.24
Average - unhedged 2.10 1.94 2.17 2.12
- hedged 2.10 1.96 2.17 1.99
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE EXCHANGE RATES (Cdn$1) US$ 0.691 US$ 0.721 US$ 0.695 US$ 0.729
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
NET CASH FLOW AND FINANCIAL POSITION
The Company received $587 million in net proceeds from asset sales during the
first six months of 1998 compared with $73 million during the same period in
1997. Effective May 15, 1998 the Company completed the sale of its U.K. North
Sea assets for net cash proceeds of approximately $450 million after reflection
of the purchaser's assumption of $110 million of debt and other closing
adjustments.
Capital expenditures and exploration expenses were $461 million for the first
half of 1998. Western Canada conventional accounted for $211 million. In
addition, Gulf spent $33 million on Syncrude and Surmont, $135 million in
Indonesia and $82 million on other international projects during the first six
months of 1998. Gulf's total capital cost for the Corridor Block Gas Project is
expected to be US$374 million, of which US$324 million has been spent at June
30, 1998. At June 30, 1998, the Company had drawn US$213 million from the
Corridor Facility, including US$23 million during the second quarter.
During 1998 the Company paid down short and long-term debt of $258 million. In
addition, debt was further reduced by $110 million when such debt was assumed by
the purchaser of the Company's U.K. assets. Of the $146 million of long-term
debt issued during 1998, $90 million related to the financing of the Corridor
project. As at June 30, 1998 the Canadian dollar equivalent of Gulf's U.S.
dollar-denominated debt had increased by $59 million since December 31, 1997 as
a result of the decline in value of the Canadian dollar.
At June 30, 1998 the Company's total forward sales of U.S. dollars for the
remainder of this year were US$196 million at an average rate of US$0.70.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
All holders of Ordinary Shares of the Corporation at the close of business on
March 12, 1998 received a copy of the Management Proxy Circular regarding the
following matters voted on at the annual and special meeting of shareholders
held on April 29, 1998:
1. The election as director of all twelve nominees as listed below:
Name For Withheld
- ---- --- --------
R. H. Allen 139,559,914 1,410,204
R. H. Auchinleck 139,559,382 1,410,736
S. H. Hartt 139,560,248 1,409,870
S. H. Hefner, Jr. 139,562,189 1,407,929
H. E. Joudrie 139,548,869 1,421,249
T. M. Long 139,562,936 1,407,182
D. F. Mazankowski 139,554,310 1,415,808
A. H. Michell 139,558,610 1,411,508
H. M. Neldner 139,560,693 1,409,425
W. O'Donoghue 139,561,809 1,408,309
R. N. Robertson 139,560,208 1,409,910
M. Sabia 139,548,521 1,421,597
2. The appointment of Ernst & Young as auditors, with remuneration to be
fixed by the directors.
For: 139,316,411 Withheld: 1,653,707
3. The ratification of the Shareholder Rights Plan as described in the
Management Proxy Circular.
For: 25,839,899 Restricted, but in favour (see Note): 31,071,958
Against: 23,604,091 Not Voted: 60,454,170
No other matters were brought up at the meeting.
15
<PAGE>
Note: Please note that under the TSE rules and terms of the Plan adopted
pursuant to the TSE rules, the Rights and the Rights Agreement are required to
be ratified by a majority of the votes cast at the Meeting and by a majority of
the votes cast by Independent Shareholders at the Meeting. Under the ME rules,
AGRC and the Participants were not entitled to vote on this matter.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are filed with this Form 10-Q and they are identified by
the number indicated.
Exhibit
- -------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession*
(3) Articles of Incorporation and By-laws
3.1 Articles of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 of the Company's 10-Q filed for quarter ended June 30, 1997,
filed August 14, 1997)
3.2 By-laws of the Registrant (incorporated by reference to Exhibit 3.1 of
the Company's 10-Q filed for quarter ended June 30, 1997, filed August 14,
1997)
(4) Instruments defining rights of security holders, including indentures
4.1 Indenture between the Registrant and Chase Manhattan Bank dated July
1, 1989 pertaining to the Registrant's 9% Debentures due 1999 (incorporated
herein by reference to the Registrant's Registration Statement on Form F-
10, Reg. No. 33- 30138)
4.2 Indenture between the Registrant and The Bank of New York dated
January 27, 1994 pertaining to the Registrant's 9-1/4% Senior Subordinated
Debentures due 2004 (incorporated herein by reference to the Registrant's
Registration Statement on Form F-10, Reg. No. 33- 73252)
4.3 Indenture between the Registrant and The Bank of New York dated July
5, 1995 pertaining to the Registrant's 9-5/8% Senior Subordinated
Debentures due 2005 (incorporated herein by reference to the Registrant's
Registration Statement on Form F-10, Reg. No. 33-93452)
4.4 Indenture between the Registrant and The Bank of New York dated August
7, 1996 pertaining to the Registrant's 8.35% Senior Notes due 2006
(incorporated herein by reference to the Registrant's Registration
Statement on Form F-10, Reg. No. 333-5332)
4.5 Indenture between the Registrant and The Bank of New York dated March
21, 1997 pertaining to the Registrant's 8-1/4% Senior Notes due 2017
(incorporated herein by reference to the Registrant's Registration
Statement on Form F-10, Reg. No. 333-6608)
4.6 Incentive Stock Plan 1994 (incorporated by reference to Exhibit 10.3
to the Company's Form 10-Q for the quarter ended June 30, 1997, filed
August 14, 1997)
16
<PAGE>
(10) Material Contracts
10.1 Loan Agreement dated July 18, 1997 with a syndicate of banks
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for
the quarter ended June 30, 1997, filed August 14, 1997)
10.2 Amendment to Employment Agreement with Mr. Auchinleck
10.3 Amendment to Employment Agreement with Mr. Glick
10.4 Amendment to Employment Agreement with Mr. Feuchuk
10.5 Shareholder Rights Plan dated as of February 19, 1998 between the
Registrant and Montreal Trust Company of Canada (incorporated herein by
reference to Exhibit 1 to the Registrant's Form 8-A filed in March 11,
1998)
(27) Financial Data Schedule
_________________________________
*Inapplicable to this filing
b. Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF CANADA RESOURCES LIMITED
DATE: AUGUST 14, 1998 BY: /s/ CRAIG GLICK
CRAIG GLICK
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY (DULY AUTHORIZED OFFICER AND
PRINCIPLE FINANCIAL OFFICER)
17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Loan Agreement dated July 18, 1997 with a syndicate of banks
(incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended June 30, 1997, filed August
14, 1997)
10.2 Amendment to Employment Agreement with Mr. Auchinleck
10.3 Amendment to Employment Agreement with Mr. Glick
10.4 Amendment to Employment Agreement with Mr. Feuchuk
10.5 Shareholder Rights Plan dated as of February 19, 1998 between
the Registrant and Montreal Trust Company of Canada
(incorporated herein by reference to Exhibit 1 to the
Registrant's Form 8-A filed in March 11, 1998)
27 Financial Data Schedule
18
<PAGE>
EXHIBIT 10.2
AMENDING AGREEMENT
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
RICHARD H. AUCHINLECK
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of February 7, 1996 to reflect the changes to such contract deriving
from the relocation of the Executive to the Corporation's executive offices in
Denver, Colorado;
WHEREAS the Compensation Committee of the Board of the Corporation
recommended amendment to this agreement at a meeting on February 19, 1998;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, it is hereby agreed as follows:
1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2)
years".
2. The following is added as Section 2.9 to the Executive Employment
Contract:
2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
In the event the Executive receives a payment or distribution
pursuant to Section 2.6(c) which is determined to be an "excess
parachute payment" within the meaning of Sections 4999 and 280G of
the Internal Revenue Code (the "Code") and subject to tax under Code
Section 4999 ("Excess Parachute Tax"), the following provisions
shall apply:
(a) Notwithstanding anything in this Agreement, if (A) the Company makes
a payment or distribution to or for the benefit of the Executive
pursuant to Section 2.6(c) (a "Payment"), and (B) the Payment is
determined under the procedures provided in Section 2.9(b) to be an
"excess parachute payment" within the meaning of Code Sections 4999
and 280G, subject to the Parachute Tax to any extent, the Executive
shall be entitled to receive an additional payment ("the Gross-up
Payment"). The Gross-up Payment shall be in an amount such that
after payment by the Executive of the Excess Parachute Tax
(including any interest or penalties imposed with respect to such
tax) on the Payment, and all federal, state and local income taxes,
employment taxes and Excess Parachute Tax (including any interest or
penalties imposed with respect to such taxes) on the Gross-up
Payment, the Executive retains an amount equal to the Payment that
the Executive would have had if the Payment had not given rise to
any Excess Parachute Tax.
<PAGE>
(b) Subject to the provisions of Section 2.9(c), all determinations of amounts
required to be made under this Section 2.9, including whether and when a
Gross-up Payment is required, shall be made by the Company's external
auditors (the "Accounting Firm"). The parties shall direct that within 15
days of a request the Accounting Firm shall provide a written opinion
setting forth its detailed supporting calculations to both the Company and
the Executive. If payment is due to the Executive, the Company shall make
such payment within five days of the delivery of the Accounting Firm's
written opinion. The Accounting Firm's opinion shall be binding on the
parties. The Accounting Firm's fees shall be paid by the Company.
(c) The Executive shall timely notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-up Payment. The Executive's notification shall
include a statement of the nature of the claim and the date on which such
claim is requested to be paid. The Executive shall not pay the claim until
it receives written notification from the Company stating whether the
Company desires to contest such claim. Written notice of the Company's
proposed course of action with respect to the claim shall be given no later
than 5 days prior to the date on which the claim is requested to be paid.
If the Company notifies the Executive that it desires to contest such claim,
the Executive shall cooperate with the Company in good faith in order to
effectively contest such claim. The Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excess Parachute Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. The Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund, or contest the claim in any
permissible manner, and in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive (the "Gross-up Payment Advance"). The Company's control of the
contest shall be limited to issues with respect to which a Gross-up Payment
would be payable, and the Executive shall be entitled to settle or contest,
as the case may be, any other issues raised by the Internal Revenue Service
or any other taxing authority.
(d) As a result of the uncertainty in the application of Code Section 4999 at
the time of the initial determination by the Accounting Firm, it is possible
that the Gross-up Payment may be under or over paid. In the event the
Company exhausts its remedies pursuant to Section 2.9(c) and the Executive
is required to make a payment of any Excess Parachute Tax in excess of the
Gross-up Payment, (an "Underpayment"), the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive. If, after the Executive receives either a Gross-up Payment or a
Gross-up Payment Advance, the Executive becomes entitled to receive any
refund with respect to such Gross-up Payment or Gross-up Payment Advance,
(an "Overpayment"), the Executive shall promptly pay to the Company the
amount of the Overpayment (together with any interest paid or credited
thereon after taxes applicable thereto).
<PAGE>
3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A-
1", a copy of which is attached hereto.
4. Section 2.1 of the Executive Employment Contract is amended by deleting
the words "by the Chief Executive Officer and" in the second lines of
subsections (a) and subsections (b). Section 2.1(b) is further amended
by deleting the words "Senior Vice-President, Exploration and
International" and replacing it with "Chief Executive Officer".
In Witness Whereof the parties hereto have duly executed and delivered
this Amending Agreement.
GULF CANADA RESOURCES LIMITED
/s/ Craig S. Glick
--------------------------------
/s/ Lynne Walker
--------------------------------
/s/ Lana A. Burrell /s/ Richard H. Auchinleck
- ------------------- --------------------------------
Witness RICHARD H. AUCHINLECK
<PAGE>
AMENDING AGREEMENT
EXHIBIT 10.3
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
CRAIG S. GLICK
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of February 7, 1996 to reflect the changes to such contract deriving
from the relocation of the Executive to the Corporation's executive offices in
Denver, Colorado;
WHEREAS the Compensation Committee of the Board of the Corporation
recommended amendment to this agreement at a meeting on February 19, 1998;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, it is hereby agreed as follows:
1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2)
years".
2. The following is added as Section 2.9 to the Executive Employment
Contract:
2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
In the event the Executive receives a payment or distribution
pursuant to Section 2.6(c) which is determined to be an "excess
parachute payment" within the meaning of Sections 4999 and 280G of
the Internal Revenue Code (the "Code") and subject to tax under Code
Section 4999 ("Excess Parachute Tax"), the following provisions
shall apply:
(a) Notwithstanding anything in this Agreement, if (A) the Company
makes a payment or distribution to or for the benefit of the
Executive pursuant to Section 2.6(c) (a "Payment"), and (B) the
Payment is determined under the procedures provided in Section
2.9(b) to be an "excess parachute payment" within the meaning of
Code Sections 4999 and 280G, subject to the Parachute Tax to any
extent, the Executive shall be entitled to receive an additional
payment ("the Gross-up Payment"). The Gross-up Payment shall be in
an amount such that after payment by the Executive of the Excess
Parachute Tax (including any interest or penalties imposed with
respect to such tax) on the Payment, and all federal, state and
local income taxes, employment taxes and Excess Parachute Tax
(including any interest or penalties imposed with respect to such
taxes) on the Gross-up Payment, the Executive retains an amount
equal to the Payment that the Executive would have had if the
Payment had not given rise to any Excess Parachute Tax.
<PAGE>
(b) Subject to the provisions of Section 2.9(c), all determinations of amounts
required to be made under this Section 2.9, including whether and when a
Gross-up Payment is required, shall be made by the Company's external
auditors (the "Accounting Firm"). The parties shall direct that within 15
days of a request the Accounting Firm shall provide a written opinion
setting forth its detailed supporting calculations to both the Company and
the Executive. If payment is due to the Executive, the Company shall make
such payment within five days of the delivery of the Accounting Firm's
written opinion. The Accounting Firm's opinion shall be binding on the
parties. The Accounting Firm's fees shall be paid by the Company.
(c) The Executive shall timely notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. The Executive's notification shall
include a statement of the nature of the claim and the date on which such
claim is requested to be paid. The Executive shall not pay the claim until
it receives written notification from the Company stating whether the
Company desires to contest such claim. Written notice of the Company's
proposed course of action with respect to the claim shall be given no later
than 5 days prior to the date on which the claim is requested to be paid. If
the Company notifies the Executive that it desires to contest such claim,
the Executive shall cooperate with the Company in good faith in order to
effectively contest such claim. The Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excess Parachute Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. The Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund, or contest the claim in any
permissible manner, and in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive (the "Gross-up Payment Advance"). The Company's control of the
contest shall be limited to issues with respect to which a Gross-up Payment
would be payable, and the Executive shall be entitled to settle or contest,
as the case may be, any other issues raised by the Internal Revenue Service
or any other taxing authority.
(d) As a result of the uncertainty in the application of Code Section 4999 at
the time of the initial determination by the Accounting Firm, it is possible
that the Gross-up Payment may be under or over paid. In the event the
Company exhausts its remedies pursuant to Section 2.9(c) and the Executive
is required to make a payment of any Excess Parachute Tax in excess of the
Gross-up Payment, (an "Underpayment"), the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive. If, after the Executive receives either a Gross-up Payment or a
Gross-up Payment Advance, the Executive becomes entitled to receive any
refund with respect to such Gross-up Payment or Gross-up Payment Advance,
(an "Overpayment"), the Executive shall promptly pay to the Company the
amount of the Overpayment (together with any interest paid or credited
thereon after taxes applicable thereto).
<PAGE>
3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A-
1", a copy of which is attached hereto.
In Witness Whereof the parties hereto have duly executed and delivered this
Amending Agreement.
GULF CANADA RESOURCES LIMITED
/s/ Richard H. Auchinleck
------------------------------
/s/ Lynne Walker
------------------------------
/s/ Lana A. Burrell /s/ Craig S. Glick
- ------------------- ------------------------------
Witness CRAIG S. GLICK
<PAGE>
EXHIBIT 10.4
AMENDING AGREEMENT
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
DENNIS G. FEUCHUK
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of February 7, 1996 to reflect the changes to such contract deriving
from the relocation of the Executive to the Corporation's executive offices in
Denver, Colorado;
WHEREAS the Compensation Committee of the Board of the Corporation
recommended amendment to this agreement at a meeting on February 19, 1998;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, it is hereby agreed as follows:
1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2)
years".
2. The following is added as Section 2.9 to the Executive Employment
Contract:
2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
In the event the Executive receives a payment or distribution
pursuant to Section 2.6(c) which is determined to be an
"excess parachute payment" within the meaning of Sections 4999
and 280G of the Internal Revenue Code (the "Code") and subject
to tax under Code Section 4999 ("Excess Parachute Tax"), the
following provisions shall apply:
(a) Notwithstanding anything in this Agreement, if (A) the Company
makes a payment or distribution to or for the benefit of the
Executive pursuant to Section 2.6(c) (a "Payment"), and (B)
the Payment is determined under the procedures provided in
Section 2.9(b) to be an "excess parachute payment" within the
meaning of Code Sections 4999 and 280G, subject to the
Parachute Tax to any extent, the Executive shall be entitled
to receive an additional payment ("the Gross-up Payment"). The
Gross-up Payment shall be in an amount such that after payment
by the Executive of the Excess Parachute Tax (including any
interest or penalties imposed with respect to such tax) on the
Payment, and all federal, state and local income taxes,
employment taxes and Excess Parachute Tax (including any
interest or penalties imposed with respect to such taxes) on
the Gross-up Payment, the Executive retains an amount equal to
the Payment that the Executive would have had if the Payment
had not given rise to any Excess Parachute Tax.
<PAGE>
(b) Subject to the provisions of Section 2.9(c), all determinations of amounts
required to be made under this Section 2.9, including whether and when a
Gross-up Payment is required, shall be made by the Company's external
auditors (the "Accounting Firm"). The parties shall direct that within 15
days of a request the Accounting Firm shall provide a written opinion
setting forth its detailed supporting calculations to both the Company and
the Executive. If payment is due to the Executive, the Company shall make
such payment within five days of the delivery of the Accounting Firm's
written opinion. The Accounting Firm's opinion shall be binding on the
parties. The Accounting Firm's fees shall be paid by the Company.
(c) The Executive shall timely notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. The Executive's notification shall
include a statement of the nature of the claim and the date on which such
claim is requested to be paid. The Executive shall not pay the claim until
it receives written notification from the Company stating whether the
Company desires to contest such claim. Written notice of the Company's
proposed course of action with respect to the claim shall be given no later
than 5 days prior to the date on which the claim is requested to be paid. If
the Company notifies the Executive that it desires to contest such claim,
the Executive shall cooperate with the Company in good faith in order to
effectively contest such claim. The Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excess Parachute Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. The Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund, or contest the claim in any
permissible manner, and in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive (the "Gross-up Payment Advance"). The Company's control of the
contest shall be limited to issues with respect to which a Gross-up Payment
would be payable, and the Executive shall be entitled to settle or contest,
as the case may be, any other issues raised by the Internal Revenue Service
or any other taxing authority.
(d) As a result of the uncertainty in the application of Code Section 4999 at
the time of the initial determination by the Accounting Firm, it is possible
that the Gross-up Payment may be under or over paid. In the event the
Company exhausts its remedies pursuant to Section 2.9(c) and the Executive
is required to make a payment of any Excess Parachute Tax in excess of the
Gross-up Payment, (an "Underpayment"), the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive. If, after the Executive receives either a Gross-up Payment or a
Gross-up Payment Advance, the Executive becomes entitled to receive any
refund with respect to such Gross-up Payment or Gross-up Payment Advance,
(an "Overpayment"), the Executive shall promptly pay to the Company the
amount of the Overpayment (together with any interest paid or credited
thereon after taxes applicable thereto).
<PAGE>
3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A-
1", a copy of which is attached hereto.
In Witness Whereof the parties hereto have duly executed and delivered
this Amending Agreement.
GULF CANADA RESOURCES LIMITED
/s/ Craig S. Glick
------------------------------
/s/ Lynne Walker
------------------------------
/s/ Janice K. Synhorst /s/ Dennis G. Feuchuk
- ---------------------- ------------------------------
Witness DENNIS G. FEUCHUK
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 0.695
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 338
<ALLOWANCES> 0
<INVENTORY> 25
<CURRENT-ASSETS> 118
<PP&E> 7,256
<DEPRECIATION> 2,022
<TOTAL-ASSETS> 6,146
<CURRENT-LIABILITIES> 568
<BONDS> 2,531
0
577
<COMMON> 1,718
<OTHER-SE> 103
<TOTAL-LIABILITY-AND-EQUITY> 6,146
<SALES> 538
<TOTAL-REVENUES> 634
<CGS> 0
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