<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[x] For the fiscal year ended December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-9073
GULF CANADA RESOURCES LIMITED
(Exact name of Registrant as specified in its charter)
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<S> <C>
Canada 98-0086499
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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401, 9TH AVENUE S.W.
CALGARY, ALBERTA T2P 2H7, CANADA
(Address of head office)
Registrant's telephone number, including area code: (303) 813-3800
Securities registered pursuant to section 12(b) of the Act:
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Title of each class registered Name of each exchange on which registered
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Ordinary Shares (No Par Value) New York Stock Exchange
Preference Shares Series 1 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 26, 1999, the aggregate market value of the Registrant's
Ordinary Shares held by non-affiliates was approximately $1,046,850,132.
The number of shares outstanding of the Registrant's Ordinary Shares
as of March 26, 1999, was 348,950,044.
Documents Incorporated By Reference
Portions of the Registrant's proxy statement for 1999 Annual and
Special Meeting of Shareholders are incorporated by reference into Part III.
<PAGE> 2
EXPLANATORY NOTE
This Report on Form 10-K/A amends the Report on Form 10-K of Gulf Canada
Resources Limited filed with the Securities and Exchange Commission on March 31,
1999. Part II, Item 6 of the Form 10-K is hereby amended by deleting the table
entitled "Proved Reserves" in its entirety. Part II, Item 8 of the Form 10-K is
hereby amended by deleting the table entitled "Supplemental Information --
Reserves" in its entirety and inserting the table entitled "Proved Reserves"
deleted from Part II, Item 6. Part II, Item 8 of the Form 10-K is further
amended by deleting the Corporate Information provided on page 71 and the list
entitled "Gulf Canada Resources Limited Employees" in their entirety.
<PAGE> 3
CURRENCY AND EXCHANGE RATES
Gulf Canada publishes its consolidated financial statements in Canadian
dollars. All dollar amounts set forth in this Annual Report are in Canadian
dollars, except where otherwise indicated. The following table sets forth for
the periods indicated certain exchange rates based on the noon buying rate in
the City of New York for cable transfers in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"). Such rates are set forth as United States dollars per Cdn. $1.00 and are
the inverse of rates quoted by the Federal Reserve Bank of New York for Canadian
dollars per U.S. $1.00. On March 26, 1999, the Noon Buying Rate was Cdn. $1.00
equals U.S. $0.6607.
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YEARS ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
------------ ----------- ------------ ------------ ------------
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Noon Buying Rate at end of period.............. U.S.$0.6504 U.S.$0.6999 U.S.$0.7301 U.S.$0.7323 U.S.$0.7128
Average Noon Buying Rate during period......... $ 0.6740 $0.7220 $0.7332 $0.7305 $0.7300
Highest Noon Buying Rate during period......... $ 0.7105 $0.7487 $0.7513 $0.7527 $0.7632
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
UNLESS OTHERWISE STATED, ALL DOLLAR AMOUNTS HEREIN
ARE EXPRESSED IN CANADIAN CURRENCY
TABLE OF CONTENTS
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PART I
Page
Number
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Item 1. Business.............................................................................. 3
Item 2. Properties............................................................................ 13
Item 3. Legal Proceedings..................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................................... 16
PART II
Item 5. Market for the Registrant's Ordinary Shares and Related
Stockholder Matters............................................................... 16
Item 6. Selected Financial Data............................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 30
Item 8. Financial Statements and Supplementary Data........................................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................... 71
PART III
Item 10. Directors and Executive Officers of the Company....................................... 71
Item 11. Executive Compensation................................................................ 71
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................................ 71
Item 13. Certain Relationships and Related Transactions........................................ 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K............................................................................... 71
Signatures............................................................................ 74
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PART I
The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in Item 1. Business, Item 2. Properties, and Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements, as that term is defined in Section
21E of the Securities Exchange Act of 1934, as amended, that involve a number of
risks and uncertainties. The actual results of the future events described in
such forward-looking statements in this Annual Report could differ materially
from those stated in such forward-looking statements. Among the factors that
could cause actual results to differ materially are: fluctuations of the prices
received or demand for the Company's oil and natural gas, the uncertainty of
drilling results and reserve estimates, operating hazards, acquisition risks,
requirements for capital, general economic conditions, competition and
government regulations, as well as the risks and uncertainties discussed in this
Annual Report, including, without limitation, the portions referenced above, and
the uncertainties set forth from time to time in the Company's other public
reports, filings and statements. Certain risk factors which could affect the
information set forth herein are described under the caption "Risk Factors" in
Item 1.
ITEM 1. BUSINESS
Gulf Canada Resources Limited ("Gulf Canada" or the "Company") is a
Company organized under the Canada Business Corporation Act ("CBCA"). Gulf
Canada is one of Canada's largest independent producers of oil and natural gas,
with operations in Western Canada, where the Company has over 80
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years of experience in conventional oil and gas operations, and internationally
with operations in Indonesia (through Gulf Indonesia Resources Limited ("GRL")
of which Gulf Canada owns 72 per cent), the North Sea and Australia. Gulf
Canada's head office is located at 401-9th Avenue S.W., Calgary, Alberta, Canada
T2P 2H7.
In 1998, the Company completed the following significant transactions:
The sale of 50% of certain midstream assets to KeySpan Energy
Development Corporation for $290 million.
The sale of $0.9 billion of assets of which over 60 per cent
related to United Kingdom North Sea assets. Sales included proved
reserves of 68 million gross barrels (63 million barrels net) of
liquids and 294 gross bcf (253 bcf net) of natural gas. Proceeds were
used to repay indebtedness and to fund capital expenditures.
The completion of the Gulf Indonesia Resources Limited
operated Corridor Gas Project in Indonesia. The Corridor Gas Project
commenced operations in October, 1998 and accounted for approximately
79 mmcf/d of sales gas net to GRL (76 mmcf/d after royalty) in the
fourth quarter. Current production is 160 mmcf/d net to GRL.
After asset sales, Gulf Canada's estimated net proved oil and natural
gas reserves excluding Syncrude oil decreased 10.4% per cent from 662 mmboe on
December 31, 1997 to 593 mmboe on December 31, 1998, and average daily net
production was virtually flat at 160 MBOE/d (natural gas converted to boes at
6:1) in 1997 and 1998.
In early 1999, the Company finalized an agreement with Ensyn Group,
Inc. whereby, the Company will fund a Cdn$20 million bitumen and heavy oil
upgrading test program. In connection with the transaction, the Company acquired
a 28.5 per cent ownership interest in an Ensyn partnership that holds certain
marketing and royalty rights associated with the technology.
Also, the Company entered into an agreement with Mobil Canada related
to its 5.4 million-acre land holding near the French islands of St. Pierre and
Miquelon. Under the agreement, the Company's share of costs for additional
seismic and an initial exploration well will be paid for by Mobil Canada.
GENERAL.
Gulf Canada was founded in 1906, and operated as a fully integrated oil
company until 1986 when the Company sold its refining and marketing assets. In
1988, the Company acquired Asamera, Inc., a predecessor to Gulf Indonesia
Resources Limited, which has operations in Indonesia. During 1997, the Company
further expanded its international operations primarily by acquiring Clyde
Petroleum Plc, which had operations in the North Sea, Indonesia and Australia.
As well, the Company expanded its Western Canadian position with the acquisition
of Stampeder Exploration Limited in 1997. Gulf Canada is also a major producer
of heavy oil and produces Syncrude Sweet Blend ("SSB") through its interest in
Syncrude. SSB is a high quality, low sulphur, light crude oil.
The following table summarizes Gulf Canada's sales of production and
estimated proved reserves net of royalties as of and for the year ended December
31, 1998:
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AVERAGE DAILY ESTIMATED NET
NET SALES PROVED RESERVES
------------------------------------------ -----------------------------------------
LIQUIDS GAS LIQUIDS GAS
(MB) (MMCF) MBOE(3) (MMB) (BCF) MMBOE(3)
------------------------------------------ ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN
CONVENTIONAL (1):
Light oil & natural gas....... 43.3 311 95.1 138 978 301
Heavy Oil..................... 15.4 - 15.4 56 - 56
---- --- ----- --- --- ---
Total North American
Conventional............. 58.7 311 110.5 194 978 357
---- --- ----- --- --- ---
INTERNATIONAL:
Indonesia (2) 16.9 19 20.1 30 919 183
North Sea..................... 9.2 61 17.0 3 124 24
Australia..................... 4.9 20 8.2 10 92 25
Other......................... .8 3 3.7 - - -
---- --- ----- --- ---- ---
Total International........... 31.8 103 49.0 43 1135 232
---- --- ----- --- ---- ---
Total......................... 90.5 414 159.5 237 2113 589
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[FN]
(1) Excludes SSB production and reserves from oil sands.
(2) The reserves attributable to Indonesia are owned by GRL, a 72 per cent
owned subsidiary of Gulf Canada. The amount of reserves represent 100
per cent of the estimated net proved reserves owned by GRL.
(3) Boe converts natural gas at an oil equivalent of 6 mcf: 1 barrel.
</FN>
NORTH AMERICA
North American operations form the largest component of Gulf Canada's
diversified portfolio. The vision for North America is to grow from a solid
foundation of exploitation opportunities and expand through the development of
natural gas from west central Alberta, up the western border and eventually to
the MacKenzie Delta at Parsons Lake in the North.
During the year, property sales and acquisitions were used to balance
the portfolio and have resulted in operations in four core regions: Southeast
Alberta, Central Alberta, Red Earth and an emerging natural gas trend that
stretches from west central Alberta to the Steen region in northern Alberta.
In addition to these core regions, Gulf Canada operates heavy oil
interests in Saskatchewan and holds an interest in the Syncrude Joint Venture in
northern Alberta.
In 1998, Gulf Canada entered into key partnerships that are expected to
enable the Company to accelerate value growth in areas where it has strategic
advantages. An alliance with Northrock Resources, a midsize producer, in west
central Alberta provides a large, dominant land base in a competitive and
prospective natural gas area. The sale of a 50 per cent interest in Gulf
Canada's midstream natural gas assets to KeySpan Energy Corporation, a
growth-oriented, U.S.-based utility, served to partially monetize assets
undervalued in the market and bring greater focus to the midstream business as a
profit center. Gulf Canada also established a partnership with Ensyn Energy
Corporation to develop new upgrading technology for application to heavy oil.
Gulf Canada has 30 key properties in Western Canada that are
predominantly Gulf Canada-operated. These properties as well as Gulf Canada's
surrounding land positions encompass 4.1 million net acres of which 3.0 million
acres are undeveloped. Average sales (before royalties) from Western Canada
during 1998 were 52,400 barrels per day (b/d) of conventional light oil and
natural gas liquids, 17,000 b/d heavy oil, 18,900 b/d from Syncrude and 369
million cubic feet per day (mmcf/d) of natural gas.
CONVENTIONAL LIGHT OIL AND NATURAL GAS.
Western Canada light oil and natural gas reserve additions for the year
were 47 million (before royalties) barrels of oil equivalent (boe), replacing
more than 100 per cent of production, two-thirds of which was natural gas.
Property sales in Western Canada in 1998 amounted to $136 million and
were primarily completed in the second half of the year. During 1999, additional
Western Canada asset sale transactions with associated production of
approximately 7,800 boe/d (before royalties) are expected to close with proceeds
in excess of $130 million.
Production (before royalties) from the four main regions in 1999 is
expected to be approximately 85,000 boe/d after property sales, with
approximately 40 per cent from Central Alberta, 20 per cent from Southeast
Alberta, ten per cent from Red Earth and 30 per cent from the emerging natural
gas corridor. Gulf Canada's actions in 1998 have increased its exposure to
natural gas, which is anticipated to account for approximately 50 per cent of
1999 production. In each of these four regions, Gulf Canada maintains high
working interests in large properties with substantial operating control.
CENTRAL ALBERTA. The Central Alberta region has historically been a
core operating area for Gulf Canada. It is characterized by large, long-life,
light oil reservoirs, substantial proven reserves and low-risk development
opportunities. Gulf Canada's knowledge of the area and applicable technologies,
such as infill and horizontal drilling, as well as enhanced oil recovery
techniques, enable sustained exploitation, low cost operations and significant
free cash flow.
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During the year, Gulf Canada implemented a new technology, referred to
as "geo-cellular", that creates a unified model from seismic, well log,
production and reservoir data. Application of this technology to the Company's
Central Alberta operations, as well as in other areas, will improve the process
of identifying new, low risk exploitation prospects and create more efficient
operating plans.
SOUTHEAST ALBERTA. Key properties in this area, Ghost Pine,
Connorsville and Richdale, are characterized by both shallow and multi-zone
natural gas plays. Gulf Canada expanded its position in this area in 1998
through an active drilling program and an alliance with a small, natural
gas-oriented company. The alliance has control of production and processing
facilities in the area and maintains an active exploitation program.
RED EARTH. Gulf Canada has built a dominant 700,000 net acre land
position in the Red Earth area located in northern Alberta. The position was
expanded through a major land acquisition and an early 1999 transaction in which
the Company swapped shallow natural gas rights for the deeper oil and natural
gas rights. Gulf Canada has significantly grown the reserve base, increased
production and reduced costs through well-optimization plans, waterflood and
recompletion work. Key fields in this area include House Creek, Panny and Senex
fields with an average working interest of 84 per cent.
NATURAL GAS CORRIDOR. Gulf Canada has sizable natural gas holdings from
west central Alberta up to the Steen area in the north that are expected to
benefit from favourable changes in natural gas economics. The Company's plans
for growth are focused on development in the Steen area, exploration in the
Musreau Lake and Northwest Arch areas and through its partnership in west
central Alberta.
In west central Alberta, 850,000 acres are held in an alliance with a
mid-sized Canadian producer. This sizeable acreage position combined with an
extensive seismic data base provides a base for rapid growth in this area.
The Company realized early success in the Musreau Lake and Northwest
Arch areas, two new exploration areas for Gulf Canada. In the Musreau Lake area,
an emerging natural gas region along the western border of Alberta, Gulf Canada
holds an average 40 per cent working interest in 125,000 acres.
In the Steen area, in northwest Alberta, the Company added over 70 bcf
to reserves and has extended its land position in the region. Gulf Canada is
constructing a gas plant that is expected to add up to 30 mmcf/d of production
to come on stream by mid-1999.
Additionally, Gulf Canada controls major infrastructure in the area
through its ownership in Gulf Midstream Services. Ultimately, the Company
expects this natural gas exploration corridor to extend to the MacKenzie Delta
area where Gulf Canada already has significant gas reserves.
HEAVY OIL
Heavy oil production is mainly from the Plains, Senlac and Coleville
areas of southwest Saskatchewan. The Company holds 700,000 net undeveloped acres
in these areas. Gulf Canada is actively seeking to combine its assets with an
industry partner to effect operating cost savings and synergies in future
exploitation and development projects for this large, long-term resource base.
During the year, investment in heavy oil was predominantly facilities
oriented. Additionally, increased efficiencies reduced operating costs by 20 per
cent. The strategy for improved performance in 1999 will include reducing
operating costs, increasing production from four waterflood facilities,
continuing consolidation of assets to form core areas and implementing oil
upgrading technology. These actions, combined with improved differentials
between light and heavy oil prices, are expected to provide better economics for
heavy oil production going forward.
OTHER ASSETS
THERMAL. Gulf Canada operates steam-enhanced oil recovery projects at
Surmont, Alberta and Kerrobert, Saskatchewan. At the larger Surmont project,
potential recoverable reserves of crude oil may be as high as 5 to 7 billion
barrels. Pilot technology tests the viability of recovering heavy oil and
bitumen using steam injection and horizontal wells.
Operations at the Surmont pilot project met Gulf Canada's expectations
by showing consistent performance during the year with volumes averaging
approximately 600 b/d in the second half. In 1999, the Company will proceed with
the required regulatory applications to construct a 25,000 b/d commercial
in-situ thermal recovery facility at Surmont. Current plans anticipate start-up
and commissioning of that project during the second half of 2003. Due to the
potential size of the project, Gulf Canada plans to continue to seek an industry
partner to pursue development.
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UPGRADING TECHNOLOGY. New technology is the key to unlocking the
long-term potential of Gulf Canada's vast heavy oil and oil sands resources.
Gulf Canada is working with its partner, Ensyn Energy Corporation, to develop a
new upgrading technology for application to heavy oil and bitumen. Positive
results from bench-scale tests conducted during 1998 indicate that this
efficient upgrading process could be applied to larger volumes. In 1999, the
Company is proceeding with the engineering and design of a $19 million field
demonstration project expected to start-up by late 2000. In addition, subsequent
to year-end Gulf Canada acquired a 28.5 per cent interest in a separate
partnership formed with this company. The partnership will market the
proprietary upgrading technology and own the associated royalty rights.
DEVELOPMENT - NORTHERN CANADA. Gulf Canada has 2.6 trillion (before
royalties) cubic feet of probable natural gas reserves in the Beaufort Sea and
MacKenzie Delta areas of Northern Canada. One-half of this gas, discovered by
Gulf Canada more than 20 years ago, is in the Parson's Lake field located in the
MacKenzie Delta. This field was delineated with 17 wells, which will allow a
high percentage of these reserves to be reclassified as proved upon the start-up
of a development project.
Gulf Canada is reviewing potential development of its Northern Canada
prospects in light of changes in the Canadian natural gas industry that are
expected to improve the economics of natural gas production. Substantial new
pipeline export capacity was added in western Canada late in the year, with
plans for additional capacity by the year 2000. Due to a trend in Canada towards
increased production relative to a field's reserves, future supply growth will
be dependent upon development of new reserves rather than acceleration of
production. These factors, combined with new gas infrastructure in Alberta, more
efficient development techniques and lower cost pipeline construction costs,
make the concept of developing Gulf Canada's large, northern gas resources more
attractive.
EXPLORATION - EAST COAST. Gulf Canada holds a sizable land position in
a prospective area off the east coast of Canada between Hibernia and Sable
Island. During the year, Gulf Canada completed a 7,300 kilometre,
two-dimensional seismic program on its 5.4 million acre block.
Subsequent to year-end, Gulf Canada signed a letter of intent to enter
into a joint operating agreement with Mobil Canada covering a combined 8.6
million acres. Subject to regulatory approval and execution of a joint operating
agreement, Mobil will fund the initial exploration program on Gulf Canada's
French permit acreage, including acquisition of additional seismic and drilling
the initial well. Mobil will be assigned a 65 per cent interest in Gulf Canada's
French permit and a 20 per cent interest in Gulf Canada's Canadian permits with
an option to earn an additional 45 per cent in certain licenses after conducting
additional exploration work. Gulf Canada will be assigned a ten per cent
interest in Mobil's Canadian permits and have the option to earn an additional
ten per cent interest in certain licenses after conducting additional
exploration work.
SYNCRUDE
Gulf Canada holds a 9.03 per cent interest in the Syncrude Project
Joint Venture. The Syncrude Project, located near Fort McMurray, Alberta, is the
largest producer of crude oil from oil sands in the world. Bitumen is mined and
oil is extracted and upgraded at the Project site into a high-quality,
low-sulphur, light crude oil known as Syncrude Sweet Blend ("SSB"). The Syncrude
Project is one of the largest mining operations in the world, with gross proved
plus probable reserves of over 5 billion barrels and an ultimate predicted
reserve life of 90 years at current production levels.
The Syncrude Project produced an average of 210,000 b/d of SSB in 1998,
18,900 b/d net to Gulf Canada's interest. Additionally, the Project celebrated
the production of its one-billionth barrel in April. Two major capital expansion
projects, approved in 1996 and 1998 totaling $1.4 billion, $126 million net to
Gulf Canada, are expected to increase total daily production to 258,000 b/d by
the year 2000, 23,000 b/d net to Gulf Canada. This expansion was approximately
45 per cent complete by year-end. Additional proposed capital spending by the
joint venture over the next eight years of $4.2 billion, $380 million net to
Gulf Canada, is expected to increase total daily production to 425,000 b/d or
38,000 b/d net to Gulf Canada.
Gulf Canada continues to provide administrative services to the
Athabasca Oil Sands Trust, a publicly traded entity (AOS.un, Toronto) created in
1995 that holds an 11.74 per cent interest in the Syncrude Project. Gulf Canada
also markets the Trust's share of Syncrude production through its ownership
interest in Tidal Energy Marketing Inc.
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GULF MIDSTREAM SERVICES
In mid-1998, Gulf Canada established the Gulf Midstream Services (GMS)
division that focuses on the natural gas "midstream" business in western Canada.
GMS manages all midstream functions from wellhead to customer, including
gathering, processing, fractionation, storage, transportation and marketing of
natural gas and natural gas liquids.
In December, KeySpan Energy Development Corporation, a wholly owned
subsidiary of KeySpan Energy Corporation, finalized its purchase of 50 per cent
of Gulf Midstream Services. Gulf Canada's partnership with KeySpan is a
significant combination that will focus on aggressive growth in the midstream
business.
To form GMS, substantially all of Gulf Canada's midstream facilities
were combined with its natural gas and gas products marketing business. GMS
holds interests in 14 raw gas processing plants and associated gathering
systems, representing a network of facilities that is uniquely positioned to
serve areas of growing exploration, development and production activity. GMS
also controls strategic fractionation, storage and transportation facilities
near Edmonton, Alberta, a major North American natural gas liquids hub. GMS
employs an experienced team of marketing professionals that provides integrated
marketing and risk management capabilities for Gulf Canada and other producers
of natural gas, natural gas liquids, sulphur and other gas products.
INDONESIA
Gulf Indonesia Resources Limited (GRL), a 72 per cent owned subsidiary,
completed another successful year and its first full year as a public company.
GRL continued increasing its asset base in Indonesia by booking gross proved
reserve additions of 52 million (before royalties) barrels of oil equivalent in
1998. Proved reserves have increased nearly 700 per cent since 1995. Finding and
development costs over the same three-year period averaged US$2.63 per boe.
Completion of the Corridor Gas Project on time and on budget was the
outstanding achievement of 1998. The Corridor Project created a completely new
market for Indonesian natural gas, using it as a substitute for crude oil to
fuel the large steamflood project operated by a third party at Duri, some 340
miles to the north. The initiation of gas deliveries from the Corridor Project
to Duri in October was the culmination of a project that began with the
discovery by Gulf Canada of significant natural gas reserves in Sumatra in the
early 1990s.
Today, the Corridor Gas Project is fully operational and has more than
doubled GRL's sales volumes. The Corridor Project is, however, only the first of
many gas development opportunities. The pipeline and gas plant built at Corridor
will support expansion projects in Sumatra. The Corridor Project is a model for
developing more of GRL's abundant natural gas reserves for expansion to markets
in Indonesia and Singapore.
Progress on other natural gas projects included:
- - Approval of a Plan of Development in October, 1998 for a 45 mmcf/d
(net) expansion of the Corridor Gas Plant;
- - Execution of a Memorandum of Understanding in September, 1998 for the
sale of gas from the Corridor and South Jambi B blocks to Singapore;
- - Negotiations to finalize agreements to supply 50 to 60 mmcf/d (net) of
gas to international LNG markets and domestic fertilizer markets from
the GRL-operated block A in northern Sumatra; and
- - Signing of a gas supply agreement in January, 1999 covering the sale of
20 mmcf/d (net) of gas from the GRL-operated Kakap block in the West
Natuna Sea for power generation and petrochemical projects in
Singapore.
To provide the natural gas reserves necessary to support these
projects, GRL focuses much of its capital on natural gas exploration and
delineation drilling.
NETHERLANDS
Operations in the Netherlands during the year focused on increasing
Gulf Canada's working interests in existing operated assets, adding new operated
assets and evaluating exploitation and exploration opportunities. These efforts
resulted in production growth, better concentration in identified core areas and
exploration success. Sales volumes before royalties from the Netherlands
averaged 63 mmcf/d natural gas
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and 2,600 b/d of oil from both the southern North Sea and onshore fields. Oil
production was added in the second quarter with the acquisition of a 100 per
cent owned and operated position in blocks K18b and L16a.
Gulf Canada operates 19 shallow water offshore and 4 onshore licenses
that cover approximately 1.4 million acres. The Company owns strategic
infrastructure and substantial three-dimensional seismic coverage in focus areas
that include the K, L, P and Q offshore blocks and the onshore Waalwijk
concession.
During the year, two of three Gulf Canada-operated
exploration/appraisal wells were successful, with one immediately tied in to
existing infrastructure. Gulf Canada intends to drill up to five exploration
wells per year with a target to double production over four to five years. The
combination of good regional natural gas prices, control of infrastructure and
consolidated license positions provides strong fundamentals for growth and
operating efficiencies going forward. Gulf Canada will seek growth through
further exploitation of existing producing assets and exploring near existing
infrastructure, including expansion into blocks adjacent to current operations.
At the end of 1998, Gulf Canada expanded its position into the UK Sector of the
southern North Sea through the acquisition of a 75 per cent working interest and
operatorship of adjoining block 53/8.
AUSTRALIA
Australia represents the smallest of Gulf Canada's core operating
areas, yet provides significant potential for growth. In 1998, the Company's
focus in Australia shifted from onshore natural gas production from fields where
Gulf Canada does not operate to offshore oil production in the Timor Sea. Gulf
Canada established a base of operation in the Timor Sea with the mid-year
acquisition of majority interests in the Jabiru and Challis fields.
Sales volumes before royalties from Australia averaged approximately
9,300 boe/d for the year. Non-core assets in South West Queensland were sold
early in the year, followed by the acquisition of the Jabiru and Challis
production and assets, including two floating production storage and offloading
vessels (FPSOs). The acquisition added offshore oil production, and greatly
extended Gulf Canada's control of infrastructure and undeveloped land in this
area.
The Timor Sea has potential to be the key growth area within Australia.
During the year, Gulf Canada extended its position here from five permits and
approximately 440,000 net acres to ten permits and 1.2 million net acres. Gulf
Canada now controls the largest position in the basin and in 1999 will acquire
3,800 kilometres of two-dimensional seismic data over the area. This data will
be interpreted in 1999 in preparation for an extensive, three-year, multi-well
exploration program scheduled to start in 2000.
The strategy for growth is to use the drill bit and to "quick connect"
to Gulf Canada operated infrastructure. The Company is also pursuing the
development of smaller, previously discovered fields in the Timor region to
utilize spare processing capacity at its two FPSOs. Since taking over operations
at Jabiru and Challis late in the year, Gulf Canada has identified opportunities
in both these fields for exploitation and significant operating cost reductions.
The combination of exploration, exploitation and cost reductions will set the
foundation for continued growth in this area.
BUSINESS ENVIRONMENT
COMPETITIVE AND INDUSTRY CONDITIONS. There is strong competition
relating to all aspects of the oil and gas industry, and in particular in the
exploration and development of new oil and natural gas reserves.
The oil and natural gas business is subject to extensive government
regulation relating to prices, taxes, royalties, land tenure, allowable
production, the export of oil and natural gas and many other aspects. Gulf
Canada's production is subject to deliverability uncertainties related to the
proximity of its reserves to pipeline and processing facilities, and shipping
restrictions on pipelines that deliver oil and natural gas to commercial
markets. Future production from frontier lands will depend upon, among other
factors, satisfactory fiscal and regulatory terms, oil prices, the establishment
of sufficient reserves to justify the substantial capital costs of production
facilities and the development of transportation systems to bring such reserves
to market.
The business environment also exposes Gulf Canada to a number of risks,
including those associated with fluctuations in oil prices and exchange rates,
uncertainties in estimates of reserves, risks arising from active oil and gas
exploration and development activities, and the potential for environmental
-9-
<PAGE> 11
clean-up obligations and liabilities arising from its current or past
operations. The Company endeavors to carry on its business in such a manner as
to minimize such risks.
ENVIRONMENTAL PROTECTION. The operations of Gulf Canada are, and will
continue to be, affected in varying degrees by laws and regulations regarding
the protection of the environment. It is impossible to predict the full impact
of these laws and regulations on Gulf Canada's operations. However, it is not
anticipated that Gulf Canada's competitive position will be adversely affected
by current or future environmental laws and regulations governing its current
oil and gas operations. Since 1990, Gulf Canada has implemented a program of
regular environmental audits to review operating practices and procedures at
major plants and facilities in western Canada and to provide for compliance with
regulatory requirements. In addition, acquisitions and divestitures are subject
to environmental audits. Gulf Canada's accounting policy is to provide for
future site restoration costs, including dismantling plants and abandoning
properties, using the unit of production method or, where appropriate, the
estimated remaining useful lives of the related assets. Gulf Canada has accrued
$183 million for such future costs at December 31, 1998. Total anticipated
future costs, given Gulf Canada's current inventory of wells and facilities,
including those relating to Syncrude, is estimated to be approximately $602
million over the next 20 years. Gulf Canada also has environmental obligations
related to certain mineral operations for which it has recorded a provision. In
addition to its environmental responsibility for current operations, Gulf Canada
is or may be responsible for future environmental costs related to certain past
operations, mainly downstream in nature.
FOREIGN OPERATIONS. Some of Gulf Canada's reserves and operations
outside North America are located in regions that may be considered politically
and economically unstable. These reserves and the related operations are subject
to certain risks, including increases in taxes and royalties, the establishment
of production limits, export restrictions, the involuntary renegotiation of
contracts, the nationalization of assets, other risks relating to changes in
local government regimes and policies and resulting changes in business customs
and practices, payment delays, currency exchange restrictions and losses and
impairment of operations by actions of insurgent groups. Gulf Canada, like other
international oil companies, attempts to conduct its business and financial
affairs in such a manner as to protect against such political and economic
risks. Gulf Canada reduces risk associated with foreign projects through
farmouts, phased development programs and project financing. There can be no
assurance, however, that Gulf Canada will be successful in protecting itself
from the risks presented by foreign operations.
RISK FACTORS
VOLATILITY OF OIL AND NATURAL GAS PRICES
Gulf Canada's results of operations and financial condition are
dependent on the prices received for its oil and natural gas production. The
Company's ability to arrange financing and acquire the capital necessary to
explore and develop its properties is also dependent on the price of oil and
natural gas. Oil and natural gas prices have fluctuated widely during recent
years and are determined by supply and demand factors, including weather and
general economic conditions, as well as conditions in other oil producing
regions, which are beyond the control of Gulf Canada. Any decline in oil or
natural gas prices could have a material adverse effect on Gulf Canada's
operations, financial condition, proved reserves and the level of expenditures
for the development of its oil and natural gas reserves. No assurance can be
given that oil and natural gas prices will be at levels which will generate
profits for Gulf Canada.
In addition, Gulf Canada regularly assesses the carrying value of its
assets in accordance with Canadian GAAP and U.S. GAAP under the successful
efforts method. See the Consolidated Financial Statements included herein. If
oil and natural gas prices become depressed or decline, the carrying value of
Gulf Canada's assets could be subject to downward revision.
During 1998 and the first quarter of 1999, oil prices have been low
compared to prices received in the last five years. Continued low oil prices
could have a material adverse affect on Gulf Canada.
NEED TO REPLACE RESERVES
Gulf Canada's future oil and natural gas reserves and production, and
therefore its cash flows, are highly dependent upon Gulf Canada's success in
exploiting its current reserve base and acquiring or discovering additional
reserves. Without reserve additions through exploration, acquisition or
development activities, Gulf Canada's reserves and production will decline over
time as reserves are produced. The business of exploring for, developing or
acquiring reserves is capital intensive. To the extent cash flows from
operations are insufficient and external sources of capital become limited or
unavailable, the Company's ability to make the necessary capital investments to
maintain and expand its
-10-
<PAGE> 12
oil and natural gas reserves will be impaired. In addition, there can be no
assurance that Gulf Canada will be able to find and develop or acquire
additional reserves to replace production at acceptable costs.
LEVERAGE
Gulf Canada's debt instruments impose restrictions on the operations
and activities of Gulf Canada. Generally, the most significant restrictions
relate to debt incurrence, investments, capital expenditures, asset sales and
the use of proceeds therefrom and cash distributions by Gulf Canada.
Additionally Gulf Canada is required to comply with certain financial covenants,
including the maintenance of a debt to total capitalization ratio. The ability
of Gulf Canada to comply with the foregoing restrictions and covenants will be
dependent upon its future performance and various other factors, including
factors beyond Gulf Canada's control. A failure to comply with these
restrictions or covenants could result in an event of default under the
applicable instrument, which could cause acceleration of the debt under such
instrument and other instruments that contain cross-default provisions.
OPERATING HAZARDS AND OTHER UNCERTAINTIES
Acquiring, developing and exploring for oil and natural gas involves
many risks. These risks include encountering unexpected formations or pressures,
premature declines of reservoirs, blow-outs, equipment failures and other
accidents, craterings, sour gas releases, uncontrollable flows of oil, natural
gas or well fluids, adverse weather conditions, pollution, other environmental
risks, fires and spills. Although Gulf Canada maintains insurance in accordance
with customary industry practice, Gulf Canada is not fully insured against all
of these risks. Losses resulting from the occurrence of these risks could have a
material adverse impact on Gulf Canada. Gulf Canada, like other international
oil companies, attempts to conduct its business and financial affairs so as to
protect against political and economic risks applicable to operations in the
various countries where it operates, but there can be no assurance that Gulf
Canada will be successful in so protecting itself.
Gulf Canada is also subject to deliverability uncertainties related to
the proximity of its reserves to pipeline and processing facilities and the
inability to secure space on pipelines that deliver oil and natural gas to
commercial markets.
UNCERTAINTY OF RESERVE ESTIMATES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of Gulf Canada. The
reserve data set forth herein represent estimates only. In general, estimates of
economically recoverable oil and natural gas reserves and the future net cash
flows therefrom are based upon a number of variable factors and assumptions,
such as historical production from the properties, the assumed effects of
regulation by governmental agencies and future operating costs, all of which may
vary considerably from actual results. All such estimates are to some degree
speculative, and classifications of reserves are only attempts to define the
degree of speculation involved. For those reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classification of such reserves based on risk of recovery and
estimates of future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
Gulf Canada's actual production, revenues, taxes and development and operating
expenditures with respect to its reserves will vary from such estimates, and
such variances could be material.
Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
In accordance with applicable requirements of the U.S. Securities and
Exchange Commission ("SEC"), the estimated discounted future net cash flows from
estimated proved reserves are based on prices and costs as of the date of the
estimate unless such prices or costs are contractually determined at such date.
Actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as actual production,
supply and demand for oil and natural gas, curtailments or increases in
consumption by natural gas purchasers, changes in governmental regulation or
taxation and the impact of inflation on costs.
The securities disclosure legislation and policies of Canada, as
interpreted by the securities commissions in Canada, permit the use of escalated
prices and costs in calculating reserve quantities, which is not permitted for
disclosure of reserve quantities in financial statements filed with the SEC.
-11-
<PAGE> 13
Reserves set forth in financial statements filed with the SEC must be based on
period end prices and costs, without escalation, except where required by
contract. Additionally, Canadian legislation and policies permit the disclosure
of "probable" reserves and synthetic crude oil reserves from oil sands, such as
SSB, which may not be disclosed in financial statements filed with the SEC.
Probable reserves are generally believed to be less likely to be recovered than
proved reserves.
The reserve estimates included in this Annual Report could be
materially different from the quantities and values ultimately realized.
ENVIRONMENTAL RISKS
All phases of the oil and natural gas business present environmental
risks and hazards and are subject to environmental regulation pursuant to a
variety of international conventions and Canadian and U.S. federal, provincial,
state and municipal laws and regulations. Environmental legislation provides
for, among other things, restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with Gulf Canada's past
and current operations. The legislation also requires that refineries, service
stations, wells and facility sites be operated, maintained, abandoned and
reclaimed to the satisfaction of applicable regulatory authorities. Compliance
with such legislation can require significant expenditures and a breach may
result in the imposition of fines and penalties, some of which may be material.
In addition, certain types of operations require the submission and approval of
environmental impact assessments. Environmental legislation is evolving in a
manner expected to result in stricter standards and enforcement, larger fines
and liability and potentially increased capital expenditures and operating
costs. Gulf Canada, either directly or through subsidiaries, owned numerous
refineries, service stations and related operations in Canada and the United
States prior to 1986, and continues to hold former sites, which have given rise
to some claims and could give rise to additional claims in the future under laws
that provide that responsible parties can include present and prior owners,
operators and others, including claims for investigation, clean-up and
restoration costs and damages for personal injury. Although Gulf Canada believes
that it is currently in substantial compliance with all existing material
environmental regulations, there can be no assurance that future environmental
costs will not have a material adverse effect on Gulf Canada's financial
condition or results of operations.
COMPETITION
There is strong competition relating to all aspects of the oil and gas
industry, in particular the exploration for and development of new oil and
natural gas reserves. Gulf Canada actively competes with a substantial number of
other oil and gas companies for reserve acquisitions, exploration leases,
licenses and concessions and skilled industry personnel. Gulf Canada's
competitors include major integrated oil and gas companies and numerous other
independent oil and gas companies and individual producers and operators, many
of which have significantly greater financial resources than Gulf Canada.
GOVERNMENTAL REGULATION
The petroleum industry is particularly subject to regulation and
intervention by governments in such matters as the awarding of exploration and
production interests, the imposition of specific drilling obligations,
environmental protection controls, control over the development and abandonment
of fields (including restrictions on production) and possibly expropriation or
cancellation of contract rights, as well as with respect to prices, taxes,
royalties and the exportation of oil and natural gas. Such regulation may be
changed from time to time in response to economic or political conditions. The
implementation of new regulations or the modification of existing regulations
affecting the oil and gas industry could reduce demand for natural gas and crude
oil, increase Gulf Canada's costs and have a material adverse impact on Gulf
Canada.
EXCHANGE RATE FLUCTUATIONS
Gulf Canada is exposed to foreign exchange risks since the majority of
its revenue is received in or by reference to U.S. dollar denominated prices
while the majority of its expenditures are in Canadian dollars. The exchange
rate between Canadian dollars and U.S. dollars has varied substantially in the
last five years. See "Currency and Exchange Rates."
-12-
<PAGE> 14
ITEM 2. PROPERTIES
RESERVES
The following table describes the Company's estimated net proved
reserves as of the end of each of the last three years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
ESTIMATED NET PROVED RESERVES*:
Oil and natural gas liquids (mmb).............. 237 321 152
Natural gas (bcf).............................. 2,113 2,093 1,674
Mmboe**........................................ 589 670 431
Present value of future net cash flows
Discounted at 10 per cent
(millions of dollars).................. 1,812 2,415 2,633
</TABLE>
[FN]
* Excluding Syncrude oil from oilsands.
** Natural gas converted at 6:1.
</FN>
The Company's internal staff of reservoir engineers prepared the
estimates of proved reserves of the Company. Reserves were estimated using oil
and gas prices and production and development costs in effect on December 31 of
each year, without escalation, and were otherwise prepared in accordance with
the Commission regulations regarding disclosure of oil and gas reserve
information.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company and
the reservoir engineers. The reserve data set forth in this document represent
only estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates by different engineers often vary, sometimes materially. In
addition, physical factors, such as the results of drilling, testing and
production subsequent to the date of an estimate, as well as economic factors,
such as an increase or decrease in product prices that renders production of
such reserves more or less economic, may justify revision of such estimates.
Accordingly, reserve estimates are different from the quantities of oil and gas
that are ultimately recovered. See "Risk Factors -- Estimates of Oil and Gas
Reserves."
OIL AND GAS DRILLING ACTIVITIES
During the five years ended December 31, 1998, approximately 92 per
cent of the Company's net wells drilled were in Western Canada. In 1998, Gulf
Canada had drilling success rates of 60 per cent for gross (61 per cent net)
exploration wells and 92 per cent for gross (94 per cent net) development wells.
The following table sets forth the gross and net number of productive
and dry exploratory and development oil and natural gas wells drilled from 1996
through 1998 for the Company as a whole. "Gross" means all wells in which Gulf
Canada has an interest and "net" means gross wells after deducting interests of
others.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---- ---- ----
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
DEVELOPMENT
WELLS:
PRODUCTIVE:
Oil...... 77 43 209 147 103 67
Gas...... 147 103 284 236 146 76
DRY......... 20 10 51 30 57 40
</TABLE>
-13-
<PAGE> 15
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---- ---- ----
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
EXPLORATION
WELLS:
PRODUCTIVE:
Oil...... 27 15 57 44 49 44
Gas...... 97 42 93 45 46 36
DRY......... 81 36 126 79 70 52
--- --- --- --- --- ---
Total Wells.... 449 249 820 581 471 315
=== === === === === ===
</TABLE>
PRODUCTIVE WELLS
The following table summarizes Gulf Canada's oil and natural gas wells
that are capable of production as at December 31, 1998. "Gross" means all wells
in which Gulf Canada has a working interest and "net" means gross wells after
deducting working interests of others.
<TABLE>
<CAPTION>
OIL NATURAL GAS TOTAL
------------------------ ------------------------- -----------------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICA -
Alberta....................... 2,561 1,681 2,389 1,768 4,950 3,449
Other Western Canada.......... 1,181 974 159 135 1,340 1,109
INTERNATIONAL
Indonesia..................... 545 311 20 11 565 322
Other......................... 173 20 528 29 701 49
----- ----- ----- ----- ----- -----
TOTAL WELLS........................ 4,460 2,986 3,096 1,943 7,556 4,929
===== ===== ===== ===== ===== =====
</TABLE>
- ----------
ACREAGE
The following table summarizes Gulf Canada's conventional oil and
natural gas land holdings as at December 31, 1998.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE(1) UNDEVELOPED ACREAGE(1)
-------------------- ----------------------
GROSS NET GROSS NET
----- --- ----- ---
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
NORTH AMERICA
Alberta............... 1,553 911 2,865 2,100
Other Western
Canada.............. 418 276 1,221 873
East Coast............ 0 0 5,493 5,439
Frontier.............. 0 0 1,552 395
INTERNATIONAL
Indonesia............. 367 193 15,528 8,752
Australia............. 19,275 1,088 3,655 1,305
Netherlands........... 1,657 298 752 271
Other................. 449 116 19,809 13,684
------ ----- ------ ------
TOTAL 23,719 2,882 50,875 32,819
====== ===== ====== ======
</TABLE>
- ----------
[FN]
(1) "Gross acres" means all acreage in which Gulf Canada has an interest
and "net acres" means gross acres after deducting interests of others.
"Developed acreage" refers to the acreage to which the Company has
assigned proved reserves. "Undeveloped acreage" refers to the acreage
to which the Company has not assigned any proved reserves. The table
does not include approximately 325,000 gross acres in which royalty
interests are held in Indonesia.
</FN>
-14-
<PAGE> 16
TITLE TO PROPERTIES
Oil and gas rights in Western Canada are held primarily by the
provinces but may also be privately owned. On provincially owned lands, the two
main types of rights agreements are licenses and leases. Licenses define the
boundaries of an exploration area and the work required to maintain good
standing. Satisfying the license requirements entitles the holder to convert all
or a portion of the license rights to lease form. Leases accommodate
exploration, development and production activities. The lessee of a lease is
generally responsible for paying all development and operating costs and is
entitled to the production subject to a rental and royalty payable to the
lessor. Leases are also granted by private owners of mineral rights for varying
terms. Both provincial and private leases are generally maintained by production
or productive capability.
Most of Gulf Canada's interests in frontier lands are held under
significant discovery licenses pursuant to the Petroleum Resources Act (Canada)
("CPRA"). In the Amauligak area of the Beaufort Sea, Gulf Canada's interest is
held under a production license, subject to the CPRA.
Interests issued in the east coast offshore are adjacent to the
Province of Newfoundland and are subject to the Canada-Newfoundland Atlantic
Accord Implementation Act. The east coast offshore interests include a 100%
Company interest in 5.4 million acres in the St. Pierre Bank and Banquereau
areas that are presently under development moratorium. There is continuing
negotiation over provincial jurisdiction between Newfoundland and Nova Scotia
and the lands will remain in moratorium until this matter is settled.
The Company's land interests in Indonesia are owned by GRL. These
interests are held subject to production sharing contracts, a technical
assistance contract and an enhanced oil recovery contract, under which the GRL
and the other contracting companies are eligible to recover their capital and
operated costs from production if a commercial discovery is made. Any balance of
production is divided in varying shares between the government of the producing
country, or its state-owned oil Company, and the contracting companies.
Interests in the U.K. North Sea are held under licenses issued by the
United Kingdom Department of Trade and Industry. The Netherlands North Sea
licenses are issued by the Netherlands government.
In Australia, the Company's land interests (both onshore and offshore)
consist of interests in production licenses, exploration permits and retention
leases issued under the Petroleum Submerged Lands Act (Commonwealth or State, as
appropriate). Interests held in the Zone of Cooperation, which is administered
by the Joint Authority established by the Australian and Indonesian governments,
consist of production sharing contracts approved by the Joint Authority. The
relationships amongst the parties are governed through joint venture operating
agreements, which are permit specific. Gulf Canada holds its interest in land
through either a trust relationship with the Operator or by being a registered
title holder on the relevant permit.
GAS PLANTS AND PIPELINES
Gulf Canada's business includes the acquisition, ownership and
operation of assets that generate cash flow and are non-depleting, such as
gas processing plants, pipelines and gathering systems. In mid-1998, Gulf Canada
formed the Gulf Midstream Services (GMS) division to manage the Company's
midstream assets. In December, 1998, Gulf Canada sold 50 per cent of its
interest in GMS to KeySpan Energy Corporation. GMS holds interests in 14 raw gas
processing plants and associated gathering systems. Gulf Canada maintains its
interest in several other non-operated gas plants.
OTHER FACILITIES AND OPERATIONS
COAL. Although Gulf Canada is not currently engaged in commercial
production of coal, it continues to hold some coal properties. The Company's
most significant coal property is Mount Klappan in British Columbia where
drilling has confirmed a substantial anthracite deposit. Gulf Canada is pursuing
the sale of the Mount Klappan coal property.
MARKETING
The marketing of crude oil, natural gas liquids and natural gas is an
integral part of Gulf Canada's business.
-15-
<PAGE> 17
CRUDE OIL. Gulf Canada currently markets its crude oil through an
arrangement effective January 1, 1998, with Tidal Energy Marketing Inc.
("Tidal"). Tidal is an entity formed in 1997 to carry on crude oil marketing and
of which Gulf Canada is a 50 per cent shareholder. Tidal markets crude oil as
agent for Gulf Canada, the Province of Alberta, Athabasca Oil Sands Trust and
Gulf Canada's share of the Syncrude Joint Venture. In 1998, Tidal marketed a
total of 198,000 b/d of crude oil.
In Indonesia, GRL's crude oil production is sold to Pertamina, the
Indonesian state owned oil company and directly to offshore markets. The price
received for the crude oil sold to Pertimina is determined monthly by the
Indonesian government based on a weighted average of benchmark world crude oil
prices. Further, GRL receives crude oil in kind for the delivery of natural gas
to the Duri enhanced oil recovery project in Sumatra. This oil is sold through a
long-term contract with ITOCHU Petroleum Co. and sold to offshore markets.
Crude oil from Gulf Canada's Netherlands and Australia operations is
sold into world markets.
NATURAL GAS LIQUIDS. In 1998, Gulf Canada marketed approximately
21,000 b/d of natural gas liquids in western Canada, approximately 53 per cent
of which represents third party volumes. Natural gas liquids (primarily ethane,
propane and butane) are extracted from natural gas processed at various field
plants. In December, 1998, Gulf Canada agreed to sell all of its natural gas
liquids production to GMS at market rates.
NATURAL GAS. Sales of natural gas averaged 476 mmcf/d in 1998, 369
mmcf/d of which was from western Canada. Approximately 35 per cent of Gulf
Canada's western Canada natural gas sales in 1998 were pursuant to long-term
contracts with Alberta gas purchasers (known as "aggregators") who resell the
gas in both domestic and export markets. The remaining natural gas sales were
direct sales to local distribution companies, industrial customers and marketing
companies. In December, 1998, Gulf Canada entered into an arrangement with GMS
for the marketing of all of its natural gas production at market rates.
In the Netherlands, natural gas is sold under long-term contracts
based on pricing for petroleum products. In Australia, natural gas production
comes from onshore wells where the production is marketed by the operator of the
properties, primarily under long-term, fixed-price contracts.
SEGMENT INFORMATION. Reference is made to Note 22 entitled "Segment
information" under the heading "Notes to Consolidated Financial Statements" of
the Consolidated Financial Statements of the Company for the year ended December
31, 1998.
GENERAL
EMPLOYEES. As of December 31, 1998, Gulf Canada employed 886 regular
employees. As of March 26, 1999, Gulf Canada employed approximately 761 regular
employees.
ITEM 3. LEGAL PROCEEDINGS
Gulf Canada 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. However, no such matter can be predicted
with certainty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S ORDINARY SHARES AND RELATED STOCKHOLDER
MATTERS
The Ordinary Shares are traded on the New York Stock Exchange ("NYSE"),
the Toronto Stock Exchange ("TSE") and the Montreal Exchange under the symbol
GOU. There were approximately 10,211 shareholders of record of the Ordinary
Shares as of March 2, 1999. The Company has not paid dividends on its Ordinary
Shares, and does not contemplate the payment of such dividends in the
foreseeable future. In addition, restrictions in indentures relating to the
Company's outstanding senior subordinated debentures and its credit facilities
with commercial lenders restrict the payment of dividends. The high and low
prices of the Ordinary Shares during 1997 and 1998 are set forth below:
-16-
<PAGE> 18
<TABLE>
<CAPTION>
QUARTER ENDED: NYSE (U.S.$) TSE (CDN$)
------------ ----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
March 31, 1997................. 9.00 6.88 11.90 9.50
June 30, 1997.................. 9.13 6.63 13.05 9.40
September 30, 1997............. 9.56 7.13 13.25 9.95
December 31, 1997.............. 9.38 6.25 12.90 9.25
March 31, 1998................. 7.00 4.94 9.80 7.05
June 30, 1998.................. 5.81 4.25 8.40 6.30
September 30, 1998............. 4.88 2.88 7.15 4.35
December 31, 1998.............. 4.06 2.13 6.20 3.57
</TABLE>
On March 26, 1999, the high and low prices of the Ordinary Shares on the NYSE
were US$2.94 and US$2.88, respectively. The high and low prices for the Ordinary
Shares on the same date on the TSE were Cdn$4.45 and Cdn$4.35, respectively.
-17-
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following information was prepared in accordance with Canadian
generally accepted accounting principles. For information regarding variances
between accounting principles generally accepted in Canada and the United States
as they apply to the Company, reference is made to Note 23 to the Consolidated
Financial Statements, which information is incorporated herein by reference.
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS (LOSS)
Revenues
Net oil and natural gas................ $ 1,072 $ 1,254 $ 856 $ 661 $ 654
Gain on sale of shares by subsidiary... 0 417 0 0 0
Other..................................... 125 76 40 45 48
------- ------- ----- ------- ------
$ 1,197 $ 1,747 $ 896 $ 706 $ 702
======= ======= ===== ======= ======
Earnings (loss):
From continuing operations............. $ (586) $ 204 $ 39 $ (28) $ (191)
Total.................................. $ (562) $ 204 $ 37 $ (28) $ (197)
Earnings (loss) per ordinary share:
From continuing operations............. $ (1.77) $ 0.62 $0.04 $ (0.32) $(1.36)
Total.................................. $ (1.70) $ 0.62 $0.03 $ (0.32) $(1.39)
Dividends declared:
Per ordinary share..................... NIL NIL NIL NIL NIL
Per Series 1 preference share (1)...... $ 0.27 $ 0.58 $0.36 $ 0.32 NIL
STATEMENTS OF CASH FLOWS
Operating activities
Cash generated from continuing
operations.......................... $ 371 $ 592 $ 440 $ 292 $ 232
Other operating activities, net........... (18) 29 (68) (17) 47
------- ------- ----- ------- ------
353 621 372 275 279
Investing activities...................... 219 (1,936) (743) (635) (164)
Dividends (1)............................. (31) (69) (42) (35) 0
Financing activities...................... (380) 1,519 452 (87) (304)
------- ------- ----- ------- ------
Increase (decrease) in cash............... $ 161 $ 135 $ 39 $ (482) $ (189)
======= ======= ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF FINANCIAL POSITION
Total assets.............................. $ 5,682 $ 6,629 $3,476 $2,877 $2,876
Current Liabilities....................... (789) (666) (620) (306) (314)
------- ------- ----- ------- ------
Capital employed.......................... 4,893 5,963 2,856 2,571 2,562
Long-term debt............................ 2,331 2,785 1,198 1,104 1,372
Other long-term liabilities............... 336 201 140 153 116
Deferred income taxes..................... 60 307 148 91 73
Minority interest......................... 178 220 0 0 0
------- ------- ----- ------- ------
Shareholder's equity (2).................. $ 1,988 $ 2,450 $1,370 $1,223 $1,001
======= ======= ====== ====== ======
</TABLE>
-18-
<PAGE> 20
- ----------
[FN]
(1) 1997 includes payment of regular and special dividends on preference
shares.
(2) Includes Series 1 preference shares of $428 million and Series 2
Preference shares of $149 million in each of 1994 through 1998.
(3) Certain of the financial data for years prior to 1998 have been
reclassified to conform with the presentation adopted for 1998.
</FN>
-19-
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
FINANCIAL REVIEW
Gulf Canada Resources Limited generated cash from continuing operations of $371
million in 1998, down from $592 million in 1997 and $440 million in 1996. The
Company realized a loss of $562 million in 1998 versus earnings of $204 million
in 1997 and $37 million in 1996. Although sales volumes remained relatively
flat, lower oil prices, one-time charges and non-cash amortization of foreign
exchange losses significantly reduced 1998 cash generation and earnings. In
1997, the earnings increase was mainly attributable to the gain on the sale of
shares in Gulf's Indonesian subsidiary.
During 1998, Gulf received $1.2 billion in gross proceeds from asset sales,
which included $110 million of debt assumed by a purchaser and is before selling
costs and other adjustments. Asset sales included U.K. North Sea assets, 50 per
cent of Gulf's Midstream Services business as well as various non-core North
American properties. This compares with the $1.1 billion in proceeds received in
1997, the majority of which represents the public offering of 28 per cent of the
shares of Gulf Indonesia Resources Limited.
Capital expenditures and exploration expenses were $850 million in 1998,
down 25 per cent from 1997. North America accounted for $374 million or 44 per
cent of the spending, and Indonesia accounted for $284 million or one-third of
total spending. Additionally, Gulf spent $43 million on Syncrude, $142 million
on other international projects and $7 million on corporate items. The 1998
capital program replaced 155 per cent of the Company's 1998 production at a cost
of $7.58 per proved boe. Spending in 1997 of $1.1 billion was up 76 per cent
over the 1996 capital and exploration activity of $644 million, mainly due to
other international projects and spending on the Corridor Block Gas Project.
During 1998, cash flow from operations and asset sale proceeds were used to
fund the Company's capital program, pay down debt by a net $399 million and
increase year-end cash by $161 million. During 1997, financing activities
provided a net $1.5 billion, that, together with cash from operations, was used
to fund significant acquisitions and capital spending.
RESULTS FROM OPERATIONS
Gulf reports its year-to-year operations in four business segments: North
America, Oil Sands, Indonesia and Other International.
NORTH AMERICA -- OIL & GAS
Cash generated from North America was $348 million in 1998, down $158 million
from 1997. The decrease reflects the impact of significantly lower liquids
prices. Lower sales volumes were also a factor as the full year benefit of the
September 1997 Stampeder Exploration Ltd. ("Stampeder") acquisition and
additions from capital spending were more than offset by the effect of natural
reservoir declines and asset sales. In addition, other revenue net of other
expenses declined by $11 million as 1998 included the net cost of thermal
operations. Cash generated from operations in 1997 of $506 million was virtually
unchanged from 1996 as acquisitions offset natural reservoir declines and asset
divestitures. A net operating loss of $41 million in 1998 compares with earnings
of $113 million in 1997, as cash generated was lower and non-cash items remained
virtually unchanged. In 1997 net operating income declined to $113 million from
$208 million in 1996, in spite of relatively flat cash generation, due to
increased exploration activity and higher depreciation, depletion and
amortization from acquisitions.
Net oil and gas revenues, excluding the effects of hedging, decreased by
$130 million to $563 million in 1998. The decline in liquids prices and lower
volumes were partially offset by lower royalties and an improvement in natural
gas prices. Net oil and gas revenues in 1997 of $693 million increased from $669
million in 1996 due primarily to higher volumes from acquisitions.
Production operating expenses increased $17 million or $0.42 per boe as a
$0.35 per boe decline in conventional light crude was more than offset by a full
year of higher-cost conventional heavy oil operations. Production operating
expenses in 1997 of $205 million increased $26 million from $179 million in
1996, which was also mainly attributable to the acquisition of higher-cost heavy
oil properties.
Lower production volumes resulted in a slight decrease in depreciation,
depletion and amortization to $286 million in 1998. Depreciation, depletion and
amortization of $295 million in 1997 was $60 million higher than the $235
million charge in 1996 due to acquisitions and the write-down of certain
unproductive properties.
Exploration expenses of $103 million in 1998 compared with $98 million in
1997 and $61 million in 1996. The increase in 1998 was due to additional seismic
work more than offsetting a decrease in dry well expense, while 1997 was higher
than 1996 largely as a result of dry well expense.
Conventional and heavy oil capital and exploration expenditures were $324
million in 1998 compared with $499 million in 1997 and $502 million in 1996.
Proved reserve additions were 39 million barrels in 1998 compared with 84
million and 69 million for 1997 and 1996, respectively.
-20-
<PAGE> 22
East Coast offshore expenditures were related to a 7,300-kilometre seismic
program conducted during the year.
Expenditures on thermal pilot projects, comprising Gulf's activities in the
development of steam-assisted oil recovery operations in the Surmont and
Kerrobert areas, decreased to $21 million in 1998 from $48 million in 1997 and
$7 million in 1996. Spending in 1998 included $17 million on the Surmont pilot
project and $4 million on Kerrobert. Spending in 1997 included $31 million on
the Surmont project and $17 million on Kerrobert for the completion of the main
steam facilities.
Expenditures on infrastructure assets and injectants of $22 million in 1998
compared with $41 million in 1997 and $15 million in 1996.
NORTH AMERICA -- OIL & GAS
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
VOLUMES SOLD (gross)
Liquids (thousands of barrels per day)
Conventional light crude oil 35.8 43.0 39.0
Conventional heavy crude oil 17.0 5.4 0
Natural gas liquids 16.6 16.4 16.1
Natural gas (millions of cubic feet per day) 369 413 441
PRICE*
Liquids (dollars per barrel)
Conventional light crude oil 18.30 26.13 27.92
Conventional heavy crude oil 9.31 13.71 0
Natural gas liquids 14.11 21.43 21.35
Natural gas (dollars per thousand cubic feet) 1.98 1.84 1.73
</TABLE>
NORTH AMERICA -- OIL AND GAS*
<TABLE>
<CAPTION>
1998 1997 1996
$MILLIONS $/BOE** $millions $/BOE** $millions $/BOE**
---------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross oil and gas revenues 652 16.76 842 21.77 809 22.27
Royalties (89) (2.31) (149) (3.84) (140) (3.86)
---- ----- ---- ----- ---- -----
Net oil and gas revenues 563 14.45 693 17.93 669 18.41
Other revenue 30 0.76 24 0.61 20 0.56
Operating expenses
Production (222) (5.72) (205) (5.30) (179) (4.92)
Other expenses (23) (0.59) (6) (0.17) (6) (0.17)
Exploration expenses (103) (2.65) (98) (2.53) (61) (1.68)
Depreciation, depletion
and amortization expense (286) (7.35) (295) (7.62) (235) (6.46)
---- ----- ---- ----- ---- -----
Net operating income (loss) (41) (1.10) 113 2.92 208 5.74
Non-cash items 389 10.00 393 10.15 296 8.14
---- ----- ---- ----- ---- -----
Cash generated 348 8.90 506 13.07 504 13.88
==== ===== ==== ===== ==== =====
Capital and exploration expenditures
Conventional oil and gas *** 324 499 502
East Coast offshore 7 0 0
Thermal projects 21 48 7
Infrastructure assets 7 23 5
Injectants 15 18 10
---- ---- ----
374 588 524
---- ---- ----
Gross proved reserve additions 39 84 69
(millions of boes)
</TABLE>
[FN]
* Excludes hedging
** Based on barrels of oil equivalents sold
*** Includes USA spending of $14 million, $48 million and $55 million for the
three years ended December 31,1998, 1997 and 1996, respectively
</FN>
-21-
<PAGE> 23
SYNCRUDE
Gulf owns a 9.03 per cent interest in the Syncrude Project. Net operating income
from Syncrude decreased to $28 million in 1998 from $62 million in 1997 and $46
million in 1996. Cash generated from operations also decreased in 1998 to $45
million from $78 million in 1997 and $65 million in 1996.
Net revenues from Syncrude declined 19 per cent in 1998 to $139 million
from $171 million in 1997. This decrease was the result of a $7.64 per barrel
decline in the price of Syncrude oil, partially offset by an $18 million
decrease in crown royalties, which are sensitive to prices and capital spending.
Net revenues in 1997 of $171 million increased $14 million over 1996 net
revenues of $157 million. This was due to significantly lower crown royalties as
a result of the implementation of the new oil sands royalty regime effective
January 1, 1997. Syncrude experienced another record production year, with
Gulf's share of sales volumes increasing to 18,900 b/d in 1998 from 18,600 b/d
in 1997. Sales volumes in 1997 increased from the 1996 average level of 18,200
b/d as a result of the opening of a new mining train in the North Mine and a
higher bitumen conversion yield.
Gulf's share of capital expenditures at Syncrude increased to $43 million
in 1998 from $32 million in 1997. The major project in 1998 was the Aurora mine,
which is the next phase of expansion and is scheduled for start-up mid-2000.
Capital expenditures in 1997 increased $13 million from $19 million in 1996
attributable to the new North Mine train, debottlenecking extraction and
upgrading facilities and development work on the Aurora Mine.
SYNCRUDE
<TABLE>
<CAPTION>
1998 1997 1996
$ MILLIONS $/BBL $ millions $/bbl $ millions $/bbl
---------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross oil revenues 139 20.20 189 27.84 194 29.22
Royalties 0 0.03 (18) (2.64) (37) (5.56)
--- ------ --- ----- --- -----
Net oil revenues 139 20.23 171 25.20 157 23.66
Other revenue 1 0.10 1 0.07 1 0.11
Operating expenses (95) (13.76) (94) (13.84) (93) (13.95)
Depreciation, depletion
and amortization expense (17) (2.52) (16) (2.33) (19) (2.84)
--- ------ ---- ------ --- ------
Net operating income 28 4.05 62 9.10 46 6.98
Non-cash items 17 2.52 16 2.33 19 2.86
--- ------ ---- ------ --- ------
Cash generated 45 6.57 78 11.43 65 9.84
=== ====== ==== ====== === ======
Capital and exploration expenditures 43 32 19
Gross proved reserves additions
(millions of barrels) 0 39 0
BARRELS SOLD (thousands of barrels
per day) 18.9 18.6 18.2
SYNCRUDE PRICE (dollars per barrel) 20.20 27.84 29.22
</TABLE>
INDONESIA
Gulf owns 72 per cent of Gulf Indonesia Resources Limited and consolidates its
results. The Indonesian segment consists of onshore operations, which are mainly
focused on the island of Sumatra, and offshore operations located in the West
Natuna Sea.
Cash generated from operations of $81 million decreased by $42 million from
1997, reflecting lower oil prices. Cash generated from operations in 1997 of
$123 million increased $49 million from $74 million in 1996, reflecting in large
part the impact of the Company's acquisition of Clyde Petroleum plc's Indonesian
asset, the Kakap production sharing contract (PSC) in the West Natuna Sea.
The impact of lower oil prices combined with the increased cost of expensed
exploration were the main contributors to a $34 million net operating loss in
1998. These factors were partially offset by the start-up of the Corridor Gas
Project in the fourth quarter of 1998, which positively contributed to Gulf's
financial results. Net operating income in 1997 of $42 million was $4 million
higher than 1996. The Kakap PSC acquisition contributed $19 million in earnings
in 1997, which was offset by higher dry hole write-offs associated with
Indonesia's increased exploration program.
Net oil and gas revenue for 1998 was $124 million compared with $160
million for the same period last year. This reflects an $8.07 per barrel decline
in the average liquids price year over year, partially offset by the addition of
$11 million in net gas revenue from the Corridor Gas Project. Net oil revenues
in 1997 were $61 million higher than 1996 net oil revenues of $99 million. The
Kakap PSC accounted for the majority of the increase.
Operating expenses are based in US dollars and for 1998 increased to $4.89
per boe ($43 million) from $4.56 per boe ($37 million) in 1997, largely as a
result of a weaker Canadian dollar. Operating expenses in 1997 fell from $4.86
per boe ($25 million) in 1996 due to the addition of lower-cost production from
the Kakap PSC.
-22-
<PAGE> 24
Exploration expenses increased by $24 million to $50 million for 1998 due
to an increased level of activity. The Company drilled 24 exploration wells in
1998 compared with 12 in 1997. Of the total exploration wells drilled, ten, or
approximately 40 per cent of the exploratory wells, were dry in 1998 and five
were dry in 1997. Exploration expenses in 1997 increased by $19 million from $7
million in 1996 due to an increased level of activity.
Capital expenditures and exploration expenses decreased from $366 million
in 1997 to $284 million in 1998. This decrease reflects a reduced level of
spending related to the Corridor Gas Project (1998 -- $140 million; 1997 -- $255
million), where the major facilities for this project were completed in the
third quarter of 1998. Expenditures in 1997 of $366 million increased from $78
million in 1996 due to the construction of the Corridor Block Gas Project and
expenses related to the Kakap PSC.
Indonesia's economy continued to suffer severe setbacks into 1998 as a
result of political and economic turmoil, with a further decline in the value of
the Indonesian rupiah against the U.S. dollar. These currency fluctuations are
not expected to have a material long-term impact on Gulf's financial position as
all current revenues are U.S. dollar-denominated, all major contracts entered
into are in U.S. dollars and rupiah-denominated expenses are limited to
approximately 10-15 per cent of the Company's overall expenditure profile. The
sale of natural gas from the Corridor Block Gas Project is exchanged for
exportable Duri crude oil pursuant to a 15-year contract.
INDONESIA
<TABLE>
<CAPTION>
1998 1997 1996
$MILLIONS $/BOE $millions $/boe $millions $/boe
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross oil and gas revenues 150 17.24 218 26.55 139 27.34
Royalties (26) (3.02) (58) (7.11) (40) (7.81)
----- ----- ----- ----- ----- -----
Net oil and gas revenues 124 14.22 160 19.44 99 19.53
Operating expenses (43) (4.89) (37) (4.56) (25) (4.86)
Exploration expenses (50) (5.74) (26) (3.12) (7) (1.44)
Depreciation, depletion and amortization expense (65) (7.52) (55) (6.67) (29) (5.71)
----- ----- ----- ----- ----- -----
Net operating income (loss) (34) (3.93) 42 5.09 38 7.52
Non-cash items 115 13.26 81 9.79 36 7.15
----- ----- ----- ----- ----- -----
Cash generated 81 9.33 123 14.88 74 14.67
===== ===== ===== ===== ===== =====
Capital and exploration expenditures 284 366 78
Gross proved reserve additions
(millions of boes) 52 47 95
VOLUMES SOLD (gross)
Liquids (thousands of barrels per day) 20.5 22.5 13.9
Natural gas (millions of cubic feet per day) 20 0 0
PRICE
Liquids (unhedged, dollars per barrel) 18.48 26.55 27.34
Natural gas (dollars per thousand cubic feet)1.60 - -
</TABLE>
OTHER INTERNATIONAL
The other international segment includes the North Sea in the United
Kingdom and the Netherlands, Australia and various other exploration prospects.
UNITED KINGDOM
In May 1998, Gulf divested of its North Sea operations in the United
Kingdom involving some 28 licenses, including interests in the Wytch Farm,
Gryphon, Andrew and Ross fields. Oil production associated with these assets
averaged 7,200 b/d in 1998 compared with 17,000 b/d in 1997. Cash generated from
operations was $37 million, and netoperatingincome was $6 million in 1998, down
from $118 million and $39 million, respectively, in 1997. Exploration write-offs
and depreciation expense were $2 million and $29 million, respectively, compared
with $11 million and $69 million, respectively, in 1997.
-23-
<PAGE> 25
NETHERLANDS
Netherlands North Sea gas sales were 63 mmcf/d, virtually unchanged from a year
ago, while the acquisition of two oil producing blocks during the year added
2,600 b/d of liquids sales. Netherlands operations generated cash of $73 million
and net operating income of $10 million, which compares with $65 million and $12
million, respectively, in 1997.
During 1998, Gulf sold its 4.4 per cent interest in the K4/K5 non-operated
production license located in the Dutch North Sea for cash plus interests in
strategic, operated exploration properties.
Total capital and exploration expenditures were $51 million, up from $31
million in 1997. Exploration write-offs and depreciation expense were $9 million
and $54 million, compared with $4 million and $49 million, respectively, for
1997.
AUSTRALIA
During 1998, Gulf Australia completed the acquisition of 50 per cent interests
in the Jabiru and Challis production licences and a 43 per cent interest in the
Skua production licence. These fields are located in the Timor Sea off the north
coast of Western Australia. Gulf Australia also acquired a 70 per cent interest
in the W97-2 block in the Timor Sea. This block is located in close proximity to
the Jabiru and Challis production licences. Sales from Australia averaged 9,300
boe/d, with average oil and liquids sales of 5,600 b/d and natural gas of 23
mmcf/d. This resulted in cash generation of $32 million and net operating income
of $1 million. In 1997, sales averaged 5,000 boe/d, with average oil and liquids
sales of 1,600 b/d and natural gas of 21 mmcf/d. Cash generation and net
operating income were $26 million and $8 million, respectively.
As part of Gulf's divestitures program, a 1.2 per cent interest in a South
West Queensland Unit and associated natural gas production was sold for net
proceeds of $33 million
Total capital and exploration expenditures were $28 million, up $6 million
from a year ago. Exploration write-offs and depreciation expense were $7 million
and $24 million, respectively, compared with $5 million and $14 million,
respectively, for 1997.
OTHER INTERNATIONAL
Gulf's other international holdings had liquid sales of 500 b/d and natural gas
sales of 1 mmcf/d, resulting in cash generation of $1 million and a net
operating loss of $22 million. Capital and exploration expenditures in Mongolia,
Algeria, Yemen, Argentina, Syria, Libya, Romania, the Falklands and the Ivory
Coast amounted to $45 million. Exploration expense was $20 million, relating
primarily to activity in Mongolia and Algeria, and depreciation expense was $3
million.
At the beginning of the year Gulf acquired a 75 per cent working interest
in four production-sharing contracts in Mongolia. In an effort to focus on core
areas, however, the Company made a decision to either sell or withdraw from the
majority of its non-producing international holdings including Mongolia,
Albania, Romania, Yemen, Argentina, Syria, Libya and the Falklands.
OTHER INTERNATIONAL*
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
$millions $/boe $millions $/boe
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Gross oil and gas revenues 198 17.98 264 21.84
Royalties (10) (0.88) (12) (1.00)
----- ----- ----- -----
Net oil and gas revenues 188 17.10 252 20.84
Other revenue 14 1.27 8 0.65
Operating expenses (59) (5.34) (49) (4.07)
Exploration expenses (38) (3.48) (26) (2.17)
Depreciation, depletion and amortization
expense (110) (9.89) (133) (11.04)
----- ----- ----- -----
Net operating income (loss) (5) (0.34) 52 4.21
Non-cash items 148 13.37 159 13.20
----- ----- ----- -----
Cash generated 143 13.03 211 17.41
===== ===== ===== =====
Capital and exploration expenditures 142 122
Gross proved reserve additions (millions of
boes) 9 26.5
VOLUMES SOLD (gross)
Liquids (thousands of barrels per day) 15.9 19
Natural gas (millions of cubic feet per day) 87 84
PRICE
Liquids (unhedged, dollars per barrel) 17.82 23.96
Natural gas (dollars per thousand cubic feet) 3.02 3.16
*Excludes hedging
</TABLE>
-24-
<PAGE> 26
CORPORATE
Gulf's consolidated net loss was $562 million, compared with earnings of $204
million and $37 million in 1997 and 1996, respectively. Total cash generated
from operations was $371 million in 1998, down from $592 million in 1997 and
$440 million in 1996. The 1998 discontinued operations gain of $24 million
relates to the sale of an undeveloped tract of land in Reno, Nevada.
The Company's hedging program is designed to mitigate downside risk while
providing Gulf with a reliable level of cash flow upon which to base capital
expenditures. Gulf's hedging activity, which relates to commodity price and
exchange rate contracts, increased pre-tax earnings and cash generation by $58
million in 1998; this compares with a net loss of $22 million in 1997 and a net
loss of $69 million in 1996. Low market crude oil prices were the main reason
for the gain in 1998.
During 1998, the Company incurred a net loss on asset disposals and net
provision for other losses of $170 million, compared with $75 million in 1997
and a $5 million gain in 1996 (see note 2).
Additional one-time items during 1998 include a $212 million before-tax
reduction in the carrying value of assets based on lower oil price assumptions.
Heavy oil assets acquired in the purchase of Stampeder account for substantially
all of this amount.
Other revenue net of other expenses provided earnings of $13 million in
1998, compared with $32 million in 1997 and $10 million in 1996. Results for
1997 benefited from foreign exchange gains.
During the year Gulf incurred restructuring and pension charges of $45
million, which compares with $67 million a year ago. Gulf's plan to annuitize
its defined benefit pension plan resulted in a 1997 charge of $53 million
relating to deferred pension expenses, compared with a charge of $6 million in
1998. Earnings in 1998 were also impacted by $39 million of restructuring
charges relating to organizational changes, compared with $14 million in 1997.
General and administrative expenses for 1998 decreased $6 million to $62
million partially as a result of eliminating expenses related to the U.K.
operations. On a unit-of-production basis, general and administrative costs were
$0.94 per boe compared with $1.03 per boe for 1997. General and administrative
costs in 1997 of $68 million increased from $49 million in 1996 due primarily to
the addition of the Clyde and Stampeder operations.
Finance charges for 1998 were $278 million, up $56 million from 1997.
Additional amortization of deferred foreign exchange on U.S. dollar-denominated
debt accounted for $54 million of the net increase. In spite of using a net $399
million to pay down debt, cash finance charges were virtually unchanged from
1997 as the paydown was primarily in the fourth quarter and a weaker Canadian
dollar increased the Company's Canadian dollar interest expense. Finance charges
of $222 million in 1997 increased from $79 million in 1996. The change was
primarily related to an increase of $79 million in interest expense on long-term
debt and an increase in net short-term interest expense of $72 million due to
the Clyde acquisition in 1997 and an income tax refund received in 1996.
Income tax was a recovery of $151 million in 1998, compared with an expense
of $59 million in both 1997 and 1996. The effective tax rate in each of the
years varies substantially from the statutory rate largely as a result of the
amortization or sale of assets that do not have a tax basis.
CORPORATE AND OTHER
<TABLE>
<CAPTION>
(millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Hedging gains (losses), net 58 (22) (69)
Gain on sale of shares by subsidiary 0 417 0
Net gain (loss) on asset disposals and provision
for other losses (170) (75) 5
Reduction in carrying value of assets (212) 0 0
Other revenue 80 43 19
Operating expenses -- other (67) (11) (9)
Exploration expense 0 0 (2)
Depreciation, depletion and amortization (1) (5) (6)
Pension settlement and restructuring charges (45) (67) (4)
General and administrative expenses (62) (68) (49)
Finance charges, net (278) (222) (79)
Income tax (expense) recovery 151 (59) (59)
Minority interest 12 4 0
---- ---- ----
Net loss (534) (65) (253)
Non-cash items 288 (261) 50
---- ---- ----
Cash required (246) (326) (203)
==== ==== ====
Capital expenditures 7 25 23
</TABLE>
-25-
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Gulf's 1998 operating activities generated $353 million, investing activities
provided an additional $219 million as asset sale proceeds exceeded capital
spending, and a further $59 million was received from the issue of equity. These
cash inflows totaled $631 million, of which $31 million was used to pay
dividends. In addition, debt was reduced by a net $399 million, a rate swap was
settled for $40 million, and cash increased by $161 million.
Long- and short-term debt decreased from $2,865 million at the end of 1997
to $2,593 million at December 31, 1998. In addition to the $399 million net debt
reduction referred to above, an asset purchaser assumed $110 million of the
Company's debt. However, a weaker Canadian dollar caused the Company's year-end
debt to increase by $173 million, and a rate swap and other placement costs
reduced proceeds from the issue of debt by $66 million.
During 1998, Gulf also made substantial progress to move from bank credit
facilities to public debt. Outstanding bank facilities debt was reduced from
$1,000 million at the end of 1997 to $143 million at the end of 1998. Going into
1999, the Company has a current portion of long-term debt totaling $215 million
and cash on hand of $349 million. Looking beyond 1999, the Company has debt
repayment obligations of $83 million per year for the period from 2000 to 2003.
The Company also has uncommitted credit facilities of $767 million and
uncommitted operating bank lines of $129 million.
Gulf's 1999 capital budget is currently $300 million, budgeting just under
50 per cent in Canada, 30 per cent in Indonesia and the remainder largely in the
Netherlands and Australia. Gulf currently expects to finance this budget without
increasing net debt.
RISK MANAGEMENT
Gulf is exposed to a variety of risks, including changes in commodity prices,
foreign currency exchange rates and interest rates. Gulf's Board of Directors
has authorized commodity trading activities, provided that the Company's total
risk of loss shall not exceed $5 million at any time. The authorities include
limits on both the number of uncovered cumulative positions and maximum dollar
loss amounts. Control is maintained through the separation of trading and
accounting functions, as well as through daily mark-to-market reporting. Gulf
has not engaged in any significant speculative foreign exchange or commodity
price transactions. For more information on these exposures, see Note 17.
COMMODITY PRICES
Gulf's results of operations are dependent upon the difference between prices
received for its oil and natural gas production and the costs to find and
produce such oil and natural gas. The Company's major market risk exposure is in
the pricing applicable to its oil and gas production. Realized pricing is
primarily driven by the prevailing worldwide price for crude oil and spot prices
applicable to its natural gas production. Historically, prices received for oil
and gas production have been volatile and unpredictable. Pricing volatility is
expected to continue.
The Company periodically enters into hedging activities with respect to a
portion of its projected oil and natural gas production. Gulf may use futures
contracts, swaps, options and fixed-price physical contracts to hedge its
commodity prices. Gains or losses on natural gas derivative contracts are
expected to offset variability in the spot market price or to preserve the
margin on existing physical contracts. Realized gains or losses from the
Company's hedging activities are recognized in oil and gas production revenues
when the associated production occurs. Gulf does not hold or issue any
significant amount of derivative instruments for trading purposes.
The maximum potential loss in the fair value of futures, options and
financial forward contracts at December 31, 1998, is estimated to be $8 million
with a 99.5 per cent confidence interval. This value at risk is based on a
one-day holding period and is determined using a derivative of the Black-Scholes
European option pricing model, which calculates a probability distribution of
prices based on market-determined volatility.
The Company did not have any open market positions with respect to crude
oil hedging at December 31, 1998.
FOREIGN CURRENCY EXCHANGE RATES
Gulf's reported results from operations are affected by the exchange rate
between the Canadian dollar and other currencies, particularly the U.S. dollar.
Prices for substantially all of Gulf's Western Canada oil production and
approximately 23 per cent of its natural gas and other liquids production are
U.S. dollar-denominated, while most of its expenses (with the exception of
interest costs on U.S. dollar-denominated debt), are denominated in Canadian
dollars. The Company's reported cash flows relating to international operations
are based on the Canadian dollar equivalent of cash flows measured in foreign
currencies. Australian crude oil revenue is received in U.S. dollars, while gas
is sold under fixed-price Australian dollar contracts; substantially all capital
expenditures and operating costs are paid in Australian dollars. Netherlands
revenues are based in U.S. dollars, while costs are denominated in Dutch
guilders. Substantially all of the Company's other international transactions
are denominated in U.S. dollars. Transactions in foreign currencies are
converted to Canadian dollar amounts based on the exchange rates prevailing on
the dates of the transactions.
-26-
<PAGE> 28
To mitigate the impact of exchange rate fluctuations on revenues, Gulf
attempts to hedge its U.S. dollar exposure in two ways. First, it seeks to incur
its debt in U.S. dollars. Based on Gulf's U.S. dollar-denominated debt at
December 31, 1998,a 10 per cent ($0.153) change in the value of the U.S. dollar
relative to the Canadian dollar would result in a $254 million unrealized gain
or loss on the carrying amount of such debt and would affect annual interest
expense by $20 million.
Second, Gulf undertakes forward sales of U.S. dollars into Canadian
dollars. The Company monitors its foreign exchange exposures daily to ensure the
overall effectiveness of its foreign currency hedge positions. However, there
can be no assurance that the Company's foreign currency hedging activities will
substantially offset the impact of fluctuations in currency exchange rates on
its results of operations and financial position. Based on Gulf's forward
contracts at December 31, 1998, a 10 per cent ($0.153) increase in the value of
the U.S. dollar relative to the Canadian dollar would result in cumulative
losses to 2001 on settlement of these contracts of $96 million. This sensitivity
measure is the undiscounted before-tax cash flows realized on the contracts
based on the foreign exchange forward curve.
Both of these strategies offer benefits to the Company in the event of a
decline in the U.S. dollar relative to the Canadian dollar by decreasing its
Canadian dollar equivalent cost of debt service obligations and by creating a
gain on the forward sales of U.S. dollars.
INTEREST RATES
At December 31, 1998, about $564 million, or 22 per cent, of Gulf's total debt
was variable rate. The impact on annual before-tax cash flow of a 10 per cent
change in the floating rate (approximately 71 basis points) would be $4 million.
YEAR 2000
The Company is devoting significant resources throughout its business operations
to the Year 2000 ("Y2K") issue. The Company's goal is business continuity and
sustained operations beyond December 31, 1999, without significant disruption or
material financial impact resulting from the Y2K issue. The Y2K issue is a
result of computer programs tracking and storing dates represented by only two
century digits (e.g., 98 rather than 1998) to define the applicable year.
Without the century digits the last day of this millennium will be 99-12-31, and
after midnight, any information technology ("IT") systems that have
time-sensitive software may recognize the date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations and systems
failures. The problem also extends to many "non-IT"systems, that is, distributed
control, scada and embedded chips used in its field operations both on and off
shore. Like most other businesses, the Company is also at risk from Y2K failures
in public and private infrastructure services, including power, water,
transportation and telecommunications.
System failures resulting from the Y2K issue could adversely affect
operations and financial results of the Company. The Company's primary risk lies
in its internal date-dependent systems, including computer hardware, software
and field control devices. The Company is also exposed to third-party risk
through its financial institutions, joint interest partners, product
transportation systems (pipelines, railcars and tankers), vendors and customers
whose systems may be affected by the Y2K issue.
Addressing the Issue. In the fourth quarter of 1997, the Company organized
a worldwide corporate task force to review Y2K issues, identify potential
impacts, risks and preparations, and allocate appropriate resources. The task
force developed a seven-phase approach to resolving the Y2K issues that are
reasonably within its control. Since the initiation of this project,
approximately 50 employees have devoted a significant portion of their time to
Year 2000 efforts. In addition, the Company has retained several outside
consultants to assist with specific phases of the plan. The task force reports
regularly to the Audit Committee and the Board of Directors with respect to the
Company's Y2K efforts.
The Company's approach to and the anticipated timing of each phase are
described below:
Phase 1 -- Issue Identification. In the first quarter of 1998, the task
force conducted an extensive inventory of the Company's software applications,
operating systems, hardware, netware, control systems, key business partners and
service providers to identify Y2K issues and compliance. During the inventory
phase and throughout this project, the Company enlisted individual employees who
have an intimate knowledge of their specific workplaces, tools and third-party
relationships to identify items not captured in the initial inventory and ensure
that such items were assessed and, if required, remediated.
Phase 2 -- Investigating Compliance. In the second quarter of 1998, the
Company began to investigate the compliance of its inventoried items, ensuring
those items that posed the greatest risk were dealt with first. The level of
risk was established using the Company's corporate risk assessment model to rank
items in terms of their safety and potential impact on its business. The task
force focused on "high-risk" items and evaluated results with a view to
upgrading, replacing, retiring or working around non-compliant items. Part of
the investigation was the implementation of a testing program for critical
systems.
-27-
<PAGE> 29
As the inventory phase came to a close, the Company implemented a "Clean
Management Date" to ensure further Y2K issues were minimized. That is, after
June 15, 1998, the Company required that all acquisitions of software, hardware
or other equipment with date-sensitive components be reported to the task force
and be Year 2000-compliant.
Because the Y2K challenge is a global issue with a cross-industry focus,
the Company closely reviewed its list of key business partners and service
providers to assess their state of Y2K readiness through letter campaigns and
interviews. The Company intends to continue its review of business partners and
service providers throughout the remaining phases of the plan.
Phases 3 and 4 -- Corrective Measures and Sustainable Operations (Q3 and
Q4, 1998). Phases 3 and 4 involved the correction of Y2K issues. During these
phases the decisions from the compliance investigation phase relating to high-
and selected moderate-risk items were implemented. For non-compliant items a
decision was made to: upgrade, replace, retire, work around or ignore. During
Phase 4, the task force followed up with interviews with partners and vendors
deemed to have a potentially large impact on its business should such partners
or vendors encounter Y2K issues. Because the Company recognizes that achieving
total Y2K compliance is not realistic, during Phase 4 contingency and crisis
management planning will be addressed. The Company expects to complete its
contingency and crisis management plans by June 30, 1999.
Phase 5 -- Continuing Issue Management (Q1-Q3 1999).This phase involves
addressing remaining less critical systems and continuing to assess the adequacy
of measures taken by the Company's business partners and vendors to prepare for
the Year 2000. The Company expects to be fully compliant from an internal
standpoint by the end of this phase; however, due to the Company's reliance on
third party vendors and customers, the Company cannot ensure complete Y2K
compliance. The Company intends to discontinue business with any of its vendors
who have not identified their compliance and are not willing or able to provide
a positive statement of their Y2K readiness by June, 1999.
Phase 6 -- Y2K Readiness (Q4 1999). During this phase, the task force
intends to focus on its Y2K response mechanisms and problem management, while
continuing to deal with any remaining compliance issues and outstanding business
partner and vendor concerns.
Phase 7 -- Y2K Response (January 1 - June 30, 2000). Although the task
force will have marshaled every effort to limit Y2K problems, during this phase
the planning and processes completed in Phase 5 will be implemented, remaining
in place as long as there is a need. The task force has established a crisis
communications team that will staff a communications center in Calgary beginning
December 31, 1999. The team will chart Y2K events and issues, beginning with
Australian and Indonesian operations mid-morning through to midnight and beyond
in North America.
Costs. As at December 31, 1998, the Company had incurred costs of
approximately $3.5 million related to its Y2K project. The estimated additional
costs to complete the project are currently expected to be $6.5 million. A
significant portion of these costs have been or will be incurred for the
replacement of non-compliant equipment, with some of these costs being shared by
the Company's partners. All of the Company's costs for the Y2K project are being
paid out of operating expenses.
Based upon its efforts to date, the Company believes that it has addressed
the majority of its critical IT and non-IT systems such that its critical
systems will function properly into the Year 2000. Accordingly, the Company does
not currently anticipate that internal systems failures will result in any
material adverse effect to its operations or financial condition. During 1999,
the Company will continue and expand its efforts to ensure that its key business
partners, third-party vendors and customers will also be prepared for the Year
2000 and to develop contingency plans to address any failures on their part to
become Y2K-compliant. At this time, the Company believes that the most likely
"worst case" scenario involves potential disruptions worldwide in areas where
the Company relies on third-party providers of power, telecommunications and
transportation. As well, the Company's operations in Indonesia may be adversely
affected by failures of third-party vendors, refiners and customers to take
adequate steps to address the Y2K problem. In recognition of the potential
impacts in Indonesia, the Company has taken steps to identify alternative
providers of goods and services along with alternative markets to address
concerns with refiners and other customers. While such failures could affect the
operations of the Company and its subsidiaries, either directly or indirectly,
in a significant manner, the Company cannot at present estimate either the
likelihood or the potential cost of such failures. The Company is, however,
currently developing contingency plans to mitigate any material impact on the
Company's business.
The Company may revise the timing and focus of its efforts to
address the Year 2000 problem from time to as new issues are
identified. The description of the Company's efforts involves
estimates and projections derived using numerous assumptions of future
events including continued access to key resources. The Company cannot
guarantee these estimates will be achieved, and actual results could
differ materially from the plans, as it is impossible to predict the
cost and availability of materials and resources as the year 2000
approaches.
-28-
<PAGE> 30
SENSITIVITIES
Based on current production and price estimates and current hedge positions, the
estimated effect on the Company's financial results for 1999 of a change in the
following factors is set out below:
<TABLE>
<CAPTION>
Cash generated from
continuing operations
(millions of dollars)
<S> <C> <C>
Production volumes Oil and liquids -- 1,000 b/d 3
Natural gas -- 10 mmcf/d 4
Price changes (1) Oil and liquids -- US$1.00 per bbl 57
Natural gas (Canada) -- C$0.10 per mcf 6
Exchange rate (1) US$/C$ -- one cent change 4
Interest rate (1) 1% change in interest rates 5
</TABLE>
[FN]
(1) The impact of hedging contracts in place at December 31, 1998, has been
included.
</FN>
-29-
<PAGE> 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - The
information required by this Item 7A is provided in Item 7. Management's
Discussion and Analysis of Financial Condition under the heading Risk
Management.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-30-
<PAGE> 32
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Gulf Canada Resources Limited (Gulf) is responsible for
preparing the accompanying consolidated financial statements. The consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in Canada and are necessarily based in part on management's
best estimates and judgments. When alternative accounting methods exist,
management has chosen those it deems most appropriate in the circumstances. The
financial information included elsewhere in the Annual Report is consistent with
that contained in the consolidated financial statements.
Gulf maintains a system of internal control including an internal audit
function. Management believes that this system of internal control provides
reasonable assurance that financial records are reliable and form a proper basis
for preparation of financial statements. The internal control process includes
communication to employees of Gulf's standards for ethical business conduct.
The Board of Directors is responsible for ensuring that management fulfills
its responsibilities for financial reporting and internal controls. The Board
exercises this responsibility through its Audit Committee, none of whom are
officers or employees of Gulf. The Committee meets with management, its internal
auditors and the independent auditors to satisfy itself that each group is
properly discharging its responsibilities and to review the consolidated
financial statements and the independent auditors' report. The Audit Committee
reports its findings to the Board of Directors for consideration in approving
the consolidated financial statements for issuance to the shareholders. The
Committee also considers, for review by the Board and approval by the
shareholders, the engagement or re-appointment of the external auditors.
The consolidated financial statements have been examined by the independent
auditors, Ernst & Young LLP, and their report follows. The independent auditors
have full and free access to the Audit Committee.
[SIGNATURE] [SIGNATURE]
R. H. Auchinleck G. S. Glick
President and Chief Executive Officer Executive Vice-President
and Chief Financial Officer
Calgary, Canada
February 19, 1999
AUDITORS' REPORT
TO THE SHAREHOLDERS OF GULF CANADA RESOURCES LIMITED:
We have audited the consolidated statements of financial position of Gulf Canada
Resources Limited as at December 31, 1998 and 1997 and the consolidated
statements of earnings (loss) and retained earnings (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
1998 and 1997 and the results of its operations and the cash flows for each of
the years in the three-year period ended December 31, 1998, in accordance with
accounting principles generally accepted in Canada.
[SIGNATURE]
Ernst & Young LLP
Chartered Accountants
Calgary, Canada
February 18, 1999
-31-
<PAGE> 33
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
(millions of dollars - except per share amounts) 1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
EARNINGS (LOSS)
REVENUES
Net oil and natural gas $1,072 $1,254 $ 856
Gain on sale of shares by subsidiary (Note 1) 0 417 0
Other 125 76 40
------ ------ -----
1,197 1,747 896
------ ------ -----
EXPENSES
Operating
Production 419 385 297
Other 90 17 15
Exploration 191 150 70
General and administration 62 68 49
Depreciation, depletion and amortization 479 504 289
Net loss (gain) on asset disposals and provision
for other losses (Note 2) 170 75 (5)
Reduction in carrying value of assets (Note 2) 212 0 0
Pension settlement and restructuring charges
(Note 2) 45 67 4
Finance charges, net (Note 3) 278 222 79
Income tax expense (recovery) (Note 4) (151) 59 59
Minority interest (12) (4) 0
------ ------ -----
1,783 1,543 857
------ ------ -----
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (586) 204 39
Discontinued operations (Note 5) 24 0 (2)
------ ------ -----
EARNINGS (LOSS) FOR THE YEAR $ (562) $ 204 $ 37
====== ====== =====
PER ORDINARY SHARE (NOTE 6)
Earnings (loss) from continuing operations $(1.77) $ 0.62 $0.04
Earnings (loss) $(1.70) $ 0.62 $0.03
RETAINED EARNINGS (DEFICIT)
BALANCE, BEGINNING OF YEAR $ 181 $ 0 $ (8)
Earnings (loss) for the year (562) 204 37
Dividends declared on preference shares (Note 15) (31) (23) (29)
------ ------ -----
BALANCE, END OF YEAR $ (412) $ 181 $ 0
====== ====== =====
</TABLE>
(See summary of significant accounting policies and notes to consolidated
financial statements.)
-32-
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
(millions of dollars) 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
EARNINGS (LOSS) FROM CONTINUING OPERATIONS $ (586) $ 204 $ 39
NON-CASH ITEMS INCLUDED IN EARNINGS (LOSS)
DEPRECIATION, depletion and amortization 479 504 289
Net loss (gain) on asset disposals and provision for other losses 170 75 (5)
Gain on sale of shares by subsidiary 0 (417) 0
Amortization of deferred foreign exchange losses (Note 3) 71 17 15
Reduction in carrying value of assets 212 0 0
Pension settlement and restructuring charges (Note 2) 22 53 0
Exploration expense 191 150 70
Deferred income taxes (Note 4) (171) 17 41
Other (17) (11) (9)
------ ------- -----
CASH GENERATED FROM CONTINUING OPERATIONS 371 592 440
Other long-term liabilities (18) (10) (15)
Changes in non-cash working capital (Note 7) 8 43 (44)
Other, net (8) (4) (9)
------ ------- -----
353 621 372
------ ------- -----
INVESTING ACTIVITIES
Proceeds on asset disposals 1,019 1,099 278
Advance from sale of Midstream assets (Note 2) 100 0 0
Acquisitions (Note 8) (67) (1,944) (284)
Capital expenditures and exploration expenses (850) (1,133) (644)
Changes in non-cash working capital (Note 7) (19) 3 (21)
Other, net 36 39 (72)
------ ------- -----
219 (1,936) (743)
------ ------- -----
DIVIDENDS
Regular dividends declared on preference shares (31) (23) (29)
Special dividends declared on preference shares (Note 15) 0 (45) (13)
Changes in non-cash working capital (Note 7) 0 (1) 0
------ ------- -----
(31) (69) (42)
------ ------- -----
FINANCING ACTIVITIES
Short-term loans, other 4 (176) 223
Proceeds from issue of long-term debt 540 1,628 500
Long-term debt repayments (943) (897) (421)
Issue of equity 59 964 150
Settlement of rate swap (40) 0 0
------ ------- -----
(380) 1,519 452
------ ------- -----
INCREASE IN CASH 161 135 39
CASH AT BEGINNING OF YEAR 188 53 14
------ ------- -----
CASH AT END OF YEAR $ 349 $ 188 $ 53
====== ======= =====
</TABLE>
(See summary of significant accounting policies and notes to consolidated
financial statements.)
-33-
<PAGE> 35
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31
----------------
(millions of dollars) 1998 1997
------ ------
<S> <C> <C>
ASSETS
CURRENT
Cash and short-term investments $ 349 $ 188
Accounts receivable (Note 17b) 268 346
Other (Note 9) 133 121
------ ------
750 655
INVESTMENTS, DEFERRED CHARGES AND OTHER ASSETS (NOTE 10) 325 238
PROPERTY, PLANT AND EQUIPMENT (NOTE 11) 4,607 5,736
------ ------
$5,682 $6,629
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Short-term loans (Note 13) $ 47 $ 51
Accounts payable 293 420
Current portion of long-term debt (Note 13) 215 29
Current portion of other long-term liabilities (Note 14) 57 37
Other (Note 12) 177 129
------ ------
789 666
LONG-TERM DEBT (NOTE 13) 2,331 2,785
OTHER LONG-TERM LIABILITIES (NOTE 14) 336 201
DEFERRED INCOME TAXES 60 307
MINORITY INTEREST 178 220
------ ------
3,694 4,179
------ ------
Commitments and contingent liabilities (Notes 18 and 19)
SHAREHOLDERS' EQUITY
Share capital (Note 15)
Senior preference shares 577 577
Ordinary shares 1,719 1,660
Contributed surplus 35 35
Retained earnings (deficit) (412) 181
Foreign currency translation adjustment (Note 16) 69 (3)
------ ------
1,988 2,450
------ ------
$5,682 $6,629
====== ======
</TABLE>
(See summary of significant accounting policies and notes to consolidated
financial statements.)
-34-
<PAGE> 36
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Gulf Canada Resources Limited ("Gulf"
or "the Company") include the accounts of all subsidiary companies.
Substantially all of the activities of Gulf are conducted jointly with others,
and these financial statements reflect the proportionate interest in such
activities. Investments in companies in which Gulf exercises significant
influence are accounted for on the equity basis.
PROPERTY, PLANT AND EQUIPMENT
The successful efforts method of accounting is followed 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 cost 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. Individually insignificant unproved properties are amortized on a group
basis at rates determined after considering past experience and lease terms.
Certain costs relating to significant acquisitions and major projects remain
undepreciated pending evaluation or completion of development.
As changes in circumstances warrant, the net carrying values of proved
properties, plant and equipment, and significant unproved properties are
assessed to ensure that they do not exceed future cash flows from use or
disposal. The estimated future costs to dispose of an asset or to exit an
activity are recognized at the time that a commitment to such action is made.
ENVIRONMENTAL AND SITE RESTORATION LIABILITIES
Future obligations for site-restoration costs, including dismantling plants and
abandoning properties, are provided for using the unit-of-production method or,
where appropriate, the estimated remaining useful lives of the related assets.
Accruals for other potential environmental remediation obligations, such as
those related to discontinued downstream operations, are made when management
believes that Gulf has an obligation for remediation and the anticipated costs
can be estimated within a reasonable range.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of self-sustaining foreign subsidiaries are translated
into Canadian dollars at year-end exchange rates. The resulting unrealized
exchange gains or losses are reflected in shareholders' equity. Revenues and
expenses are translated using the average rates of exchange during the year.
Assets and liabilities of all other foreign subsidiaries and all other
transactions in foreign currencies are translated into Canadian dollars at the
exchange rates prevailing at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated into Canadian
dollars at year-end exchange rates. Exchange gains or losses are included in
earnings with the exception of the unrealized gains or losses on translation of
long-term monetary liabilities, which are deferred and amortized over the
remaining terms of such liabilities on a straight-line basis.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The pension plans, which cover Canadian and U.S. employees, have both defined
benefit and defined contribution options, which are company funded. The cost of
the defined benefit option reflects management's best estimates of the pension
plan's expected investment yields, salary escalation, mortality of members,
terminations and the ages at which members will retire. Defined benefit pension
plan assets are reported at market values. Adjustments arising from plan
amendments, transitional surplus, experience gains and losses and changes in
assumptions are amortized on a straight-line basis over the estimated average
remaining service lives of the employees. The unamortized balance of such costs
has been charged to earnings upon Gulf's decision to annuitize the defined
benefit plan. The cost of the defined contribution option reflects specific
amounts contributed on behalf of participating employees during the year. The
costs of post-retirement benefits other than pensions, including dental, medical
and life insurance, are accounted for on a cash basis.
-35-
<PAGE> 37
FINANCIAL INSTRUMENTS
A financial instrument is recognized when a contractual benefit or obligation
exists for the future receipt or payment of monetary amounts and is recorded at
inception at the fair value of consideration paid or received, along with the
costs of acquisition or issuance. A financial instrument held for disposal or
settlement is carried thereafter at the lower of original cost or market value.
One held over the long term or to maturity is carried at original cost and is
assessed as circumstances warrant to ensure that its carrying value does not
exceed its recoverable amount. Income or expense on a financial instrument is
recognized in each period on an accrual basis. A premium or discount on debt
bearing an interest rate different from the prevailing market rate and its costs
of issuance are deferred and amortized over the life of the debt.
DERIVATIVE INSTRUMENTS
Gulf enters into physical and financial forward sales contracts, options and
swap agreements to manage its exposure to changes in commodity prices, exchange
rates and interest rates. Gains and losses on the contracts that are used to
hedge such exposures on future transactions are recognized in the financial
statements when the hedged transactions occur and are included in the
measurement of such transactions. Changes in the market values of derivatives
that are not hedges, or that arise subsequent to when they cease to be effective
hedges, are recognized as gains and losses in the earnings of each period. Such
gains or losses are recorded in other revenues.
A derivative is treated as a hedge when all of the following criteria are met:
- - Gulf has an identified risk exposure to commodity prices, exchange rates,
interest rates or some other risk factor related to an asset or a liability, a
contractual commitment or a planned future transaction.
- - There is an offsetting relationship between the cash flows of the derivative
and those of the identified risk to be hedged.
- - Management intends to use the derivative to hedge the exposure. The derivative
is therefore designated as a hedge at its inception.
If a hedge is terminated early, or if the designation of a derivative as a hedge
is discontinued, any accumulated gain or loss up to that time continues to be
deferred until the hedged transaction occurs. If the term of a derivative used
as a hedge extends beyond the date of the hedged transaction, any deferred gain
or loss at that date is included in the measurement of the hedged transaction;
gains and losses thereafter are recognized in earnings on an accrual basis. If
the occurrence of a hedged transaction ceases to be likely, any deferred gain or
loss on the hedge is recognized in income immediately. An individually
significant loss is included in the 1998 provision for other losses in Gulf's
Consolidated Statements of Earnings (Loss).
INCOME TAXES
Gulf follows the deferred method of tax allocation for income taxes. Under this
method, deferred income taxes are recorded to the extent that income taxes
otherwise payable are reduced by capital cost allowances and exploration and
development costs in excess of the depletion and depreciation provisions
recorded in the accounts.
MEASUREMENT UNCERTAINTY
Certain items recognized in the financial statements are subject to measurement
uncertainty. The recognized amounts of such items are based on Gulf's best
information and judgment. Such amounts are not expected to change materially in
the near term. These include:
- - The amounts recorded for depletion, depreciation, amortization and impairment
of property, plant and equipment and future site restoration costs depend on
estimates of oil and gas reserves or the economic lives and future cash flows
from related assets. The provision for future site-restoration costs also
depends on estimates of such costs based on current legislation.
- - The recognized amounts of other potential environmental claims and liabilities
depend on estimates of the magnitude and probability of future costs.
- - The values of pension obligations and assets and the amount of pension costs
charged to earnings depend on certain actuarial and economic assumptions.
- - The amounts recorded for assets and liabilities of acquired companies depend
on estimates of their fair values on the acquisition date and are subject to
subsequent adjustment over a one-year period.
- - The recognized future costs of exiting activities and disposing of assets
depend on estimates of such amounts.
-36-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts expressed in millions of dollars except where otherwise noted)
1. GAIN ON SALE OF SHARES BY SUBSIDIARY
On September 29, 1997, Gulf completed a public offering of 28 per cent of the
shares of Gulf Indonesia Resources Limited (Gulf Indonesia), the Indonesian arm
of its oil and gas exploration and development activities. The Company sold
24,150,000 shares of Gulf Indonesia at US$19.50 per share for cash proceeds of
$602 million, net of $44 million of costs. A gain of $417 million ($384 million
after tax) associated with this transaction was recognized during the third
quarter of 1997. Prior to the public offering, Gulf Indonesia was a wholly owned
subsidiary of the Company.
2. UNUSUAL ITEMS
NET LOSS (GAIN) ON ASSET DISPOSALS AND PROVISION FOR OTHER LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Gain on sale of Midstream assets (a) $(232) $ 0 $ 0
Net loss (gain) on other asset disposals (b) 71 (42) (5)
Provision for expected losses on future asset
disposals (c) 246 117 0
Loss on interest rate swap agreement (Note 13) 40 0 0
Other (d) 45 0 0
----- ---- ----
$ 170 $ 75 $(5)
===== ==== ====
</TABLE>
[FN]
(a) In 1998, the Company sold 50 per cent of its Western Canadian natural gas
gathering and processing facilities, pipelines and gas products facilities,
as well as its natural gas and gas products marketing business for total
cash consideration of $290 million. Gulf's retained interest was combined
with that of the purchaser in the jointly controlled Gulf Midstream Services
business (GMS). Gulf also received $100 million subject to a future
obligation (see Note 21).
(b) In 1998, the net loss on other asset disposals includes the divestment of
various Western Canadian and international conventional, oil sands, and
offshore oil and natural gas properties, and an interest in a pipeline
project. In 1997 the net gain on other asset disposals consisted of a $27
million gain on the sale of the remaining portions of Gulf's northern
drilling system and a $15 million net gain on the sale of Western Canadian
oil and gas assets.
(c) The provision for expected losses on future asset disposals is the reduction
to estimated realizable value in the carrying amounts of assets of which the
Company expects to divest, along with estimated associated employee
severance costs. The 1998 provision relates to the planned sale of non-core
Western Canadian and international conventional oil and gas properties. The
1997 provision consists of write-downs of an undeveloped coal property of
$67 million, North American oil and gas assets of $47 million and other
assets of $3 million.
(d) Other provisions consist largely of impairments of investments and future
obligations.
</FN>
REDUCTION IN CARRYING VALUE OF ASSETS
As a result of a decline in oil prices in 1998, the Company recorded a provision
of $212 million for the write-down of certain Western Canadian oil and natural
gas assets. The write-down reflects the excess of net carrying amounts over
recoverable amounts as measured by undiscounted estimated future net cash flows.
PENSION SETTLEMENT AND RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Restructuring charges (a) $39 $14 $4
Pension settlement (b) 6 53 0
$45 $67 $4
</TABLE>
[FN]
(a) Restructuring charges pertain to costs and write-offs resulting from
organizational changes. (b)In 1997 deferred pension costs were written off
to reflect the Company's decision to commence a program
(b) In 1997 deferred pension costs were written off to reflect the Company's
decision to commence a program to annuitize the obligations of the defined
benefit pension plan (see Note 20). The charge in 1998 relates to the
performance of the pension assets.
</FN>
-37-
<PAGE> 39
3. FINANCE CHARGES, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH EXPENSES
Interest
Long-term debt $223 $182 $103
Short-term loans 4 29 7
---- ---- ----
Interest income on short-term investments (12) (11) (3)
Interest on net debt position (a) 215 200 107
Interest on income tax refunds (4) 0 (58)
Other 1 9 20
---- ---- ----
212 209 69
NON-CASH EXPENSES
Amortization of deferred foreign exchange losses 71 17 15
Other, net (5) (4) (5)
---- ---- ----
$278 $222 $ 79
==== ==== ====
</TABLE>
[FN]
(a) Net debt comprises long-term debt and short-term loans less cash and
short-term investments.
</FN>
4. INCOME TAX EXPENSE (RECOVERY)
The income tax expense (recovery) reflects an effective tax rate that differs
from the Canadian statutory rate of 44 per cent. This difference is mainly the
result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) from continuing operations before
income taxes
Canadian $(623) $ 225 $ 72
Foreign (114) 38 26
----- ----- ----
$(737) $ 263 $ 98
===== ===== ====
Computed income tax expense (recovery) at the
statutory rate $(323) $ 114 $ 43
Non-deductible and non-taxable amounts related to
Net capital gains (16) (148) (7)
Amortization of assets with no tax basis 55 47 12
Sales and write-downs of assets with no tax basis 111 21 9
Crown royalties and other payments to governments 31 58 64
Non-recognition of book losses 31 20 4
Resource allowance (44) (46) (52)
Syncrude remission 0 (4) (8)
Capital tax 10 7 5
Other (6) (10) (11)
----- ----- ----
Income tax expense (recovery) $(151) $ 59 $ 59
===== ===== ====
Current $ 20 $ 42 $ 18
Deferred (recovery) (171) 17 41
----- ----- ----
Income tax expense (recovery) $(151) $ 59 $ 59
===== ===== ====
</TABLE>
Foreign taxes account for $21 million, $34 million and $13 million of the
current taxes and $(12) million (recovery), $18 million and $9 million of the
deferred taxes in 1998, 1997 and 1996, respectively.
5. DISCONTINUED OPERATIONS
Discontinued operations related to Asamera Minerals Inc. and environmental costs
for Gulf's former downstream operations. In 1998, a gain of $24 million was
realized on the sale of non-producing land in the United States. There were no
income taxes applicable to this transaction.
6. EARNINGS (LOSS) PER ORDINARY SHARE
Earnings (loss) per ordinary share was calculated after deduction of cumulative
preference share dividend requirements of $31 million, $23 million and $29
million for 1998, 1997 and 1996, respectively. The weighted average number of
ordinary shares outstanding was 348,399,257 for 1998, 290,873,726 for 1997 and
238,156,206 for 1996. Earnings per share on a fully diluted basis was $0.58 in
1997, assuming all outstanding stock options at December 31, 1997, had been
exercised in 1997.
-38-
<PAGE> 40
7. CHANGES IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
(Increase) decrease in non-cash working capital
Accounts receivable (Note (17(b)) $ 78 $(51) $(138)
Other current assets (12) (38) (28)
Accounts payable (127) 143 72
Other current liabilities 48 43 13
----- ---- -----
(13) 97 (81)
Items not having a cash effect 2 (52) 16
----- ---- -----
$ (11) $ 45 $ (65)
===== ==== =====
The change relates to the following activities:
Operating $ 8 $ 43 $ (44)
Investing (19) 3 (21)
Dividends 0 (1) 0
----- ---- -----
$ (11) $ 45 $ (65)
===== ==== =====
</TABLE>
8. ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ------ ----
<S> <C> <C> <C>
Clyde Petroleum plc (a) $ 0 $1,056 $ 0
Stampeder Exploration Ltd. (b) (4) 802 0
Pennzoil Canada Inc. (c) 0 0 273
BHP Petroleum (Cartier) Pty Ltd. (Australia) 37 0 0
Nescor Energy Company (Mongolia) 15 0 0
Other oil and gas assets 19 86 11
--- ------ ----
$67 $1,944 $284
=== ====== ====
</TABLE>
(a) ACQUISITION OF CLYDE PETROLEUM PLC
Effective February 18, 1997, Gulf purchased all of the issued and
outstanding common shares of Clyde Petroleum plc for 120 UK pence per share.
The acquisition was accounted for using the purchase method. Gulf's
consolidated financial statements include the operating results of the
acquired business from February 18, 1997. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Property, plant and equipment $1,623
Investments and other assets 31
Working capital 124
Deferred income taxes (93)
Long-term debt (including current portion) (449)
Other long-term liabilities (38)
------
1,198
Less: cash and short-term investments acquired (142)
------
$1,056
======
</TABLE>
(b) ACQUISITION OF STAMPEDER EXPLORATION LTD.
Effective August 28, 1997, Gulf acquired all of the issued and outstanding
common shares of Stampeder Exploration Ltd. ("Stampeder") for total
consideration of $798 million (including $27 million of acquisition costs)
with consideration consisting of 0.69124 of a Gulf ordinary share for each
Stampeder common share (Note 15) and $69 million in cash on exercise of
Stampeder's option to acquire a major heavy oil property. This acquisition
was accounted for using the purchase method. Gulf's consolidated financial
statements include the operating results of the acquired business from
August 28, 1997. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Property, plant and equipment $1,248
Working capital (26)
Deferred income taxes (47)
Long-term debt (including current portion) (343)
Other long-term liabilities (23)
------
809
Less: cash and short-term investments acquired (11)
------
$ 798
======
</TABLE>
-39-
<PAGE> 41
(c) ACQUISITION OF PENNZOIL CANADA INC
Effective July 1, 1996, Gulf purchased all of the issued and outstanding
common shares of Pennzoil Canada Inc. for a net cash consideration of $273
million. The acquisition was accounted for using the purchase method. Gulf's
consolidated financial statements include the operating results of the
acquired business from July 1, 1996. The purchase price has been allocated
as follows:
<TABLE>
<S> <C>
Property, plant and equipment $286
Working capital 15
Deferred income taxes (22)
Other long-term liabilities (6)
----
$273
====
</TABLE>
9. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1998 1997
---- ----
<S> <C> <C>
Product inventories $ 21 $ 20
Materials and supplies 90 86
Prepaid expenses 19 12
Other 3 3
---- ----
$133 $121
==== ====
</TABLE>
10. INVESTMENTS, DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1998 1997
---- ----
<S> <C> <C>
Deferred foreign exchange loss on long-term debt $206 $139
Deferred long-term debt placement costs (Note 13) 101 40
Investment in equity securities 18 49
Other 0 0
---- ----
$325 $238
==== ====
</TABLE>
11. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED
GROSS DEPRECIATION
INVESTMENT DEPLETION AND NET
AT COST AMORTIZATION INVESTMENT
---------- ------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Exploration and production
North America $4,070 $1,662 $2,408
International 2,373 600 1,773
Syncrude 471 156 315
Oil sands and coal 150 71 79
Other 72 40 32
------ ------ ------
$7,136 $2,529 $4,607
====== ====== ======
Net carrying value of property, plant and
equipment not being amortized $1,064
======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
GROSS DEPRECIATION
INVESTMENT DEPLETION AND NET
AT COST AMORTIZATION INVESTMENT
---------- ------------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1997
Exploration and production
North America $4,192 $1,087 $3,105
International 2,680 464 2,216
Syncrude 432 143 289
Oil sands and coal 182 115 67
Other 91 32 59
------ ------ ------
$7,557 $1,841 $5,736
====== ====== ======
Net carrying value of property, plant and
equipment not being amortized $1,975
======
</TABLE>
-40-
<PAGE> 42
12. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
Accrued interest $ 82 $ 62
Accrued costs on asset sales 17 0
Income and other taxes payable 13 20
Accounts payable to related companies 13 0
Accrued acquisition costs 10 16
Accrued payroll and other employee costs 5 12
Other 37 19
---- ----
$177 $129
==== ====
</TABLE>
13. SHORT-TERM LOANS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
SHORT-TERM LOANS, UNSECURED
Bankers acceptances (1998 -- 5.7%; 1997 -- 4.2%)(1) $ 47 $ 51
====== ======
LONG-TERM DEBT
Bank credit facilities (1998 -- 6.2%; 1997 -- 5.8%)(1) $ 143 $1,000
8.25% notes payable 2017 (US$225 million) 344 321
8.35% notes payable 2006 (US$250 million) 383 357
8.375% notes payable 2005 (US$200 million) 305 0
9% debentures payable 1999 (US$125 million) 192 179
9.25% subordinated debentures payable 2004 (US$300 million) 459 428
9.625% subordinated debentures payable 2005 (US$200 million) 307 286
Long-term secured loan (US$243 million) (1998 -- 8.0%;
1997 -- 8.0%)(1) 373 215
Other secured loan (US$23 million) 35 28
Other 5 0
------ ------
2,546 2,814
Less installments due within one year (215) (29)
------ ------
$2,331 $2,785
====== ======
</TABLE>
[FN]
(1) Rates reflect the weighted average rate on instruments outstanding at
December 31. Rates vary with changes in short-term market interest rates.
</FN>
BANK CREDIT FACILITIES
As of December 31, 1998, the Company had $767 million available under committed
credit facilities, of which $143 million had been drawn. Gulf also had available
uncommitted operating bank lines totaling approximately $129 million, of which
$47 million had been drawn. Interest rates on the committed and uncommitted
facilities are based on the bankers' acceptance rate plus a spread that varies
between institutions and is based on certain financial tests. The average
effective rate on the balances outstanding during 1998 was approximately 6.2 per
cent on committed facilities and 5.7 per cent on uncommitted facilities. The
average effective rate on all balances outstanding during 1997 was approximately
6.1 per cent.
DEBENTURES AND NOTES
US dollar debentures and notes are unsecured with interest paid semiannually.
LONG TERM SECURED LOAN
In February 1997, the Company, along with its partner in the Corridor Block Gas
Project (the Project), entered into a Credit Agreement (Corridor Loan) with
various lending institutions. The Corridor Loan will provide up to US$450
million of financing to fund the development of the Project of which Gulf's
share is US$270 million. The borrowings are based on the London Interbank
Offered Rate. Interest and commitment fees related to the Corridor Loan are
capitalized until project completion (1998 -- $22 million, 1997 -- $7 million.
After completion of the project, the lender's recourse under the Corridor Loan
is limited to the Corridor production sharing contract asset pledged as
collateral.
-41-
<PAGE> 43
The expected minimum repayments on the Corridor loan are equal semiannual
installments beginning in August 1999 and ending in February 2007. Mandatory and
optional prepayments may also occur, depending on the cash flow generated by the
Project. The Project completion date is expected to occur during the first half
of 1999.
OTHER SECURED LOAN
The other secured loan represents senior notes issued by a wholly owned
subsidiary that are exchangeable at the option of the holder into shares of
Triton Energy Limited (currently held by the subsidiary) at a conversion price
of US$36.75. The Notes have a fixed rate of interest of 6% and are due February
14, 2004.
INTEREST RATE SWAPS
In 1997, Gulf entered into a transaction to lock in a yield of 6.71% on US$250
million thirty-year bonds in connection with a planned issue of debt securities
under a Shelf Registration Statement. In October 1998, Gulf changed its plans
and consequently recognized $40 million of the cumulative loss on the interest
rate contract, recorded in provision for other losses. The remaining loss of $54
million was included in the placement costs of debt issued on November 16, 1998.
DEBT REPAYMENTS
The Company's contractual minimum repayment requirements in respect of long-term
debt for the five years following December 31, 1998, are expected to be 1999 --
$215 million, 2000 -- $83 million, 2001 -- $83 million, 2002 -- $83 million and
2003 -- $83 million.
14. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
---- ----
<S> <C> <C>
Provision for environmental and site restoration costs (a) $183 $119
Deferred asset disposal proceeds (Note 2(a)) 91 0
Provision for future lease costs 29 25
Provision for losses under swap arrangements (Note 17(c)) 24 33
Other 66 61
---- ----
393 238
Less current portion (57) (37)
---- ----
$336 $201
==== ====
</TABLE>
[FN]
(a) $31 million of environmental and site restoration costs were charged to
earnings in 1998 ($28 million in 1997).
</FN>
15. SHARE CAPITAL
AUTHORIZED:
Senior preference shares -- unlimited number. These preference shares rank in
priority to the ordinary shares and may be issued from time to time in series
with the consideration per share, designation, attributes, including any
preemptive, redemption or conversion rights, and the number of each series to be
fixed by the directors prior to its issue.
Junior preference shares -- unlimited number. The attributes associated with
these shares are substantially the same as the senior preference shares except
that they rank junior to the senior preference shares.
Ordinary shares -- voting, unlimited number without nominal or par value.
-42-
<PAGE> 44
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING:
NUMBER AMOUNT
---------- ------
<S> <C> <C>
SENIOR PREFERENCE SHARES:
(As at December 31, 1996, 1997 and 1998)
Series 1 (a) 85,504,557 $ 428
===========
Series 2 (b) 300 149
=========== ------
$ 577
======
ORDINARY SHARES:
At December 31, 1995 219,196,635 $ 529
Issued pursuant to exercise of stock options (c) 2,628,537 13
Issued for cash 22,059,302 129
Issued for pension plan funding 628,402 5
Issued for acquisition 400,000 3
----------- ------
At December 31, 1996 244,912,876 679
Issued pursuant to exercise of stock options (c) 3,716,481 18
Issued for cash 23,000,000 241
Issued for acquisition of Stampeder 65,030,084 702
Issued pursuant to ordinary share warrants (d) 1,877,567 12
Issued for pension plan funding 116,353 1
----------- ------
At December 31, 1997 338,653,361 1,653
Issued pursuant to exercise of stock options (c) 419,950 2
Issued pursuant to ordinary share warrants (d) 9,876,733 62
Value of expired ordinary share warrants (d) 0 2
----------- ------
At December 31, 1998 348,950,044 $1,719
=========== ======
ORDINARY SHARE WARRANTS:
At December 31, 1996 13,750,000 $ 8
At December 31, 1997 11,872,433 7
At December 31, 1998 0 0
----------- ------
</TABLE>
(a) SERIES 1
Cumulative dividends accumulate monthly at a floating rate based on the
average prime rate of interest charged by specified Canadian banks,
adjusted for a factor based on the market price of the Series 1 shares.
These shares are non-voting and are redeemable, in whole or in part, at
the option of Gulf at a price of $5.00 per share.
On March 17, 1993, payment of dividends on the Series 1 shares was
suspended. Payment of dividends was reinstated on February 9, 1995. At
December 31, 1998 and December 31, 1997, Gulf had no dividends in arrears
(1996 -- $33 million or $0.39 per share). Dividends in arrears paid during
1997 were charged to contributed surplus.
(b) SERIES 2
Cumulative dividends are payable at rates determined by Gulf based on
negotiations with holders of the shares, or by a dealer bid or by auction
procedures. The shares are non-voting and are redeemable, in whole or in
part, at the option of Gulf at the end of any dividend period upon written
notice at an amount equal to $0.5 million per share.
On March 17, 1993, payment of dividends on the Series 2 shares was
suspended. Payment of dividends was reinstated on February 9, 1995. At
December 31, 1998, and December 31, 1997, Gulf had no dividends in arrears
(1996 -- $12 million or $40,000 per share). Dividends in arrears paid
during 1997 were charged to contributed surplus.
(c) At December 31, 1998, pursuant to the terms of Gulf's Incentive Stock
Option Plan (1994), options are outstanding to all employees to purchase an
aggregate 20,701,831 ordinary shares. Under the plan, 955,670 shares are
reserved but unallocated (1997 -- 4,741,281).
-43-
<PAGE> 45
A summary of the status of the Company's stock options as of December 31, 1998
and 1997 and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 17,336 $ 7.98 15,008 $ 5.84
Granted 4,886 7.58 6,989 11.03
Exercised (420) (5.27) (3,717) (4.76)
Expired (1,100) (9.46) (944) (9.32)
------ ------
Outstanding at end of year 20,702 7.85 17,336 7.98
====== ======
Options exercisable at end of year 17,627 6,559
====== ======
Weighted average fair value of options
granted during the year $ 2.99 $ 4.65
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT 12/31/98 CONTRACTUAL EXERCISE 12/31/98 EXERCISE
PRICES (000) LIFE PRICE (000) PRICE
- -------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.70 - $ 6.13 7,060 3.1 years $ 5.25 14,096 $ 5.05
$ 6.25 - $ 9.30 7,511 8.5 years 7.68 1,764 8.04
$ 9.95 - $ 13.10 6,131 8.1 years 11.05 1,767 11.32
------ ------
20,702 6.5 years 7.85 17,627 5.98
====== ======
</TABLE>
(d) In 1995 the Company issued 13.75 million warrants to purchase one ordinary
share each for $5.75 per share, originally expiring on January 25, 1998. By
resolution of Gulf's Board of Directors, each warrant holder was given the
option to extend the expiry of the warrants to December 15, 1998, in
consideration for a strike price of $6.50 and subject to a hold period
ending July 27, 1998. There were 11.9 million ordinary share warrants
outstanding on December 31, 1997. During 1998, 9.9 million warrants were
exercised, and the balance expired on December 31, 1998.
(e) At the May 3, 1995, annual meeting, shareholders approved a resolution to
eliminate the $1,186 million deficit accumulated to the end of the first
quarter of 1995 by applying it to the Company's share capital and
contributed surplus.
The aggregate stated capital at December 31, 1998, for purposes of the Canada
Business Corporations Act, of the senior preference shares and ordinary shares
is $184 million and $1,730 million, respectively.
16. FOREIGN CURRENCY TRANSLATION ADJUSTMENT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year $ (3) $26
Current year's deferred translation adjustments 93 (15)
Reduction in net investment in foreign operations (15) (14)
Reclassification of translation losses on subsidiary's debt (6) 0
---- ---
Balance, end of year $ 69 $(3)
==== ===
</TABLE>
-44-
<PAGE> 46
17. FINANCIAL INSTRUMENTS
(a) RISK MANAGEMENT
Gulf is exposed to fluctuations in oil and gas prices, exchange rates and
interest rates and periodically enters into contracts to hedge or manage
these exposures. Current exposure to credit losses on these instruments
approximates their fair values as disclosed below.
Gulf is also exposed to credit risk on the oil and gas price, exchange rate
and interest rate instruments to the extent of non-performance by
counterparties. For the oil and gas price instruments, credit risk is
controlled through credit controls, limits, margin deposits and monitoring
procedures. All exchange rate contracts are with major financial
institutions, and non-performance is not expected.
(i) OIL AND GAS PRICES
To reduce its price risk on future gas production, at December 31, 1998,
Gulf forward sold approximately 160 million cubic feet per day of 1999
gas production at an average plant gate price of approximately $2.48 per
thousand cubic feet (assuming a foreign exchange rate of US$0.66 to
Cdn$1.00). This price was achieved through a combination of physical
sales contracts and financial forward sales and options. In addition,
Gulf has fixed the basis differential through gas aggregator sales,
direct physical sales and the use of financial transactions between
Henry Hub, Louisiana (the pricing location used by the New York
Mercantile Exchange) and Alberta on approximately 85 million cubic feet
per day at an average level of approximately US$0.54 discount per
million British thermal units.
Gulf held no hedging instruments for liquids production at December 31,
1998.
(ii) EXCHANGE RATES
As a large portion of Gulf's sales are based on U.S. dollar pricing,
Gulf sells U.S. dollars forward to reduce its foreign exchange risk. At
December 31, 1998, Gulf had entered into the following U.S. dollar
forward sale contracts and options:
<TABLE>
<CAPTION>
SETTLEMENT YEAR TOTAL CONTRACT AMOUNTS CONTRACT RATE RANGE AVERAGE RATE
- -------------- ---------------------- ------------------- ------------
$ US/Cdn $ $ US/Cdn $1
<S> <C> <C> <C>
1999 US $ 235 0.685-0.781 0.745
2000 180 0.760-.0781 0.768
2001 210 0.751-0.782 0.766
</TABLE>
(b) SALES OF ACCOUNTS RECEIVABLE
In November 1994 Gulf entered into an agreement giving it the right, on a
continuing basis for extendible three-year terms, to sell certain accounts
receivable to a third party to a maximum amount of $100 million. The amount
sold at December 31, 1998, was $81 million (1997 -- $91 million). The
agreement calls for purchase discounts, based on Canadian Bankers Acceptance
rates, to be paid on an ongoing basis. Gulf has potential exposure to an
immaterial amount of credit loss.
(c) OIL-INDEXED FINANCIAL INSTRUMENT
A special purpose entity has $200 million 11 per cent public debentures
issued and outstanding that mature on October 31, 2000, and assets
consisting of a $200 million 5 per cent fixed plus variable rate oil indexed
debenture maturing on October 31, 2000, and an interest rate swap agreement
for the same amount and term of the debentures that converts the variable
rate on the debenture into a 6 per cent fixed rate. These are not included
in Gulf's statement of financial position because Gulf does not have the
right and ability to obtain future economic benefits from the resources of
the entity and is not exposed to the related risks, nor does Gulf have the
continuing power to determine the strategic operating, investing and
financing policies of the entity without the cooperation of others.
Gulf has an interest rate conversion agreement to October 31, 2000, whereby
Gulf pays to an intermediary the fixed rate of 6 per cent and is eligible to
receive a variable rate ranging from nil to 16.8 per cent, depending on the
average quarterly West Texas Intermediate oil price. In 1993 and 1992, Gulf
recorded provisions totaling $67 million to recognize the present value of
Gulf's exposure. The unamortized balance of the provision at December 31,
1998, is $24 million (1997 -- $33 million). Gulf paid out the fixed-rate
obligation for the remaining life of the swap on January 6, 1999, at a cost
of $24 million.
-45-
<PAGE> 47
CARRYING AMOUNTS AND ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS:
<TABLE>
<CAPTION>
ASSET (LIABILITY)
-----------------------------------------
DECEMBER 31, 1998 December 31, 1997
------------------- -------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- ----- -------- -------
<S> <C> <C> <C> <C>
Equity investments $ 18 $ 18 $ 49 $53
Commodity price contracts 0 5 0 14
Long-term debt (Note 13)
8.25% notes (344) (319) (321) (346)
8.35% notes (383) (387) (357) (387)
8.375% notes (305) (304) 0 0
9% debentures (192) (199) (179) (186)
9.25% debentures (459) (479) (428) (450)
9.625% debentures (307) (324) (286) (310)
Foreign exchange contracts 0 (121) 0 (56)
Oil-indexed rate conversion agreement (24) (24) (33) (31)
Other long-term obligation (28) (34) (28) (35)
Interest rate swap contracts 0 0 0 (30)
</TABLE>
The following methods and assumptions were used in estimating the fair values of
financial instruments:
Cash and short-term investments, accounts receivable, bank credit facilities,
accounts payable and long-term secured loans: Terms are such that their carrying
amounts approximate fair values.
Equity investments: Fair value of market-traded securities is based on quoted
market prices. Other investments are relatively insignificant, and their
carrying amounts are assumed to approximate fair values.
Oil indexed rate conversion agreement: The fair value at December 31, 1998, is
established by the agreement to settle the obligation. Fair value in prior
periods was estimated using discounted cash flow analysis based on the
applicable incremental swap rate. Income on the variable-rate portion of
interest was estimated based on a forecast of the average quarterly price of
West Texas Intermediate crude oil.
Other long-term obligation: Fair values are estimated using discounted cash flow
analysis based on current incremental borrowing rates for similar borrowing
arrangements.
Notes and debentures: Fair values are based on quoted market prices.
Commodity price and foreign exchange contracts: Fair values are estimated based
on the present value of quoted market prices of comparable contracts. The
differences between the fair values and carrying amounts are equal to the
cumulative unrecognized gains or losses on these contracts. Commodity price
contracts include those that may be settled by the delivery of product.
18. COMMITMENTS AND CONTINGENT LIABILITIES
Gulf has lease commitments relating to office buildings. The estimated annual
minimum operating lease rental payments for the buildings, before deducting
sublease income, will be $35 million in 1999, $35 million in 2000, $34 million
in 2001, $33 million in 2002, $17 million in 2003, and $20 million in 2004 -
2007, the remaining term of the leases. Lease rentals payable in foreign
currencies have been converted to Canadian dollars using December 31, 1998,
rates.
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. Total anticipated future costs
(including plugging and abandoning of wells), given Gulf's current inventory of
wells and facilities including Syncrude, is in the order of $602 million over
the next twenty years. Gulf has accrued $162 million ($11 million as current)
for future upstream site restoration costs and continues to accrue these costs
on the basis described in the summary of significant accounting policies.
-46-
<PAGE> 48
Environmental liabilities relating to discontinued downstream operations
generally involve the decontamination and/or remediation of formerly owned
service stations, bulk fuel facilities and refinery sites. These future
obligations are difficult to estimate as the number of sites that will need
reclaiming, their degree of contamination, the cleanup standards, future
regulatory requirements and other potentially responsible parties are all
unknown. Gulf has accrued approximately $9 million ($3 million as current) for
future downstream remediation costs. On the basis of current information it is
not possible to reasonably estimate Gulf's total potential future liability for
discontinued downstream operations.
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.
In connection with the Corridor Block Gas Project, a local court has ruled
against the Corridor Block PSC Partners concerning a property claim. The
Corridor Block PSC Partners, including Pertamina, believe that the claim is
without merit and have filed an appeal to reverse the lower court decision based
on advice received from counsel.
19. YEAR 2000 ISSUE
The year 2000 (Y2K) issue is a result of computer programs tracking and storing
dates represented by only two century digits (e.g., 98 rather than 1998) to
define the applicable year. Without the century digits information technology
(IT) and non-IT systems that have time-sensitive software may recognize the date
denoted by "00" as the year 1900 or some other date rather than the year 2000,
which could result in miscalculations and systems failures. System failures
resulting from the Y2K issue could adversely affect operations and financial
results. Gulf's primary risk lies in its internal date-dependent systems,
including computer hardware, software and field control devices. The Company is
also exposed to third-party risk through its financial institutions, joint
interest partners, public and private infrastructure services, including power,
water, product transportation systems (pipelines, railcars and tankers), and
telecommunications, and other vendors and customers whose systems may be
affected by the Y2K issue.
Gulf is devoting significant resources to the Y2K issue. The Company's goal
is business continuity and sustained operations beyond December 31, 1999,
without significant disruption or material financial impact resulting from the
Y2K issue. Gulf has organized a worldwide task force, which reports regularly to
the Audit Committee and the Board of Directors, to identify potential impacts
and risks, make appropriate preparations and allocate resources.
The Company believes that its greatest risk involves potential disruptions
internationally where Gulf relies on vendors and customers who may fail to take
adequate steps to address the Y2K issue. During 1999, the Company will continue
to expand its efforts to ensure that its key business partners, vendors and
customers are prepared for the year 2000, and to develop contingency plans to
address any failures on their part to become Y2K compliant. Such failures could
affect the operations of Gulf and its subsidiaries, either directly or
indirectly, in a significant manner. Gulf cannot at present estimate either the
likelihood or the potential cost of such failures.
20. PENSION PLANS
Defined benefit pensions at retirement are related to years of service and
remuneration during the last years of employment. Funds are deposited with a
trustee over periods permitted by regulatory authorities. These funds are
invested primarily in publicly traded fixed-income and equity securities.
Actuarial reports are prepared annually by independent actuaries for accounting
and funding purposes.
For the years 1996 to 1998, assumed future rates of return on assets (net
of administrative expenses), discount rates used to estimate projected benefit
obligations of the plan and long-term average salary and wage escalation rates
were as follows:
<TABLE>
<CAPTION>
Rates established at the beginning of the year 1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Assumed discount rate on liabilities and rate of return on
assets 6.25% 7.75% 8.25%
Estimated wage and salary escalation rate (average) 3.00% 3.75% 4.50%
Estimated remaining service life (years) 13 13 13
</TABLE>
At December 31, 1998, the assumed future rate of return on assets of the
plan, net of administration expenses, was reduced to 5.75 per cent. Estimated
projected benefit obligations of the plans were determined using a discount rate
of 5.75 per cent and a long-term salary and wage escalation rate averaging 2.5
per cent.
-47-
<PAGE> 49
The actuarial fair values of pension assets and benefit obligations are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1998 1997
---- ----
<S> <C> <C>
Market value of assets (a) (b) $303 $369
Projected benefit obligations 333 388
Surplus (deficiency) of market value of assets over projected benefit
obligations (a) $(30) $(19)
==== ====
</TABLE>
[FN]
(a) Gulf uses the market value method of asset valuation.
(b) At December 31, 1998, the plan held 1,744,000 ordinary shares of Gulf
valued at $7.8 million. Also, 1,000,000 Gulf ordinary stock warrants
expired at December 31, 1998, at no value, previously valued at $4.4
million.
</FN>
In December 1997, the Company started a program of annuitizing the plan's
pension obligations with major life insurance companies. The program is being
implemented on a phased basis and is anticipated to be completed over the next
two years. The first phase, implemented in December 1997, involved annuity
purchases settling pension obligations of $48 million, and the second phase,
implemented in December 1998, settled pension obligations of $52 million. The
amounts and timing of phases are at the Company's discretion and will depend on
market conditions.
Both the rate of return on a portion of plan assets and the discount rate for
plan obligations are related to market interest rates, and therefore both the
value of assets and benefit obligations are affected by changes in such rates.
At December 31, 1998, approximately 75 per cent of the plan's assets consisted
of fixed-income securities with an average maturity of about 16 years, which
approximates the term and interest rate exposure of the obligations.
In 1993, the Company's pension plan was amended to give Gulf's active Canadian
employees the option to accrue future benefits under a defined contribution
alternative. All new employees accrue future benefits on a defined contribution
basis. At December 31, 1998, 93 per cent of employees were members within the
defined contribution option.
The Company's pension expense for both the defined benefit and the defined
contribution components of the plan was $6 million, $6 million and $8 million
for the years ended December 31, 1998, 1997 and 1996, respectively. In addition,
deferred pension costs of $6 million ($53 million in 1997) were charged to
earnings relating to the annuitization of the plan's pension obligations.
The Company also administers a defined benefit pension plan for employees of
Clyde Petroleum plc. The market value of assets and projected benefit
obligations of that plan were L.13 million and L.9 million, respectively, at
December 31, 1998. Estimated projected benefit obligations of the plans were
determined using a discount rate of 5.25 per cent and a long-term salary and
wage escalation rate of 3.25 per cent.
Additionally, the Company has a 9.03% interest in the defined benefit pension
plan of the Syncrude joint venture. Gulf's proportionate share of the market
value of assets and projected benefit obligations of that plan were $58 million
and $53 million, respectively, at December 31, 1998, ($53 million and $48
million, respectively, at December 31, 1997).
21. RELATED PARTY TRANSACTIONS
Gulf holds all of the Preferred Shares of Athabasca Oil Sands Investments Inc.
("Athabasca"), entitling Gulf to elect two of the directors of Athabasca. Gulf
also has agreements with Athabasca for the provision of administrative and
marketing services. Revenue from such services was $2 million in 1998, $3
million in 1997 and $2 million in 1996.
Effective January 1, 1998, Gulf acquired a 50 per cent interest and joint
control of Tidal Energy Marketing Inc. ("Tidal"). Gulf has an $11 million
receivable from the other investor in Tidal as at December 31, 1998.
On December 18, 1998, Gulf acquired approximately 50 per cent interest and joint
control of Gulf Midstream Services Partnership and GMS Facilities Ltd.
(collectively "GMS"). GMS then paid Gulf $100 million subject to which Gulf has
an obligation either to reinvest this amount in GMS by December 5, 2001, or to
surrender an additional 19.7 per cent ownership interest to the unrelated
investor in GMS. This obligation is classified in other long-term liabilities.
-48-
<PAGE> 50
22. SEGMENT INFORMATION
<TABLE>
<CAPTION>
NORTH AMERICA
-----------------------------------------------
Oil and Gas (a) Syncrude
--------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES (c)
GROSS OIL AND GAS REVENUES
Crude oil
Unhedged $297 $ 437 $399 $139 $189 $194
Hedging 47 (19) (56) 0 0 0
Natural gas liquids 86 128 125 0 0 0
Natural gas
Unhedged 268 277 280 0 0
Hedging 3 (4) (13) 0 0 0
Sulphur 1 0 5 0 0 0
----- ----- ----- ----- ----- -----
702 819 740 139 189 194
Less: Royalties (89) (149) (140) 0 (18) (37)
----- ----- ----- ----- ----- -----
Net oil and gas revenues 613 670 600 139 171 157
Other revenues 30 24 20 1 1 1
----- ----- ----- ----- ----- -----
643 694 620 140 172 158
----- ----- ----- ----- ----- -----
EXPENSES
Operating
Production (222) (205) (179) (95) (94) (93)
Other (23) (6) (6) 0 0 0
Exploration (103) (98) (61) 0 0 0
Depreciation, depletion and
amortization (286) (295) (235) (17) (16) (19)
----- ----- ----- ----- ----- -----
(634) (604) (481) (112) (110) (112)
----- ----- ----- ----- ----- -----
$ 9 $ 90 $ 139 $ 28 $ 62 $ 46
===== ===== ===== ===== ===== =====
</TABLE>
[FN]
(a) Included in the North America oil and gas segment is the following
information pertaining to the United States
</FN>
<TABLE>
<CAPTION>
(millions of dollars): 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net oil and gas revenues $ 0 $ 2 $ 0
Depreciation, depletion and amortization (1) (9) (2)
Net operating loss (21) (30) (10)
</TABLE>
[FN]
(b) Other North America includes frontiers, pipelines, contract drilling and
other.
(c) Approximately $193 million of revenues was derived from sales to two
customers in the year ended December 31, 1998, (1997 -- $309 million and
1996 -- $237 million).
</FN>
There were no intersegment transfers of product.
Included in earnings (loss) from continuing operations are export sales of
$168 million, $213 million and $315 million in 1998, 1997 and 1996,
respectively.
-49-
<PAGE> 51
<TABLE>
<CAPTION>
INTERNATIONAL
- --------------------- --------------------------------------------------
Other (b) Indonesia Other Total
- --------------------- ---------------------- ---------------------- ----------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 133 $ 218 $ 139 $ 94 $ 148 $ 0 $ 663 $ 992 $ 732
0 0 0 0 0 0 8 1 0 55 (18) (56)
0 0 0 5 0 0 9 18 0 100 146 125
0 0 0 12 0 0 95 98 0 375 375 280
0 0 0 0 0 0 0 0 0 3 (4) (13)
0 0 0 0 0 0 0 0 0 1 0 5
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
0 0 0 150 218 139 206 265 0 1,197 1,491 1,073
0 0 0 (26) (58) (40) (10) (12) 0 (125) (237) (217)
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
0 0 0 124 160 99 196 253 0 1,072 1,254 856
80 43 19 0 0 0 14 8 0 125 76 40
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
80 43 19 124 160 99 210 261 0 1,197 1,330 896
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
0 0 0 (43) (37) (25) (59) (49) 0 (419) (385) (297)
(67) (11) (9) 0 0 0 0 0 0 (90) (17) (15)
0 0 0 (50) (26) (7) (38) (26) (2) (191) (150) (70)
(1) (5) (6) (65) (55) (29) (110) (133) 0 (479) (504) (289)
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
(68) (16) (15) (158) (118) (61) (207) (208) (2) (1,179) (1,056) (671)
- ---- ---- ---- ----- ----- ---- ----- ----- ---- ------- ------- ------
$ 12 $ 27 $ 4 $ (34) $ 42 $ 38 $ 3 $ 53 $ (2) 18 274 225
==== ==== ==== ===== ===== ==== ===== ===== ====
Net gain (loss) on asset disposals and reduction in carrying values of assets (382) 342 5
Pension settlement and restructuring charges (45) (67) (4)
General and administrative expenses (62) (68) (49)
Finance charges, net (278) (222) (79)
Income tax (expense) recovery 151 (59) (59)
Minority interest 12 4 0
------- ------- ------
Earnings (loss) from continuing operations (586) 204 39
Discontinued operations 24 0 (2)
------- ------- ------
Earnings (loss) for the year $(562) $ 204 $ 37
======= ======= ======
Identifiable assets
Canada
Oil & gas $3,330 $ 3,906 $2,741
Syncrude 338 300 281
U.S. 42 59 57
Indonesia 1,178 936 393
Other international 794 1,428 4
------- ------- ------
$5,682 $ 6,629 $3,476
======= ======= ======
Capital and exploration expenditures
Canada
Oil & gas $ 360 $ 540 $ 469
Syncrude 43 32 19
U.S. 14 48 55
Indonesia 284 366 78
Other international 142 122 3
Corporate & other 7 25 20
------- ------- ------
$ 850 $ 1,133 $ 644
======= ======= ======
</TABLE>
-50-
<PAGE> 52
23. UNITED STATES ACCOUNTING PRINCIPLES AND U.S. DOLLAR SUMMARY INFORMATION
If United States generally accepted accounting principles (U.S. GAAP) had been
followed, the earnings (loss) and earnings (loss) per ordinary share would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
EARNINGS (LOSS) FROM CONTINUING OPERATIONS, AS REPORTED $(586) $ 204 $39
Adjustments:
New asset values (a1) (266) (92) (58)
Interest rate swap (b) (9) (9) (8)
Foreign exchange losses (c) (67) (67) 10
Termination benefits (d) 12 7 0
Post-retirement benefits (e) 1 1 1
Asset impairments (f)(g) (104) 0 0
Income tax recovery 356 55 13
------ ----- ------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS, AS ADJUSTED (663) 99 (3)
Discontinued operations 24 0 (2)
------ ----- ------
EARNINGS (LOSS) FOR THE YEAR, AS ADJUSTED (639) 99 (5)
Cumulative dividends on senior preference shares (31) (23) (29)
------ ----- ------
EARNINGS (LOSS) AVAILABLE TO ORDINARY SHAREHOLDERS $(670) $ 76 $(34)
====== ===== ======
BASIC EARNINGS PER ORDINARY SHARE, AS ADJUSTED (DOLLARS)
Earnings (loss) from continuing operations $(1.99) $0.26 $(0.14)
Earnings (loss) $(1.92) $0.26 $(0.14)
</TABLE>
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Earnings (loss), as adjusted $(639) $ 99 $(5)
Foreign currency translation adjustments 127 (19) 3
less: reclassifications related to sale of foreign entity (21) 0 0
Unrealized holding loss on equity securities (19) 0 0
Minimum pension liability adjustments (16) (8) 0
Income tax recovery (see "Income taxes" below) (20) (7) (1)
----- ---- ---
Comprehensive income (loss) $(588) $ 65 $(3)
===== ==== ===
</TABLE>
If U.S. GAAP had been followed, cash generated from continuing operations would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash generated from continuing operations, as reported $371 $592 $440
Adjustments: Termination benefits (d) 12 7 0
Cash generated from continuing operations, as adjusted ---- ---- ----
$383 $599 $440
==== ==== ====
</TABLE>
The Consolidated Statements of Cash Flows presented under Canadian GAAP comply
with International Accounting Standard 7, except as noted in (d) below and that
the $702 million of equity issued in 1997 in connection with the acquisition of
Stampeder would not have been reflected.
-51-
<PAGE> 53
If U.S. GAAP were followed, amounts on the Consolidated Statements of Financial
Position would be adjusted as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
----- ------
<S> <C> <C>
ASSETS
Accounts receivable (b) $ 15 $ 2
Current deferred income taxes (a2) 11 6
Investments, deferred charges and other assets (b)(c)(g) (6) 61
Deferred income taxes (a2) 2 0
Property, plant and equipment (a1)(f) 951 1,313
----- ------
$ 973 $1,382
===== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of other long-term liabilities (b) $ (24) $ (12)
Current deferred income taxes (a2) 5 0
Other current liabilities (d) (3) (1)
Long-term debt (b) 200 200
Other long-term liabilities (b)(e)(h) 66 39
Deferred income taxes 1,017 1,374
Share capital, ordinary shares (a1) (89) (89)
Retained earnings (deficit) (174) (124)
Foreign currency translation adjustment (i) (69) 3
Accumulated other comprehensive income (i) 44 (8)
----- ------
$ 973 $1,382
===== ======
</TABLE>
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP), 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 (SFAS) No. 109, Accounting for
Income Taxes.
1. 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 $1,074
million higher than under Canadian GAAP at December 31, 1998, (1997 --
$1,313 million). These differences are amortized to earnings over the
lives of the related assets. The application of previous accounting
standards at the time of the change in control results in ordinary share
capital being lower by $89 million (1997 -- $89 million).
2. 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 $77
million at December 31, 1998, (1997 -- a net increase of $94 million).
(b) A special purpose entity has $200 million 11 per cent public debentures
issued and outstanding that 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. Amortization
of a provision for losses on a related swap agreement of $9 million in 1998,
$9 million in 1997 and $8 million in 1996 would not have been recorded under
U.S. GAAP.
(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
$206 million at December 31, 1998, $139 million at December 31, 1997, and
$72 million at December 31, 1996.
(d) Under U.S. GAAP a liability for non-contractual involuntary employee
termination benefits is not incurred until their terms are communicated to
the affected employees. Under Canadian GAAP, the liability is recorded when
the company makes the termination decision. As such, under U.S. GAAP, the
liability recorded prior to employees being notified is reversed and
recognized in the year of notification.
-52-
<PAGE> 54
(e) Under U.S. GAAP the costs of providing all forms of post-retirement benefits
to employees are recognized over the active service life of the employees
rather than as incurred. The accrued cost of such benefits other than
pensions at December 31, 1998, is estimated to be $43 million using a
discount rate of 6.0%. The difference between the net periodic service cost
under U.S. GAAP and the cash basis amount under Canadian GAAP is $1 million
for the year ended December 31, 1998, and $1 million for the year ended
December 31, 1997.
(f) U.S. GAAP requires that impaired assets be written down to fair value,
rather than undiscounted future cash flows from use. Accordingly, Gulf would
have recognized an additional write-down of $123 million.
(g) Under U.S. GAAP an unrealized holding loss on equity securities of $19
million recognized in 1998 would be reported in other comprehensive income
rather than earnings.
(h) Under U.S. GAAP, as at December 31, 1998, an additional minimum pension
liability of $16 million must be accrued for the deficit between the market
value of the Company's pension plan assets and its accumulated benefit
obligations. The charge to equity is reflected in other comprehensive
income.
(i) For U.S. GAAP the Company has adopted SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of certain
components of changes in equity that arise from non-owner sources. The 1997
statement of financial position has been restated to reflect the new
presentation.
SUMMARY FINANCIAL INFORMATION IN U.S. DOLLARS
The following information is based on U.S. GAAP and translated from Canadian
into U.S. dollars at the average exchange rates for each of the years presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenue from continuing operations US$ 802 US$1,211 US$ 664
Cash generated from continuing operations 257 433 321
Earnings (loss) from continuing operations (444) 72 (2)
Earnings (loss) (428) 72 (4)
Per ordinary share: (dollars)
Earnings (loss) from continuing operations US$(1.33) US$ 0.19 US$(0.09)
Earnings (loss) (1.29) 0.19 (0.10)
Average exchange rate (Cdn$1) 0.67 0.72 0.73
</TABLE>
INTEREST AND INCOME TAXES PAID
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash interest expense paid (net of amounts capitalized) $213 $225 $133
Cash income taxes paid (net of tax refunds received) 24 11 39
</TABLE>
INCOME TAXES
COMPONENTS OF DEFERRED INCOME TAXES: The net deferred tax liability (current and
non-current) comprises:
<TABLE>
<CAPTION>
December 31
-------------------
1998 1997
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Additional values assigned to assets in connection with
prior changes of control $(1,052) $(1,414)
Other differences between tax bases and reported amounts
of depreciable assets (179) (400)
Differences between tax bases and reported amounts of
financial instruments (16) (17)
Other taxable temporary differences (41) (26)
------- -------
$(1,288) $(1,857)
======= =======
</TABLE>
-53-
<PAGE> 55
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1998 1997
------- ------
<S> <C> <C>
DEFERRED TAX ASSETS
Tax credit carry forwards (a) $ 39 $ 39
Capital loss carried forward 35 23
Foreign currency translation losses tax-deductible upon
realization 90 60
Provisions for site restoration and environmental costs 27 27
Provincial royalty rebates 37 37
Post-retirement benefits liability 19 20
Other deductible temporary differences 41 23
------- ------
288 229
------- ------
Valuation allowance (69) (41)
------- ------
Net deferred tax liability (Total includes previous page) $(1,069) $(1,669)
======= =======
</TABLE>
(a) The expiration dates of tax credit carry forwards as at December 31, 1998
are:
<TABLE>
<CAPTION>
Expiration dates 1999 2002 2003 2004 2005
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amounts (millions of dollars) 9 1 1 1 1
</TABLE>
The Company will utilize $26 million of tax credit carry forwards in the 1997-98
tax returns.
COMPONENTS OF INCOME TAX EXPENSE (RECOVERY): Income tax expense (recovery)
attributable to continuing operations comprises:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
Current tax expense $ 20 $ 42 $18
Deferred tax expense (recovery) (528) (38) 28
----- ---- ---
Income tax expense (recovery) attributable
to continuing operations $(508) $ 4 $46
===== ==== ===
</TABLE>
Income tax expense (benefit) attributable to other comprehensive income is
related to the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
Foreign currency translation adjustments $34 $10 $1
Unrealized holding loss on equity securities (7) 0 0
Minimum pension liability adjustments (7) (3) 0
--- --- --
Income tax expense (recovery) attributable to
continuing operations $20 $ 7 $1
=== === ==
</TABLE>
For the year ended December 31, 1998, there was a $62 million reduction in the
deferred tax liability related to the disposal of a subsidiary.
STOCK-BASED COMPENSATION PLANS
Pro forma disclosures of earnings and earnings per share are presented below as
if the Company had adopted the cost recognition requirements under SFAS No. 123,
Accounting for Stock Based Compensation. The compensation expense for the
stock-based compensation was $33 million for 1998, $25 million for 1997 and $8
million for 1996. Pro forma disclosures are not likely to be representative of
the effects on reported earnings for future years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) As reported $ (639) $ 99 $ (5)
Pro forma (606) 74 (13)
Earnings (loss) per share As reported $(1.92) $0.26 $(0.14)
Pro forma (2.02) 0.18 (0.16)
</TABLE>
The Company has a fixed-option plan. Pursuant to the terms of the Incentive
Stock Option Plan (1994), the Company may grant options to its employees for up
to 21 million shares of common stock. Options outstanding are granted at prices
equal to the market value of the stock on the date of grant, and an option's
maximum term is 10 years. Options are granted during the year, and they vest
from one to three years after issue.
The fair value of each option granted during 1998, 1997 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: expected volatility of 42 per cent; risk-free interest
rate of 5 per cent; no payment of common share dividends; and expected life of
4.07 years.
-54-
<PAGE> 56
PENSION PLANS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Projected benefit obligations at beginning of period $ 383 $ 445
Current service cost 1 1
Interest costs 23 31
Benefits paid (42) (49)
Transfer to another company's pension plan 0 (27)
Plan amendments 0 3
Settlement of benefits (i.e. annuitization) (51) (43)
Actuarial loss 11 22
----- -----
Projected benefit obligations at end of period $ 325 $ 383
===== =====
CHANGE IN ASSETS
Market value of assets at beginning of period $ 369 $ 441
Actual return on plan assets 19 53
Company contributions 9 1
Benefits paid (42) (49)
Transfer to another company's pension plan 0 (29)
Settlement of benefits (i.e. annuitization) (52) (48)
----- -----
Market value of assets at end of period $ 303 $ 369
===== =====
DEFERRED PENSION COST
Accumulated benefit obligations $ 319 $ 376
Effect of future salary and wage increases 6 7
----- -----
Projected benefit obligations (a) 325 383
Market value of assets 303 369
----- -----
Excess (deficiency) of pension plan assets over projected
benefit obligations (22) (14)
Unrecognized net losses 22 14
----- -----
Deferred pension cost $ 0 $ 0
===== =====
THE AMOUNT CONTAINED IN THE STATEMENT OF FINANCIAL POSITION
CONSISTS OF THE FOLLOWING
Deferred pension cost $ 0 $ 0
Additional minimum liability (16) (8)
Accumulated other comprehensive income 16 8
----- -----
Recognized amount $ 0 $ 0
===== =====
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
PENSION EXPENSE
Current service cost $ 3 $ 3 $ 3
Interest costs on projected benefit obligations 23 32 36
Estimated return on assets (22) (32) (35)
Other, net 7(b) 56 4
---- ---- ----
Pension expense $ 11 $ 59 $ 8
==== ==== ====
</TABLE>
[FN]
(a) The prescribed year-end settlement rate for discounting purposes was 6.0%
in 1998 (6.4% in 1997 and 7.5% in 1996).The assumptions for rate of return
on assets, and wage and salary escalation were the same as those used for
Canadian GAAP purposes.
(b) Includes $6 million of settlement costs related to the 1998 annuity
purchase, which settled a portion of the retiree pension obligation.
</FN>
-55-
<PAGE> 57
POST RETIREMENT BENEFITS OTHER THAN PENSIONS
The company is obligated to provide post-retirement benefits other than
pensions to all regular employees who have retired on or before April 1, 1996.
The cost of this plan is funded annually out of general revenues and includes
such benefits as life insurance, dental coverage, supplementary health benefits
and the subsidy of certain provincial health care premiums.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at beginning of period $ 54 $ 50
Interest costs 3 4
Benefits paid (5) (5)
Actuarial loss 2 5
---- ----
Benefit obligations at end of period $ 54 $ 54
==== ====
DEFERRED BENEFIT COST
Benefit obligations (a) $ 54 $ 54
Market value of assets 0 0
---- ----
Excess (deficiency) of pension plan assets over projected
benefit obligations (54) (54)
Unrecognized net losses 11 10
---- ----
Deferred benefit cost $(43) $(44)
==== ====
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET PERIODIC COST
Interest costs on projected benefit obligations $ 3 $ 3 $ 4
Other, net 1 1 0
---- ---- ----
Net periodic cost $ 4 $ 4 $ 4
==== ==== ====
</TABLE>
[FN]
(a) The health care cost trend rate is estimated to decrease from 8.5% in 1998
to 6.5% for the years 2002 and thereafter. The discount rates used to value
post-retirement benefits other than pensions are the same as those used to
value Gulf's pension obligations.
</FN>
A 1% charge in the assumed health care cost trend rate would have the following
effects on 1998 service and interest cost, and the benefit obligation at
December 31, 1998:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on service and interest components
of net periodic cost $ 0 $ 0
Effect on benefit obligation 2 (2)
</TABLE>
-56-
<PAGE> 58
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Canadian GAAP financial statements do not include the assets and liabilities
of a special purpose entity. The carrying amount and fair value of these
financial instruments are as follows:
<TABLE>
<CAPTION>
ASSET (LIABILITY)
----------------------------------------
DECEMBER 31, 1998 December 31, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Oil-indexed debenture and
related swap $ 200 $219 $ 200 $ 229
11% debentures (200) 219 (200) (229)
</TABLE>
The following methods and assumptions were used in estimating the fair values
of these financial instruments:
Oil-indexed debenture: Fair values are estimated using discounted cash flow
analysis based on the applicable current incremental borrowing rate. Income on
the variable-rate portion of interest is estimated based on a forecast of the
average quarterly price of West Texas Intermediate crude oil.
11 per cent debentures: Fair values are estimated using discounted cash flow
analysis based on current incremental borrowing rates for similar borrowing
arrangements.
Interest rate swap: Fair values are estimated based on quoted market prices of
comparable contracts.
FOREIGN CURRENCY TRANSACTIONS
The aggregate foreign currency transaction loss included in net income for the
year ended December 31, 1998, is $164 million (1997 -- $75 million; 1996 -- $5
million).
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
---- ----
<S> <C> <C>
Foreign currency translation adjustments $ 69 $(3)
Unrealized holding loss on equity securities (12) 0
Minimum pension liability adjustments (13) (5)
---- ----
$ 44 $(8)
==== =====
</TABLE>
NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. Adoption of this standard is required in the first
quarter of 2000. SFAS 133 requires that all derivatives be recognized as
either assets or liabilities and measured at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge of risk
exposure. Gulf is currently reviewing the expected impact of SFAS 133, which
will depend on the derivatives outstanding when it is adopted and is not
expected to be significant.
-57-
<PAGE> 59
24. RECLASSIFICATIONS
To conform with the presentation adopted in 1998, certain amounts have been
reclassified in 1997 and 1996 as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------
1997 1996
---- ----
<S> <C> <C>
REVENUES
Other $ (5) $ (8)
EXPENSES
Operating
Production (14) (12)
Other 5 4
General and administration 4 0
---- ----
EARNINGS (LOSS) FOR THE YEAR $ 0 $ 0
==== ====
</TABLE>
-58-
<PAGE> 60
SUPPLEMENTAL INFORMATION
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
(millions of dollars, except per share amounts) 1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS (LOSS)
Revenues
Net oil and natural gas $1,072 $1,254 $ 856 $ 661 $ 654
Gain on Gulf Indonesia Resources Limited
share offering 0 417 0 0 0
Other 125 76 40 45 48
------ ------ ------ ------ -------
$1,197 $1,747 $ 896 $ 706 $ 702
====== ====== ====== ====== =======
Earnings (loss):
From continuing operations $ (586) $ 204 $ 39 $ (28) $ (191)
Total $ (562) $ 204 $ 37 $ (28) $ (197)
Earnings (loss) per ordinary share:
From continuing operations $(1.77) $ 0.62 $ 0.04 $(0.32) $ (1.36)
Total $(1.70) $ 0.62 $ 0.03 $(0.32) $ (1.39)
Dividends declared:
Per ordinary share NIL NIL NIL NIL NIL
Per Series 1 preference share(1) $ 0.27 $ 0.58 $ 0.36 $ 0.32 NIL
STATEMENTS OF CASH FLOWS
Operating activities
Cash generated from continuing operations $ 371 $ 592 $ 440 $ 292 $ 232
Other operating activities, net (18) 29 (68) (17) 47
------ ------ ------ ------ ------
353 621 372 275 279
Investing activities 219 (1,936) (743) (635) (164)
Dividends (1) (31) (69) (42) (35) 0
Financing activities (380) 1,519 452 (87) (304)
------ ------ ------ ------ ------
Increase (decrease) in cash $ 161 $ 135 $ 39 $ (482) $ (189)
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF FINANCIAL POSITION
Total assets $5,682 $6,629 $3,476 $2,877 $2,876
Current liabilities (789) (666) (620) (306) (314)
------ ------ ------ ------ ------
Capital employed 4,893 5,963 2,856 2,571 2,562
Long-term debt 2,331 2,785 1,198 1,104 1,372
Other long-term liabilities 336 201 140 153 116
Deferred income taxes 60 307 148 91 73
Minority interest 178 220 0 0 0
------ ------ ------ ------ ------
Shareholders' equity(2) $1,988 $2,450 $1,370 $1,223 $1,001
====== ====== ====== ====== ======
</TABLE>
[FN]
(1) 1997 includes payment of regular and special dividends on preference
shares.
(2) Includes Series 1 preference shares of $428 million and Series 2 preference
shares of $149 million in each of 1994 through 1998.
(3) Certain of the financial data for years prior to 1998 have been
reclassified to conform with the presentation adopted for 1998.
</FN>
-59-
<PAGE> 61
SUPPLEMENTAL INFORMATION
FIVE-YEAR OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- --------- --------- ---------
VOLUMES SOLD(1) GROSS/NET GROSS/NET GROSS/NET GROSS/NET GROSS/NET
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CRUDE OIL AND NATURAL GAS LIQUIDS
(thousands of barrels per day)
North America
Conventional light crude oil 35.8/ 30.5 43.0/ 35.3 39.0/31.4 34.3/28.4 36.3/30.1
Conventional heavy crude oil 17.0/ 15.4 5.4/ 4.7 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Syncrude oil 18.9/ 18.9 18.6/ 16.9 18.2/15.0 18.1/16.4 17.3/16.4
Condensate 5.6/ 4.1 5.7/ 4.0 5.6/ 4.6 4.1/ 3.6 3.2/ 2.6
Other natural gas liquids 11.0/ 8.7 10.7/ 9.1 10.5/ 8.6 8.3/ 7.0 8.9/ 7.5
----------- ----------- --------- --------- ---------
88.3/ 77.6 83.4/ 70.0 73.3/59.6 64.8/55.4 65.7/56.6
----------- ----------- --------- --------- ---------
International
Indonesia 20.5/ 16.9 22.5/ 16.6 13.9/10.3 13.8/10.3 14.4/10.8
North Sea -- UK 7.2/ 6.8 17.0/ 16.2 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Other 8.7/ 8.1 2.0/ 1.7 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
----------- ----------- --------- --------- ---------
36.4/ 31.8 41.5/ 34.5 13.9/10.3 13.8/10.3 14.4/10.8
----------- ----------- --------- --------- ---------
Total liquids 124.7/109.4 124.9/104.5 87.2/69.9 78.6/65.7 80.1/67.4
=========== =========== ========= ========= =========
NATURAL GAS
(millions of cubic feet per day)
North America 369 /311 413 /351 441 /371 315 /271 265 /212
Indonesia 20 / 19 0 / 0 0 / 0 0 / 0 0 / 0
North Sea -- Netherlands 63 / 61 62 / 61 0 / 0 0 / 0 0 / 0
Other international 24 / 23 22 / 21 0 / 0 0 / 0 0 / 0
----------- ----------- --------- --------- ---------
Total natural gas 476 /414 497 /433 441 /371 315 /271 265 /212
=========== =========== ========= ========= =========
GROSS AVERAGE PRICES
CRUDE OIL AND NATURAL GAS LIQUIDS
(dollars per barrel)
North America
Conventional light crude oil 18.30 26.13 27.92 22.66 20.45
Conventional heavy crude oil 9.31 13.71 -- -- --
Syncrude oil 20.20 27.84 29.22 23.85 21.80
Condensate 20.22 28.65 27.58 20.46 18.33
Other natural gas liquids 10.97 17.56 18.01 13.39 13.28
International
Indonesia 18.48 26.55 27.34 23.60 21.62
United Kingdom 17.96 23.59 -- -- --
Other international 17.71 27.16 -- -- --
Average
Unhedged 16.77 24.98 26.88 22.01 20.06
Hedged 17.98 24.58 25.13 21.58 20.05
NATURAL GAS (dollars per thousand cubic feet)
North America
Unhedged 1.98 1.84 1.73 1.28 2.00
Hedged 2.01 1.82 1.65 1.53 2.08
International 2.76 3.16 -- -- --
Average
Unhedged 2.16 2.06 1.73 1.28 2.00
Hedged 2.18 2.04 1.65 1.53 2.08
AVERAGE EXCHANGE RATES (CDN$1) US$0.67 US$0.72 US$0.73 US$0.73 US$0.73
</TABLE>
[FN]
(1) "Gross" sales include royalties; "net" sales are after royalties. Volumes
are adjusted for:
<TABLE>
<S> <C> <C> <C> <C> <C>
NGL and gas reinjection requirements (mboe/d) 3.4 4.2 4.2 5.6 7.3
inventory drawdown/(build up) (mboe/d) 0.9 0 (0.4) 0.2 0.7
</TABLE>
</FN>
-60-
<PAGE> 62
SUPPLEMENTAL INFORMATION
QUARTERLY SUMMARIES
<TABLE>
<CAPTION>
(unaudited) 1998
-----------------------------
1 2 3 4
----- ----- ----- -----
<S> <C> <C> <C> <C>
FINANCIAL (millions of dollars)
Net revenue from continuing operations 318 294 283 302
Earnings (loss) from continuing operations (47) (55) (358) (126)
Per ordinary share (dollars) (0.16) (0.18) (1.05) (0.38)
Earnings (loss) (47) (55) (334) (126)
Per ordinary share (dollars) (0.16) (0.18) (0.98) (0.38)
Cash generated from operations 105 83 96 87
Per ordinary share (dollars) 0.28 0.22 0.26 0.22
MARKET VALUE PER SHARE
Toronto Stock Exchange
Ordinary
High 9.80 8.40 7.15 6.20
Low 7.05 6.30 4.35 3.57
Close 8.25 7.20 6.20 4.48
Preference (Series 1)
High 4.20 4.15 4.05 2.90
Low 4.04 3.95 2.40 2.20
Close 4.11 4.00 2.91 2.48
New York Stock Exchange (U.S.$)
Ordinary
High 7.000 5.813 4.875 4.063
Low 4.938 4.250 2.875 2.125
Close 5.750 5.000 4.125 2.938
Preference (Series 1)
High 3.000 2.938 2.813 2.000
Low 2.750 2.625 1.563 1.438
Close 2.813 2.688 2.000 1.563
DIVIDENDS (1)
Dividends declared (millions of dollars)(2)
Ordinary 0 0 0 0
Preference (Series 1) 5 6 6 6
Preference (Series 2) 2 2 2 2
Special dividends 0 0 0 0
Dividends declared per share (dollars) (2)
Ordinary 0 0 0 0
Preference (Series 1) 0.06 0.07 0.07 0.07
Special dividends (Series 1) 0 0 0 0
</TABLE>
[FN]
(1) Ordinary share dividends were discontinued in 1992. Preference share
dividends, suspended in 1993, were reinstated in February 1995. By November
1997, all dividend arrears had been paid off.
(2) Dividends paid on shares owned by non-residents of Canada are generally
subject to 25 per cent withholding tax. However, for recipients to whom the
existing tax treaty between the United States and Canada is applicable, the
rate is 15 per cent.
</FN>
-61-
<PAGE> 63
SUPPLEMENTAL INFORMATION
QUARTERLY SUMMARIES
<TABLE>
<CAPTION>
(unaudited) 1997
------------------------------------
1 2 3 4
------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL (millions of dollars)
Net revenue from continuing operations 281 302 756 408
Earnings (loss) from continuing operations 12 (10) 202 0
Per ordinary share (dollars) 0.02 (0.06) 0.67 (0.01)
Earnings (loss) 12 (10) 202 0
Per ordinary share (dollars) 0.02 (0.06) 0.67 (0.01)
Cash generated from operations 140 106 155 191
Per ordinary share (dollars) 0.51 0.38 0.51 0.56
MARKET VALUE PER SHARE
Toronto Stock Exchange
Ordinary
High 11.90 13.05 13.25 12.90
Low 9.50 9.40 9.95 9.25
Close 10.25 11.30 12.55 10.00
Preference (Series 1)
High 4.46 4.30 4.29 4.76
Low 4.16 3.99 4.20 4.05
Close 4.19 4.30 4.29 4.19
New York Stock Exchange (U.S.$)
Ordinary
High 9.000 9.125 9.563 9.375
Low 6.875 6.625 7.125 6.250
Close 7.375 8.312 9.125 7.000
Preference (Series 1)
High 3.250 3.125 3.125 3.500
Low 2.875 2.750 3.000 2.688
Close 3.000 3.000 3.063 2.875
DIVIDENDS (1)
Dividends declared (millions of dollars)(2)
Ordinary 0 0 0 0
Preference (Series 1) 4 4 4 5
Preference (Series 2) 2 1 1 2
Special dividends 3 4 3 35
Dividends declared per share (dollars)(2)
Ordinary 0 0 0 0
Preference (Series 1) 0.05 0.05 0.05 0.05
Special dividends (Series 1) 0.03 0.03 0.03 0.29
</TABLE>
[FN]
(1) Ordinary share dividends were discontinued in 1992. Preference share
dividends, suspended in 1993, were reinstated in February 1995. By November
1997, all dividend arrears had been paid off.
(2) Dividends paid on shares owned by non-residents of Canada are generally
subject to 25 per cent withholding tax. However, for recipients to whom the
existing tax treaty between the United States and Canada is applicable, the
rate is 15 per cent.
</FN>
-62-
<PAGE> 64
SUPPLEMENTAL INFORMATION
LAND INVENTORY
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- --------- ---------
GROSS/NET Gross/Net Gross/Net Gross/Net Gross/Net
--------- ---------- ---------- --------- ---------
<C> <C> <C> <C> <C>
(millions of acres)
Western Canada
Alberta 4.0/ 2.8 4.6/ 3.3 5.0/ 3.5 3.7/ 2.6 2.1/ 1.5
British Columbia 0.3/ 0.1 0.3/ 0.1 0.5/ 0.3 0.4/ 0.2 0.2/ 0.2
Saskatchewan 0.1/ 0.1 0.1/ 0.1 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Manitoba 0.0/ 0.0 0.1/ 0.1 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Heavy Oil (Alberta and Saskatchewan)* 1.6/ 1.1 2.0/ 1.3 0.4/ 0.2 0.5/ 0.2 0.6/ 0.2
--------- --------- --------- --------- ---------
Total Western Canada 6.0/ 4.1 7.1/ 4.9 5.9/ 4.0 4.6/ 3.0 2.9/ 1.9
--------- --------- --------- --------- ---------
Frontiers
Beaufort Sea 0.4/ 0.1 0.5/ 0.1 0.5/ 0.1 0.5/ 0.1 0.5/ 0.1
Yukon and N.W.T. 0.1/ 0.0 0.0/ 0.0 0.5/ 0.3 0.5/ 0.3 0.5/ 0.3
Mackenzie Delta 0.6/ 0.2 0.6/ 0.2 0.1/ 0.1 0.1/ 0.1 0.1/ 0.1
Arctic Islands 0.4/ 0.1 0.4/ 0.1 0.4/ 0.1 0.4/ 0.1 0.4/ 0.1
--------- --------- --------- --------- ---------
Total Northern Canada 1.5/ 0.4 1.5/ 0.4 1.5/ 0.6 1.5/ 0.6 1.5/ 0.6
--------- --------- --------- --------- ---------
East Coast 5.5/ 5.4 5.0/ 4.6 4.9/ 4.6 4.9/ 4.6 5.0/ 4.6
--------- --------- --------- --------- ---------
Total Eastern Canada 5.5/ 5.4 5.0/ 4.6 4.9/ 4.6 4.9/ 4.6 5.0/ 4.6
--------- --------- --------- --------- ---------
International
United States 1.1/ 0.8 1.5/ 0.9 0.6/ 0.4 0.4/ 0.2 0.0/ 0.0
Netherlands 2.4/ 0.6 2.3/ 0.4 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Indonesia 15.9/ 8.9 16.4/ 8.7 4.7/ 2.6 5.0/ 3.2 5.4/ 3.6
Australia 22.9/ 2.4 30.6/ 2.0 0.3/ 0.1 1.3/ 0.3 1.3/ 0.3
Mongolia 16.0/12.0 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0 0.0/ 0.0
Other 3.2/ 1.0 7.0/ 2.3 1.0/ 0.4 0.6/ 0.1 1.2/ 0.2
--------- --------- --------- --------- ---------
Total International 61.5/25.7 57.8/14.3 6.6/ 3.5 7.3/ 3.8 7.9/ 4.1
--------- --------- --------- --------- ---------
TOTAL LAND INVENTORY 74.5/35.6 71.4/24.2 18.9/12.7 18.3/12.0 17.3/11.2
========= ========= ========= ========= =========
</TABLE>
[FN]
* Includes oil sand leases and other designated heavy oil properties in Alberta
and Saskatchewan.
"Gross" refers to land or wells in which Gulf owns an interest; "net" is the
sum of the fractional interests owned by Gulf in gross lands or wells.
</FN>
-63-
<PAGE> 65
SUPPLEMENTAL INFORMATION
WELLS DRILLED
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
GROSS / NET Gross / Net Gross / Net Gross / Net Gross / Net
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Western Canada
Exploratory wells: Oil 20 / 11 45 / 39 44 / 40 37 / 29 28 / 21
Gas 67 / 34 55 / 42 44 / 35 75 / 47 35 / 18
Dry 45 / 26 77 / 65 52 / 42 59 / 34 33 / 14
--------- --------- --------- --------- ---------
132 / 71 177 / 146 140 / 117 171 / 110 96 / 53
--------- --------- --------- --------- ---------
Development wells: Oil 50 / 32 166 / 133 91 / 61 80 / 54 47 / 22
Gas 115 / 98 247 / 233 146 / 76 104 / 69 52 / 24
Dry 20 / 10 50 / 30 55 / 39 47 / 32 28 / 13
--------- --------- --------- --------- ---------
185 / 140 463 / 396 292 / 176 231 / 155 127 / 59
--------- --------- --------- --------- ---------
United States
Exploratory wells: Oil 0 / 0 2 / 1 4 / 3 1 / 1 0 / 0
Gas 0 / 0 0 / 0 0 / 0 0 / 0 0 / 0
Dry 2 / 2 11 / 8 16 / 9 0 / 0 0 / 0
--------- --------- --------- --------- ---------
2 / 2 13 / 9 20 / 12 1 / 1 0 / 0
--------- --------- --------- --------- ---------
Indonesia
Exploratory wells: Oil 4 / 2 4 / 3 1 / 1 0 / 0 0 / 0
Gas 10 / 6 3 / 1 2 / 1 0 / 0 6 / 3
Dry 10 / 5 5 / 4 2 / 1 2 / 1 3 / 2
--------- --------- --------- --------- ---------
24 / 13 12 / 8 5 / 3 2 / 1 9 / 5
--------- --------- --------- --------- ---------
Development wells: Oil 18 / 10 28 / 13 12 / 6 9 / 4 6 / 2
Gas 6 / 3 2 / 1 0 / 0 0 / 0 0 / 0
Dry 0 / 0 1 / 0 2 / 1 1 / 1 1 / 1
--------- --------- --------- --------- ---------
24 / 13 31 / 14 14 / 7 10 / 5 7 / 3
--------- --------- --------- --------- ---------
North Sea
Exploratory wells: Oil 0 / 0 2 / 1 0 / 0 0 / 0 0 / 0
Gas 0 / 0 2 / 0 0 / 0 0 / 0 0 / 0
Dry 1 / 0 4 / 1 0 / 0 0 / 0 0 / 0
--------- --------- --------- --------- ---------
1 / 0 8 / 2 0 / 0 0 / 0 0 / 0
--------- --------- --------- --------- ---------
Development wells: Oil 4 / 1 12 / 1 0 / 0 0 / 0 0 / 0
Gas 1 / 0 7 / 1 0 / 0 0 / 0 0 / 0
Dry 0 / 0 0 / 0 0 / 0 0 / 0 0 / 0
--------- --------- --------- --------- ---------
5 / 1 19 / 2 0 / 0 0 / 0 0 / 0
--------- --------- --------- --------- ---------
Other International
Exploratory wells: Oil 3 / 2 4 / 0 0 / 0 0 / 0 0 / 0
Gas 20 / 2 33 / 2 0 / 0 0 / 0 0 / 0
Dry 23 / 3 29 / 1 0 / 0 0 / 0 2 / 1
--------- --------- --------- --------- ---------
46 / 7 66 / 3 0 / 0 0 / 0 2 / 1
--------- --------- --------- --------- ---------
Development wells: Oil 5 / 0 3 / 0 0 / 0 0 / 0 3 / 3
Gas 25 / 2 28 / 1 0 / 0 0 / 0 0 / 0
Dry 0 / 0 0 / 0 0 / 0 0 / 0 0 / 0
--------- --------- --------- --------- ---------
30 / 2 31 / 1 0 / 0 0 / 0 3 / 3
--------- --------- --------- --------- ---------
TOTAL WELLS DRILLED 449 / 249 820 / 581 471 / 315 415 / 272 244 / 124
========= ========= ========= ========= =========
</TABLE>
[FN]
"Gross" refers to land or wells in which Gulf owns an interest; "net" is the sum
of the fractional interests owned by Gulf in gross lands or wells.
</FN>
-64-
<PAGE> 66
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
RESULTS OF OIL AND GAS OPERATIONS YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
NORTH AMERICA INTERNATIONAL
-------------- ----------------
CANADA US INDONESIA OTHER TOTAL
------ ----- --------- ----- ------
<S> <C> <C> <C> <C> <C>
Net revenue derived from proved oil and gas
reserves during the year $613 $ 0 $124 $196 $933
Less: Production costs 222 0 43 59 324
Exploration expenses 82 20 50 38 190
Depreciation, depletion and amortization(1) 282 1 65 110 458
Income tax expense (recovery) 33 0 1 14 48
---- ---- ---- ---- ----
Results of operations from producing
activities $ (6) $(21) $(35) $(25) $(87)
==== ==== ==== ==== ====
</TABLE>
[FN]
(1) Does not include reduction in carrying value of assets
</FN>
<TABLE>
<CAPTION>
COSTS INCURRED YEAR ENDED DECEMBER 31, 1998
----------------------------------------
NORTH AMERICA INTERNATIONAL
------------- ----------------
CANADA US INDONESIA OTHER TOTAL
------ --- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Costs incurred (capitalized and
expensed during the year) for:
Property acquisitions:
Proved $ 2 $ 0 $ 0 $ 42 $ 44
Unproved 12 1 2,601 9 24
Exploration 97 13 131 82 323
Development (1) 244 0 151 61 456
---- --- ------ ---- ----
$355 $14 $ 284 $194 $847
==== === ====== ==== ====
</TABLE>
[FN]
(1) Includes amounts for capitalized injection of $15 million, $18 million and
$10 million for 1998, 1997 and 1996, respectively
</FN>
<TABLE>
CAPITALIZED COSTS YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
NORTH AMERICA INTERNATIONAL
---------------- -----------------
CANADA(1) US INDONESIA OTHER TOTAL
---------- --- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Proved properties $3,476 $ 9 $1,209 $558 $5,252
Unproved properties 490 59 202 261 1,012
Support facilities 24 1 0 21 46
Incomplete wells and facilities 11 0 79 43 133
--------- --- --------- ------ ------
4,001 69 1,490 883 6,443
Less related accumulated depreciation,
depletion and amortization 1,635 27 429 171 2,262
------ --- ------ ---- ------
Net capitalized costs $2,366 $42 $1,061 $712 $4,181
====== === ====== ==== ======
</TABLE>
[FN]
(1) Unproved properties includes $329 million for frontier areas.
</FN>
-65-
<PAGE> 67
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
- -------------------------------------------- ---------------------------------------------
North America International North America International
- ------------- ------------------ ------------- ------------------
Canada US Indonesia Other Total Canada US Indonesia Other Total
- ------ ---- --------- ------ ------- ------ ---- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 668 $ 2 $ 160 $ 253 $1,083 $ 600 $ 0 $ 99 $ 0 $ 699
204 1 37 49 179 0 25 0 204
70 22 26 26 144 53 8 7 2 70
286 9 55 133 483 233 2 293 0 264
55 0 30 31 116 68 0 24 (1) 91
- ------ ---- ------ ------ ------ ------ ---- ----- --- -----
$ 53 $(30) $ 12 $ 14 $ 49 $ 67 $(10) $ 14 $(1) $ 70
====== ==== ====== ====== ====== ====== ==== ===== === =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
- -------------------------------------------- ----------------------------------------------
North America International North America International
- ------------- ------------------ -------------- -----------------
Canada US Indonesia Other Total Canada US Indonesia Other Total
- ------ ---- --------- ------ ------- ------- ---- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,281 $ 0 $ 77 $1,243 $2,601 $ 247 $ 0 $ 0 $ 0 $ 247
64 26 107 195 392 76 32 1 4 113
146 21 82 47 296 172 23 28 2 225
337 1 82 47 296 261 0 49 0 310
- ------ ---- ------ ------ ------ ------ ---- ---- ---- ------
$1,828 $ 48 $ 548 $1,568 $3,992 $ 756 $ 55 $ 78 $ 6 $ 895
====== ==== ====== ====== ====== ====== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
- -------------------------------------------- --------------------------------------------
North America International North America International
- ------------- ------------------ -------------- -----------------
Canada US Indonesia Other Total Canada US Indonesia Other Total
- ------ ---- --------- ------ ------- ------- ----- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$3,549 $ 7 $ 948 $1,193 $5,697 $2,425 $ 4 $ 516 $ 0 $2,945
509 67 183 189 948 509 41 67 4 621
25 1 0 109 135 25 0 0 0 25
25 9 36 22 92 46 13 20 0 79
- ------ ---- ------ ------ ------ ------ ---- ----- ---- ------
4,108 84 1,167 1,513 6,872 3,005 58 603 4 3,670
1,061 26 338 126 1,551 1,010 2 269 0 1,281
- ------ ---- ------ ------ ------ ------ ---- ----- ---- ------
$3,047 $ 58 $ 829 $1,387 $5,321 $1,995 $ 56 $ 334 $ 4 $2,389
====== ==== ====== ====== ====== ====== ==== ===== ==== ======
</TABLE>
-66-
<PAGE> 68
SUPPLEMENTAL INFORMATION
STANDARDIZED MEASURE
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES.(1) The standardized measure for calculating the present value of
future net cash flows from proved oil and gas reserves is based on current costs
and prices and a 10 per cent discount factor as prescribed by the FASB.
Accordingly, the estimated future net cash inflows were computed by applying
selling prices prevailing at December 31 for crude oil and during the month of
December for other products to the estimated future production of proved
reserves. Estimated future expenditures to be incurred in developing and
producing proved reserves are based upon average costs incurred in each year
presented and assume the continuation of economic conditions existing at the end
of each year presented.
Although these calculations have been prepared according to the standards
described above, it should be emphasized that, due to the number of assumptions
and estimates required in the calculations, the amounts are not indicative of
the amount of net revenue that the Company expects to receive in future years.
They are also not indicative of the current value or future earnings that may be
realized from the production of proved reserves, nor should it be assumed that
they represent the fair market value of the reserves or of the oil and gas
properties.
Although the calculations are based on existing economic conditions at each
year-end, such economic conditions have changed and may continue to change
significantly due to events such as the continuing changes in international
crude oil availability and prices, and changes in government policies and
regulations. While the calculations are based on the Company's understanding of
the established FASB, there are numerous other equally valid assumptions under
which these estimates could be made that would produce significantly different
results.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE AS AT DECEMBER 31, 1998
-----------------------------------------------------
CANADA INDONESIA NORTH SEA INTERNATIONAL TOTAL
------ --------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Future cash inflows $ 5,335 $1,555 $ 323 $ 460 $ 7,673
Future development costs (560) (389) (132) (96) (1,177)
Future production costs (2,091) (497) (134) (144) (2,866)
Future wellhead taxes (36) (8) 0 (16) (60)
Future income taxes (535) (51) 0 (54) (640)
------- ------- ----- ----- -------
Future net cash flows 2,113 610 57 150 2,930
10% annual discount for estimated
of cash flows (756) (299) (3) (60) (1,118)
------- ------- ----- ----- -------
Standardized measure of discounted
future net cash flows $ 1,357 $ 311 $ 54 $ 90 $ 1,812
======= ====== ===== ===== =======
Minority interest's share of
standardized measure of discounted
net cash flow relating to proved
reserves $ 0 $ 86 $ 0 $ 0 $ 86
======= ====== ===== ===== =======
</TABLE>
[FN]
(1) PROVED RESERVES AND, THEREFORE, RELATED NET CASH FLOWS FROM GULF'S 9.03 PER
CENT INTEREST IN THE SYNCRUDE PROJECT ARE NOT INCLUDED IN THE STANDARDIZED
MEASURE CALCULATION.
</FN>
-67-
<PAGE> 69
CHANGES IN THE STANDARDIZED MEASURE DURING THE YEAR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Sales of oil and gas produced net of production costs $ (532) $ (612) $ (554)
Development costs incurred during the year 377 613 310
Sales of reserves in place (345) (683) (231)
Purchases of reserves in place (23) 1,429 390
Extensions, discoveries and improved recovery, less related costs 184 267 1,000
Additions due to "Other" (1) 11 37 61
Revisions of previous quantity and timing estimates (242) (346) (55)
Price and cost changes
Selling prices (853) (1,630) 1,120
Producing costs (57) (49) (1)
Development costs (44) (91) (92)
Accretion of discount 326 389 177
Other 190 (131) (94)
Change in income taxes 405 589 (869)
------ ------ ------
Net change (603) (218) 1,162
Balance at beginning of year 2,415 2,633 1,471
------ ------ ------
Balance at end of year $1,812 $2,415 $2,633
====== ====== ======
</TABLE>
[FN]
(1) Under SFAS 69, additions due to "Other" would be considered part of
revisions of previous quantity and timing estimates.
</FN>
<TABLE>
<CAPTION>
AS AT DECEMBER 31, 1997 AS AT DECEMBER 31, 1996
- ------------------------------------------------------ -----------------------
CANADA INDONESIA NORTH SEA INTERNATIONAL TOTAL CANADA INDONESIA INTERNATIONAL TOTAL
- ------- --------- --------- ------------- ------ ------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,769 $2,415 $1,277 $ 535 $ 9,996 $ 6,763 $2,644 $11 $ 9,418
(626) (425) (185) (16) (1,252) (157) (459) 0 (616)
(2,104) (584) (454) (161) (3,303) (1,389) (853) (4) (2,246)
(36) (19) (88) (31) (174) (49) (35) 0 (84)
(781) (439) (130) (92) (1,442) (1,564) (561) (3) (2,128)
- ------- ------ ------ ---- ------- ------- ----- --- -------
2,222 948 420 235 3,825 3,604 736 4 4,344
(820) (409) (88) (93) (1,410) (1,318) (391) (2) (1,711)
- ------- ------ ------ ----- ------- ------- ----- --- -------
$ 1,402 $ 539 $ 332 $ 142 $ 2,415 $ 2,286 $ 345 $ 2 $ 2,633
======= ====== ====== ===== ======= ======= ===== === ========
$ 17 $ 149 $ 0 $ 0 $ 166
======= ====== ====== ===== =======
</TABLE>
-68-
<PAGE> 70
Proved Reserves
<TABLE>
<CAPTION>
NORTH AMERICA (3) INDONESIA
----------------- ---------
LIQUIDS GAS (BCF) LIQUIDS GAS (BCF)
(MMBBLS) (2) (MMBBLS)
GROSS/NET GROSS/NET GROSS/NET GROSS/NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED
At December 31, 1994............................. 128 106 931 758 31 19 - -
Additions from discoveries & extensions...... 18 15 314 271 1 - - -
Additions from improved recovery............. - - - - 1 1 - -
Additions from development(1)................ 14 11 70 60 1 1 - -
Purchases of reserves in place............... 11 9 239 206 - - - -
Revisions of previous estimates.............. - 1 (36) 14 (2) (1) - -
Sales of reserves in place................... (4) (3) (7) (6) - - - -
Production................................... (17) (14) (115) (99) (5) (4) - -
--- --- --- --- -- -- --- ---
At December 31, 1995............................. 150 125 1,396 1,204 27 16 - -
Additions from discoveries & extensions...... 16 13 270 227 2 1 - -
Additions from improved recovery............. 7 5 4 4 2 1 - -
Additions from development(1)................ 11 9 78 65 7 4 504 426
Purchases of reserves in place............... 14 11 279 235 2 2 - -
Revisions of previous estimates.............. - (3) 76 36 1 1 - -
Sales of reserves in place................... (16) (13) (459) (387) - - - -
Production................................... (20) (16) (162) (136) (5) (4) - -
--- --- --- --- -- -- --- ---
At December 31, 1996............................. 162 131 1,482 1,248 36 21 504 426
Additions from discoveries & extensions...... 19 16 196 167 1 - 144 124
Additions from improved recovery............. 32 28 13 11 - - - -
Additions from development(1)................ 9 7 29 25 4 3 110 96
Purchases of reserves in place............... 101 86 255 219 13 8 - -
Revisions of previous estimates.............. 10 10 22 30 (3) 3 - 6
Sales of reserves in place................... (29) (24) (499) (424) - - - -
Production................................... (23) (20) (151) (128) (9) (7) - -
--- --- --- --- -- -- --- ---
At December 31, 1997............................. 281 234 1,347 1,148 42 28 758 652
Additions from discoveries & extensions...... 9 8 181 152 1 1 205 180
Additions from improved recovery............. 5 4 2 1 1 1 0 0
Additions from development(1)................ 5 4 25 21 2 1 86 75
Purchases of reserves in place............... 2 2 8 7 0 0 0 0
Revisions of previous estimates.............. (31) (24) (31) (48) 1 5 11 19
Sales of reserves in place................... (15) (12) (228) (191) 0 0 0 0
Production................................... (26) (21) (135) (113) (8) (6) (7) (7)
--- --- --- --- -- -- --- ---
At December 31, 1998............................. 230 194 1169 978 39 30 1,053 919
=== === ==== === == == ===== ===
PROVED DEVELOPED
At December 31, 1995......................... 133 111 927 799 23 13 - -
At December 31, 1996......................... 142 115 1,043 879 25 14 - -
At December 31, 1997......................... 196 164 986 839 32 21 - -
At December 31, 1998......................... 175 148 847 708 33 26 497 436
</TABLE>
-69-
<PAGE> 71
CONTINUATION OF CHART FROM PREVIOUS PAGE
<TABLE>
<CAPTION>
OTHER INTERNATIONAL TOTAL
------------------- -----
LIQUIDS LIQUIDS
(MMBBLS) GAS (BCF) (MMBBLS) GAS (BCF)
GROSS/NET GROSS/NET GROSS/NET GROSS/NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED
At December 31, 1994............................. - - - - 159 125 931 758
Additions from discoveries & extensions...... - - - - 19 15 314 271
Additions from improved recovery............. - - - - 1 1 - -
Additions from development(1)................ - - - - 15 12 70 60
Purchases of reserves in place............... - - - - 11 9 239 206
Revisions of previous estimates.............. - - - - (2) - (36) 14
Sales of reserves in place................... - - - - (4) (3) (7) (6)
Production................................... - - - - (22) (18) (115) (99)
-- -- --- --- --- --- ----- -----
At December 31, 1995............................. - - - - 177 141 1,396 1,204
Additions from discoveries & extensions...... - - - - 18 14 270 227
Additions from improved recovery............. - - - - 9 6 4 4
Additions from development(1)................ - - - - 18 13 582 491
Purchases of reserves in place............... - - - - 16 13 279 235
Revisions of previous estimates.............. - - - - 1 (2) 76 36
Sales of reserves in place................... - - - - (16) (13) (459) (387)
Production................................... - - - - (25) (20) (162) (136)
-- -- --- --- --- --- ----- -----
At December 31, 1996............................. - - - - 198 152 1,986 1,674
Additions from discoveries & extensions...... 21 21 9 8 41 37 349 299
Additions from improved recovery............. - - - - 33 28 13 11
Additions from development(1)................ 3 3 2 2 16 13 141 123
Purchases of reserves in place............... 42 39 295 275 156 133 550 494
Revisions of previous estimates.............. 1 2 41 39 7 15 63 75
Sales of reserves in place................... - - - - (29) (24) (499) (424)
Production................................... (6) (6) (32) (30) (38) (33) (183) (158)
-- -- --- --- --- --- ----- -----
At December 31, 1997............................. 61 59 315 294 384 321 2,420 2,094
Additions from discoveries & extensions...... 0 0 29 28 10 9 416 360
Additions from improved recovery............. 0 0 0 0 5 4 2 1
Additions from development(1)................ 1 1 18 18 7 6 128 114
Purchases of reserves in place............... 8 8 0 0 10 9 8 7
Revisions of previous estimates.............. 2 1 (32) (32) (28) (17) (52) (61)
Sales of reserves in place................... (53) (51) (66) (62) (68) (63) (294) (253)
Production................................... (5) (5) (32) (30) (38) (32) (173) (150)
-- -- --- --- --- --- ----- -----
At December 31, 1998............................. 14 13 232 216 283 237 2,454 2,113
== == === === === === ===== =====
PROVED DEVELOPED
At December 31, 1995......................... - - - - 156 124 927 799
At December 31, 1996......................... - - - - 167 129 1,043 879
At December 31, 1997......................... 25 24 228 214 253 209 1,214 1,053
At December 31, 1998......................... 9 8 152 142 218 182 1,496 1,286
- ----------
</TABLE>
[FN]
(1) Under Statement of Financial Accounting Standards No. 69 (SFAS 69),
these additions are considered part of revisions of previous estimates.
(2) Excludes Syncrude oil from oil sands.
(3) The above estimated reserve quantities are based upon year-end economic
conditions as required under SAFS 69. Using management's estimate of
costs and prices net proved reserves as at December 31, 1998 for oil
and natural gas liquids would be 198 million barrels and for natural
gas would be 978 billion cubic feet.
</FN>
-70-
<PAGE> 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information required by this item will be included in the Company's
proxy statement for its 1999 Annual and Special Meeting which will be filed with
the SEC within 120 days after December 31, 1998, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be included in the Company's
proxy statement for its 1999 Annual and Special Meeting, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be included in the Company's
proxy statement for its 1999 Annual and Special Meeting, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be included in the Company's
proxy statement for its 1999 Annual and Special Meeting, and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
3.1 - Articles of Incorporation of Gulf Canada Resources Limited
(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 - Bylaws of Gulf Canada Resources Limited (incorporated by reference to
Exhibit 3.2 of the Company's 10-Q for quarter ended June 30, 1997,
filed August 14, 1997)
4.1 - Indenture dated July 1, 1989 between the Company and Chase Manhattan
Bank pertaining to the Company's 9% debentures due 1999 (incorporated
by reference to the Company's Registration Statement on Form F-10,
Registration No. 33-30138)
4.2 - Indenture dated January 27, 1994 between the Company and The Bank of
New York pertaining to the Company's 9.25% Senior Subordinated
Debentures due 2004 (incorporated by reference to the Company's
Registration Statement on Form F-10, Registration No. 33-73252)
4.3 - Indenture dated July 5, 1995 between the Company and The Bank of New
York pertaining to the Company's 9.625% Senior Subordinated
Debentures due 2005 (incorporated by reference to Exhibit 7.1 to the
Company's Registration Statement on Form F-10, Registration No.
33-93452)
</TABLE>
-71-
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
4.4 - Indenture dated August 7, 1997 between the Company and The Bank of
New York pertaining to the Company's 8.35% Senior Notes payable 2006
(incorporated by reference to Exhibit 7.1 to the Company's
Registration Statement on Form F-10, Registration No. 333-5332)
4.5 - Indenture dated March 21, 1997 between the Company and The Bank of
New York pertaining to the Company's 8.25% Senior Notes payable 2017
(incorporated by reference to Exhibit 7.1 to the Company's
Registration Statement on Form F-10, Registration 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)
4.7 - Form of Indenture (incorporated by reference to Exhibit 7.1 to the
Company's Registration Statement on Form F-10, Registration No.
333-7802)
4.8 - First Supplemental Indenture dated November 16, 1998 between the
Company and the Bank of New York pertaining to the Company's 8 3/8%
Senior Notes payable 2005 (incorporated by reference to Exhibit 7.2
to the Company's Current Report on Form 8-K).
10.1 - Loan Agreement dated July 18, 1997 with a syndicate of banks
(incorporated by reference to Exhibit 10.2 to the Company's report on
Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997)
10.2 - Employment Agreement, dated February 1996 with Mr. Auchinleck
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended 1997, filed March 30, 1998)
10.3 - Employment Agreement, dated January 1995 with Mr. Glick (incorporated
by reference to the Company's Form 10-K for the fiscal year ended
1997, filed March 30, 1998)
10.4 - Employment Agreement, dated February 1996 with Mr. Feuchuk
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended 1997, filed March 30, 1998)
10.5 - Amending Agreement dated February 19, 1998 to the Employee Agreement
dated February 1996 with Mr. Auchinleck
10.6 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated January 1995 with Mr. Glick
10.7 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated February 1996 with Mr. Feuchuk
10.8 - Employment Agreement, dated June, 1998 with Mr. Sykes
10.9 - Employment Agreement, dated September 1997 with Mr. Hrap
10.10 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Mr. Hrap
</TABLE>
-72-
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
10.11 - Employment Agreement, dated September 1997 with Mr. Manner
10.12 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Mr. Manner
10.13 - Employment Agreement, dated September 1997 with Ms. Walker
10.14 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Ms. Walker
10.15 - Loan Agreement dated September 18, 1998 with a syndicate of banks
23.2 - Consent of Ernst & Young LLP
27 - Financial Data Schedule
</TABLE>
-73-
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GULF CANADA RESOURCES LIMITED
By: /s/ RICHARD H. AUCHINLECK
--------------------------------
Name: Richard H. Auchinleck
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD H. AUCHINLECK President and Chief Executive Officer; Director April 12, 1999
- -------------------------------------------- (principal executive officer)
Richard H. Auchinleck
/s/ CRAIG S. GLICK Executive Vice-President and Chief Financial Officer
- -------------------------------------------- (principal financial officer) April 12, 1999
Craig S. Glick
/s/ DENNIS G. FEUCHUK Vice President and Controller
- -------------------------------------------- (principal accounting officer) April 12, 1999
Dennis G. Feuchuk
/s/ STANLEY H. HARTT Director April 12, 1999
- --------------------------------------------
Stanley H. Hartt
/s/ H. EARL JOUDRIE Director April 12, 1999
- --------------------------------------------
H. Earl Joudrie
</TABLE>
-74-
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ T. MICHAEL LONG Director April 12, 1999
- --------------------------------------------
T. Michael Long
/s/ DONALD F. MAZANKOWSKI Director April 12, 1999
- --------------------------------------------
The Right Honourable
Donald F. Mazankowski
/s/ ALAN H. MICHELL Director April 12, 1999
- --------------------------------------------
Alan H. Michell
/s/ HELMUT M. NELDNER Director April 12, 1999
- --------------------------------------------
Helmut M. Neldner
/s/ WALTER B. O'DONOGHUE Director April 12, 1999
- --------------------------------------------
Walter B. O'Donoghue, Q.C.
/s/ RONALD N. ROBERTSON, Q.C. Director April 12, 1999
- --------------------------------------------
Ronald N. Robertson, Q.C.
/s/ MAUREEN J. SABIA Director April 12, 1999
- --------------------------------------------
Maureen J. Sabia
</TABLE>
-75-
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
3.1 - Articles of Incorporation of Gulf Canada Resources Limited
(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 - Bylaws of Gulf Canada Resources Limited (incorporated by reference
to Exhibit 3.2 of the Company's 10-Q for quarter ended June 30, 1997,
filed August 14, 1997)
4.1 - Indenture dated July 1, 1989 between the Company and Chase Manhattan
Bank pertaining to the Company's 9% debentures due 1999 (incorporated
by reference to the Company's Registration Statement on Form F-10,
Registration No. 33-30138)
4.2 - Indenture dated January 27, 1994 between the Company and The
Bank of New York pertaining to the Company's 9.25% Senior
Subordinated Debentures due 2004 (incorporated by reference
to the Company's Registration Statement on Form F-10, Registration
No. 33-73252)
4.3 - Indenture dated July 5, 1995 between the Company and The Bank of New
York pertaining to the Company's 9.625% Senior Subordinated
Debentures due 2005 (incorporated by reference to Exhibit 7.1
to the Company's Registration Statement on Form F-10,
Registration No. 33-93452)
4.4 - Indenture dated August 7, 1997 between the Company and The Bank of New
York pertaining to the Company's 8.35% Senior Notes payable 2006
(incorporated by reference to Exhibit 7.1 to the Company's
Registration Statement on Form F-10, Registration No. 333-5332)
4.5 - Indenture dated March 21, 1997 between the Company and The Bank of
New York pertaining to the Company's 8.25% Senior Notes payable 2017
(incorporated by reference to Exhibit 7.1 to the Company's
Registration Statement on Form F-10, Registration 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)
4.7 - Form of Indenture (incorporated by reference to Exhibit 7.1 to the
Company's Registration Statement on Form F-10, Registration No.
333-7802)
4.8 - First Supplemental Indenture dated November 16, 1998 between the
Company and the Bank of New York pertaining to the Company's 8 3/8%
Senior Notes payable 2005 (incorporated by reference to Exhibit 7.2
to the Company's Current Report on Form 8-K).
10.1 - Loan Agreement dated July 18, 1997 with a syndicate of banks
(incorporated by reference to Exhibit 10.2 to the Company's report on
Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997)
10.2 - Employment Agreement, dated February 1996 with Mr. Auchinleck
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended 1997, filed March 30, 1998)
10.3 - Employment Agreement, dated January 1995 with Mr. Glick (incorporated
by reference to the Company's Form 10-K for the fiscal year ended
1997, filed March 30, 1998)
</TABLE>
-76-
<PAGE> 78
<TABLE>
<CAPTION>
<S> <C>
10.4 - Employment Agreement, dated February 1996 with Mr. Feuchuk
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended 1997, filed March 30, 1998)
10.5 - Amending Agreement dated February 19, 1998 to the Employee Agreement
dated February 1996 with Mr. Auchinleck
10.6 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated January 1995 with Mr. Glick
10.7 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated February 1996 with Mr. Feuchuk
10.8 - Employment Agreement, dated June, 1998 with Mr. Sykes
10.9 - Employment Agreement, dated September 1997 with Mr. Hrap
10.10 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Mr. Hrap
10.11 - Employment Agreement, dated September 1997 with Mr. Manner
10.12 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Mr. Manner
10.13 - Employment Agreement, dated September 1997 with Ms. Walker
10.14 - Amending Agreement dated February 19, 1998 to the Employment
Agreement dated September 1997 with Ms. Walker
10.15 - Loan Agreement dated September 18, 1998 with a syndicate of banks
23.2 - Consent of Ernst & Young LLP
27 - Financial Data Schedule
</TABLE>
-77-
<PAGE> 1
Exhibit 10.5
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,
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> 2
(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).
2
<PAGE> 3
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
___________________________________
___________________________________
_____________________________________ ___________________________________
Witness RICHARD H. AUCHINLECK
3
<PAGE> 4
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
4
<PAGE> 5
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at
5
<PAGE> 6
50% of the cost with a lifetime maximum of $2,000. The Corporation pays 100% of
the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
6
<PAGE> 7
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $15,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
7
<PAGE> 1
Exhibit 10.6
AMENDING AGREEMENT
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,
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> 2
(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).
2
<PAGE> 3
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
___________________________________
___________________________________
__________________________________ ___________________________________
Witness CRAIG S. GLICK
3
<PAGE> 4
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
4
<PAGE> 5
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at
5
<PAGE> 6
50% of the cost with a lifetime maximum of $2,000. The Corporation pays 100% of
the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
6
<PAGE> 7
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $15,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
7
<PAGE> 1
Exhibit 10.7
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,
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> 2
(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).
2
<PAGE> 3
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
___________________________________
___________________________________
__________________________________ ___________________________________
Witness DENNIS G. FEUCHUK
3
<PAGE> 4
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
4
<PAGE> 5
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at
5
<PAGE> 6
50% of the cost with a lifetime maximum of $2,000. The Corporation pays 100% of
the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
6
<PAGE> 7
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
7
<PAGE> 1
Exhibit 10.8
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT is dated effective as of June 15, 1998.
BETWEEN:
GULF CANADA RESOURCES LIMITED
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
HENRY W. SYKES,
OF THE CITY OF CALGARY, CANADA
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS
(a) The Executive is considered by the Board of Directors of the
Corporation to have outstanding and special skills and
abilities and an extensive background in and knowledge of the
Corporation's business and the industry in which it is engaged
and to be well-suited to the position of Senior Vice
President, Business Development and General Counsel of the
Corporation;
(b) The Board of Directors recognizes that it is essential and in
the best interests of the Corporation to attract and retain
the dedication of the Executive to his office and employment
and that the service of the Executive to the Corporation
requires that the Executive receive fair treatment,
particularly in the event of an actual or constructive
termination of his employment with the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants herein contained and in consideration of the Executive
remaining in office and in the employment of the Corporation at the present time
and throughout the period of material change of ownership or organization of the
Corporation, it is hereby agreed as follows:
<PAGE> 2
-2-
1. DEFINITIONS
In this Agreement:
(a) "affiliate" means:
(i) one body corporate is an affiliate of another body
corporate if one of them is the subsidiary of the
other or both are subsidiaries of the same body
corporate or each of them is under the control of the
same person; and
(ii) two bodies corporate that are an affiliate of the
same body corporate at the same time are affiliates
of each other.
(b) "associate" has the meaning ascribed to that term in the
Canada Business Corporations Act.
(c) "change of control" means or shall be deemed to have occurred
if and when:
(i) the acquisition, by whatever means (including without
limitation, amalgamation, consolidation, liquidation,
arrangement or merger), by a person (or two or more
persons who in such acquisition have acted jointly or
in concert or intend to exercise jointly or in
concert any voting rights attaching to the securities
acquired), directly or indirectly, of the beneficial
ownership of such number of voting securities or
rights to voting securities of the Corporation, which
together with such person's then owned voting
securities and rights to voting securities, if any,
represent (assuming the full exercise of such rights
to voting securities) more than 20% of the combined
voting power of the Corporation's then outstanding
voting securities, together with the voting
securities acquired and such person's previously
owned rights to voting securities; or
(ii) individuals who were members of the Board of
Directors of the Corporation immediately prior to a
meeting of the shareholders of the Corporation
involving a contest for or on an item of business
relating to the election of directors shall not
constitute a majority of the Board of Directors
following such election.
(d) "Compensation Committee" means the Committee of the Board of
Directors of the Corporation from time to time appointed to
fix the remuneration of executives of the Corporation or, if
such Committee has not been appointed, means the Board of
Directors of the Corporation.
(e) "confidential information" means information, processes,
know-how, data, trade secrets, techniques, knowledge and other
confidential information not generally
<PAGE> 3
-3-
known to the public relating to or connected with the business
or corporate affairs and operations of the Corporation and its
affiliates.
(f) "constructive dismissal" means, unless consented to by the
Executive in writing, any action by the Corporation which
constitutes constructive dismissal of the Executive,
including, without limiting the generality of the foregoing:
(i) any material reduction in the Executive's office,
titles, positions, duties, responsibilities, powers
or reporting relationships;
(ii) any reduction in the annual salary of the Executive;
(iii) a requirement to relocate to another province, state
or country; and
(iv) any material reduction in the value of the
Executive's employee benefits plans and programmes,
including, without limiting the generality of the
foregoing, bonus arrangements.
(g) "control" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(h) "executive superannuation undertakings" refers, for purposes
of section 2.6(c) of this Agreement, to a commitment given by
the Corporation in recognition of the fact that the retirement
benefits under the registered pension plans of the Corporation
and its affiliates are subject to a maximum pension limitation
as fixed from time to time under the Income Tax Act (Canada)
and the rules and regulations promulgated by Revenue Canada,
Taxation, from time to time thereunder. To the extent that
this limitation applies with respect to the registered pension
plans of the corporation or its affiliates for service prior
to January 1, 1996, the Corporation has undertaken to pay a
supplemental retirement allowance sufficient to provide the
Executive with an annual pension equal to the annual pension
to which the Executive would be entitled under the registered
pension plans of the Corporation and its affiliates if such
limitation did not apply to such plans. For service from
January 1, 1996 onwards, once the Revenue Canada contribution
limit has been reached contributions of the same amount as
required under the pension plan will be paid to the Executive
semi-monthly.
(i) "person" shall have the meaning ascribed to it in the Canada
Business Corporations Act.
(j) "subsidiary" of a corporation means, at any time, a
corporation of which the Corporation has control at that time,
whether directly or indirectly through one or more
subsidiaries.
<PAGE> 4
-4-
2. EMPLOYMENT
2.1 Position, Duties and Responsibilities of Executive
The Executive shall have such responsibilities and powers as the Board
of Directors of the Corporation or the by-laws of the Corporation or the
Executive's superiors may from time to time prescribe. Except as expressly
approved by the Board, the Executive shall devote the whole of his time to the
Executive's duties hereunder and shall use his best efforts to promote the
interests of the Corporation. As of the effective date of this Agreement, the
Board of Directors of the Corporation has agreed to allow the Executive to
retain his position as a Director of Equitorial Energy Inc. on the condition
that there is no conflict of interest with his role and responsibilities towards
the Corporation. The Executive shall, during the term of this Agreement:
(a) perform such managerial duties and responsibilities for the
Corporation as may be assigned to him by the Chief Executive
Officer and by the Board of the Directors of the Corporation,
and at no additional remuneration, shall serve in such other
comparable positions with affiliates and associates of the
Corporation as the Board of Directors of the Corporation may
from time to time determine, and
(b) accept such office or offices to which he may be elected or
appointed by the Chief Executive Officer of by the Board of
Directors of the Corporation in addition to those of Senior
Vice President, Business Development and General Counsel of
the Corporation, provided that the performance of the duties
of such offices shall be consistent with the scope of the
duties assigned in accordance with or as provided for in
section 2.1(a) above.
2.2 Term of Agreement
The Term of this Agreement shall commence on the date hereof, and shall
continue in effect to and including the earlier of:
(a) the date of voluntary retirement of the Executive in
accordance with the retirement policies established for senior
employees of the Corporation; or
(b) the voluntary resignation of the Executive other than a
voluntary resignation pursuant to section 2.6(b)(ii) or
section 2.6(b) (iii) hereof.
2.3 Termination of Agreement upon Disability of Executive
If at the end of any month the Executive is and has been for a period
of more than twelve (12) consecutive months unable to perform the duties
specified pursuant to this Agreement in the normal and regular manner due to
mental or physical disability, this Agreement
<PAGE> 5
-5-
may be terminated by the Corporation on 30 days notice. Notwithstanding anything
contained in this Section 2.3, the Executive shall be entitled to all benefits
provided under the disability and pension plans of the Corporation or its
affiliates applicable to the Executive at the date of this Agreement.
2.4 Termination of Agreement upon Death of Executive
If the Executive dies, this Agreement shall be terminated immediately
on the date of the Executive's death. Provided that the Executive is insurable
at reasonable premium rates, the Corporation shall cause to be obtained and
maintained during the term of this Agreement a life insurance policy naming
beneficiaries specified by the Executive, which life insurance policy shall
provide a lump sum payment of not less than two times the Executive's salary to
such beneficiaries in the event that the Executive dies during the term of this
Agreement. This insurance policy shall be in addition to and not in substitution
for any insurance policies provided to the Executive under the Corporation's
benefit plans and programmes.
2.5 Termination of Agreement by the Corporation for Cause
The Corporation may terminate this Agreement at any time without notice
in the event the Executive shall be convicted of a criminal act, or for other
sufficient cause, pursuant to written notice setting forth particulars of such
cause.
2.6 Severance Entitlement upon Termination of Employment of the Executive
(a) The provisions of sub-section 2.6(c) shall not apply to, and
the Executive shall not be entitled to receive any severance
payments or other benefits as provided for in this Agreement
as a result of any circumstance where the termination of the
Executive's employment arises from the occurrence of any event
described in any of sections 2.2, 2.3, 2.4 or 2.5 hereof.
(b) The provisions of sub-section 2.6(c) shall, except as
specifically provided in sub-section 2.6(a) hereof, apply in
all circumstances where the Executive's employment with the
Corporation terminates, including, without limiting the
generality of the foregoing, any of the following
circumstances:
(i) where the Corporation terminates the employment of
the Executive for any reason other than for cause;
or,
(ii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following
constructive dismissal of the Executive.
<PAGE> 6
-6-
(iii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following a
change of control of the Corporation as described in
section 1(c)(i).
(c) In the event of the termination of the Executive's employment
as provided in sub-section 2.6(b) hereof, the following
provisions shall apply:
(i) the Executive shall be entitled to receive and the
Corporation shall forthwith pay to the Executive, a
retiring allowance (hereinafter called the "Retiring
Allowance") in an undiscounted cash amount equal to
one (1) month's base salary, inclusive of the foreign
service supplement, multiplied by the number of years
of service of the Executive with the Corporation
subject to a minimum entitlement and payment equal to
twenty-four (24) months' base salary and a maximum
entitlement and payment equal to thirty (30) months'
base salary;
(ii) in addition, the Executive shall be entitled to
receive and the Corporation shall forthwith pay to
the Executive an undiscounted cash amount equal to
the value to the Executive of all those benefits
plans and programmes provided by the Corporation to
its regular employees resident in Canada and listed
in Schedule "B" as they currently exist attached
hereto for a period of time equal to one (1) month
for every year of service of the Executive with the
Corporation at the time of termination with a minimum
entitlement and payment equal to twenty-four (24)
months of benefits value and a maximum entitlement
and payment equal to thirty (30) months of benefits
value. All amounts payable under this sub-section
2(c)(ii) shall be determined by a Fellow of the
Canadian Institute of Actuaries acceptable to the
Corporation and the Executive;
(iii) In addition, the Executive shall be entitled to
receive and the Corporation shall forthwith pay an
undiscounted amount equal to the product obtained by
multiplying by two (2) the Executive's target bonus
under the Corporation's total compensation plan or
such other plan that may have replaced the total
compensation plan for the year in which the
Executive's employment is terminated;
(iv) the Executive shall also be entitled to receive on
termination the normal and any supplementary pension
benefits in effect on the date of this Agreement
according to the terms of the Corporation's
registered pension plans and executive superannuation
undertakings, or according to similar provisions of
any successor plan, of which the Executive is a
member at
<PAGE> 7
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the date of termination of the Executive's employment
(collectively hereinafter called the "Plans"). The
Executive's total pension entitlement shall be
determined on the basis that the Executive had two
(2) additional years of credited service and age
under the Plans in which he is participating at his
date of termination of employment over and above his
actual age or years of credited service. In addition,
such additional years of credited service shall be
included for the purpose of determining final or best
average earnings assuming that the Executive's
monthly base salary at the date of termination of
employment would have continued unchanged during the
period of additional credited service. Any portion of
the total pension entitlement of the Executive not
eligible to be paid under the provisions of the
registered pension plans of the Corporation shall be
payable as supplementary payments in accordance with
the executive superannuation undertakings. If the
Executive has not vested in any or all of the Plans
on the date of termination of his employment, he
shall be or shall be deemed to be vested in any of
the Plans in which he is not vested on the date of
termination of his employment;
(v) all options for the purchase of shares of the
Corporation which have been granted by the
Corporation to the Executive under the Incentive
Stock Option Plan (1990) or such other plan that may
have replaced the Incentive Stock Option Plan (1990)
or otherwise to the date of termination of the
Executive but not yet vested shall immediately vest
on the date of termination of the Executive and the
Executive shall be entitled to exercise any or all
options for the purchase of shares of the Corporation
for a period of two (2) years from the date of
termination of the Executive whether such options to
purchase vested on or before the date of termination
of the Executive;
(vi) the Corporation and the Executive agree that the
provisions of section 2.6(c) are fair and reasonable
and that the amounts payable by the Corporation to
the Executive pursuant to section 2.6(c) are
reasonable estimates of the damages which will be
suffered by the Executive in the event of the
termination of his employment with the Corporation in
any and all of the circumstances set out in section
2.6(b) and shall not be construed as a penalty; and,
(vii) all amounts paid by the Corporation to the Executive
pursuant to section 2.6(c) shall satisfy and forever
discharge all liabilities, claims or
<PAGE> 8
-8-
actions that the Executive may or shall have against
the Corporation arising from the termination of
employment of the Executive whether at common law or
under statute or otherwise and such payment shall be
made against delivery by the Executive to the
Corporation of a release in form and terms reasonably
satisfactory to the Corporation and the Executive.
2.7 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
Unless otherwise agreed between the parties hereto, the Corporation
shall purchase and maintain, or cause to be purchased and maintained, while the
Executive remains an officer of the Corporation and for a period of 10 years
thereafter, directors' and officers' errors and omissions insurance for the
benefit of the Executive on terms no less favourable in terms of coverage, and
amounts, to the extent available on reasonable commercial terms, than such
insurance maintained in effect by the Corporation on the date thereof.
3. COMPENSATION
The Executive shall be entitled to receive compensation set by the
Compensation Committee of the Board. The Executive shall also be entitled to
receive the benefits listed in Schedule "A", as amended from time to time, in
accordance with the Corporation's policies on benefits.
4. INTEGRATION
Except for the Executive's rights to continued participation in the
Corporation's employee benefit plans, including, without limitation, the
Corporation's or its affiliates' stock option plans and savings plans and
conditions of employment generally available to other employees of the
Corporation or its affiliates, this Agreement contains the entire agreement
between the parties and supersedes all prior oral and written agreements,
understanding, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by the Executive
before the date of this Agreement. No amendments to this Agreement may be made
except in writing signed by both parties.
5. CONFIDENTIAL INFORMATION AND NON-COMPETITION CLAUSES
(a) In the event of termination of employment of the Executive, the
Executive agrees to keep confidential all information of a confidential
or proprietary nature concerning the Corporation, its subsidiaries and
affiliates and their respective operations, assets, finances, business
and affairs and further agrees not to use such information for personal
<PAGE> 9
-9-
advantage or the advantage of an employer, provided that nothing herein
shall prevent disclosure of information which is publicly available or
which is required to be disclosed under appropriate statutes, rules of
law or legal process. In the event of termination of employment of the
Executive, the Executive shall return to the Corporation all documents,
computer disks and other media which contains information which is
proprietary to the Corporation.
(b) In the event of Termination, the Executive agrees that, without the
prior written consent of the Board of Directors of the Corporation, for
a period of 18 months following Termination, neither Executive nor any
of Executive's agents, employees, affiliates or other representatives
(including any person or entity directly or indirectly, through one or
more intermediaries, directing the Executive or controlled by the
Executive or affiliated with the Executive) (collectively referred to
as the "Representatives"), will, nor will they encourage any person to
(i) purchase, offer or agree to purchase, directly or indirectly, any
securities or material assets of the Corporation, (ii) make, or in any
way participate, directly or indirectly, in any "solicitation" of
"proxies" to vote or "consents" (as such terms are used in the rules
and regulations of the Securities and Exchange Commission) with respect
to the Corporation's Ordinary Shares; (iii) directly or indirectly make
any public announcement with respect to any transaction involving the
Corporation or its securities or assets of any subsidiary thereof; (iv)
form, join or in any way participate in a "group" within the meaning of
Section 13(d)(3) of the U.S. Securities Exchange Act of 1934, as
amended, in connection with any of the foregoing; (v) otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of The Corporation; (vi)
assist, advise or encourage any other person in doing any of the
foregoing.
(c) In addition, Executive agrees that for a period of 18 months following
Termination, the Executive and its Representatives shall not hire any
employee or former employee of The Corporation provided however that
the foregoing provision will not prevent the Executive or its
Representatives from hiring any such employee or former employee who
contacts the Executive on his or her own initiative or is discovered
through a general solicitation for employment.
6. SEVERABILITY
The invalidity and unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
<PAGE> 10
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7. BENEFIT OF AGREEMENT
This Agreement shall enure to and be binding upon the Corporation and
its successors and the Executive and his legal representatives but otherwise it
is not assignable. It shall be a condition of any transfer by the Corporation of
the Executive to any affiliate or associate of the Corporation that, on request
of the Executive, such affiliate or associate agree to observe all the covenants
of and be bound by all obligations imposed on the Corporation under this
Agreement. The failure to do so shall be deemed to constitute a constructive
dismissal of the Executive for the purposes of section 2.6.
8. CHOICE OF LAW
This Agreement shall be governed and interpreted in accordance with the
laws of the Province of Alberta, which Province shall be the sole and proper
forum with respect to any suit brought with respect to this Agreement.
9. COPY OF AGREEMENT
The Executive hereby acknowledges having received a copy of this
Agreement duly signed by the Corporation.
IN WITNESS WHEREOF the parties hereto have duly executed and delivered
this Agreement.
GULF CANADA RESOURCES LIMITED
\s\ Craig Glick
-----------------------------------
\s\ Richard Auchinleck
-----------------------------------
\s\ Joanne Alexander \s\ Henry Sykes
- ---------------------------------- -----------------------------------
Witness Henry W. Sykes
<PAGE> 11
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SCHEDULE "A"
CANADIAN BENEFITS
GROUP LIFE INSURANCE:
Life Insurance Plan (for all employees hired on or after May 1, 1989):
Basic coverage equal to two times annual salary - 100% Corporation paid.
Additional voluntary insurance and dependent coverage also available.
BUSINESS ACCIDENT INSURANCE:
The Corporation pays the premium for accident insurance while on Corporation
business or travel. The amount of the insurance is three times annual salary to
a maximum benefit of $200,000.00.
LONG TERM DISABILITY:
The plan provides coverage to two-thirds of salary to a maximum of $6,000.00 per
month. Premiums cost shared - Corporation pays 2/3 and employee pays 1/3.
SUPPLEMENTARY HEALTH BENEFIT:
The Plan provides 100% semi-private hospital and out-patient expenses. After an
annual $25.00 deductible per family, the plan pays 85% of eligible expenses,
including drugs. 50% cost sharing arrangement between Corporation and employee.
VISION CARE:
The plan covers 85% of cost for glasses and/or contact lenses to maximum of
$175.00 per person every two calendar years. 100% Corporation paid.
DENTAL PLAN:
The plans pays 80% of routine dental care and 50% of major dental care, to a
maximum of $1,000.00 per year per person. 100% Corporation paid.
<PAGE> 12
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PROVINCIAL HEALTH CARE:
The Corporation shares the cost of health care premiums in Alberta.
PERQUISITE ALLOWANCE:
Senior Managers of the Corporation are eligible for a $12,000.00 annual
perquisite allowance.
LUNCHEON CLUBS:
All employees have the privilege of joining a luncheon club. Luncheon club
memberships are taken in the Corporation's name so that they may be reassigned
to other individuals in the event the incumbent retires or leaves the
Corporation.
HEATED PARKING:
One underground parking stall shall be provided.
SAVINGS ALLOWANCE:
The Corporation provides all employees with a savings allowance equal to 4.5% of
their annual salary.
OUTPLACEMENT:
Outplacement services in accordance with the Corporation's policies and
practices.
<PAGE> 1
-1-
Exhibit 10.9
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT is dated as of September 2, 1997.
BETWEEN:
GULF CANADA RESOURCES LIMITED
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
DONALD G. HRAP
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS
(a) The Executive is an officer of the Corporation and is considered by
the Board of Directors of the Corporation to be a valued employee
of the Corporation and has acquired outstanding and special skills
and abilities and an extensive background in and knowledge of the
Corporation's business and the industry in which it is engaged;
(b) The Board of Directors recognizes that it is essential, in the best
interests of the Corporation, that the Corporation retain the
continuing dedication of the Executive to his office and employment
and that the past service of the Executive to the Corporation
requires that the Executive receive fair treatment, particularly in
the event of an actual or constructive termination of his
employment with the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants herein contained and in consideration of the Executive
remaining in office and in the employment of the Corporation at the present
time and throughout the period of material change of ownership or organization
of the Corporation, it is hereby agreed as follows:
<PAGE> 2
-2-
1. DEFINITIONS
In this Agreement:
(a) "affiliate" means:
(i) one body corporate is an affiliate of another body
corporate if one of them is the subsidiary of the other or
both are subsidiaries of the same body corporate or each of
them is under the control of the same person; and
(ii) two bodies corporate that are an affiliate of the same body
corporate at the same time are affiliates of each other.
(b) "associate" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(c) "change of control" means or shall be deemed to have occurred if
and when:
(i) the acquisition, by whatever means (including without
limitation, amalgamation, consolidation, liquidation,
arrangement or merger), by a person (or two or more
persons who in such acquisition have acted jointly or in
concert or intend to exercise jointly or in concert any
voting rights attaching to the securities acquired),
directly or indirectly, of the beneficial ownership of
such number of voting securities or rights to voting
securities of the Corporation, which together with such
person's then owned voting securities and rights to voting
securities, if any, represent (assuming the full exercise
of such rights to voting securities) more than 20% of the
combined voting power of the Corporation's then outstanding
voting securities, together with the voting securities
acquired and such person's previously owned rights to
voting securities; or
(ii) individuals who were members of the Board of Directors of
the Corporation immediately prior to a meeting of the
shareholders of the Corporation involving a contest for or
on an item of business relating to the election of
directors shall not constitute a majority of the Board of
Directors following such election.
(d) "Compensation Committee" means the Committee of the Board of
Directors of the Corporation from time to time appointed to fix
the
<PAGE> 3
-3-
remuneration of executives of the Corporation or, if such Committee
has not been appointed, means the Board of Directors of the
Corporation.
(e) "constructive dismissal" means, unless consented to by the
Executive in writing, any action by the Corporation which
constitutes constructive dismissal of the Executive, including,
without limiting the generality of the foregoing:
(i) any material reduction in the Executive's office, titles,
positions, duties, responsibilities, powers or reporting
relationships;
(ii) any reduction in the annual salary of the Executive;
(iii) a requirement to relocate to another province, state or
country; and
(iv) any reduction in the value of the Executive's employee
benefits plans and programmes, including, without limiting
the generality of the foregoing, bonus arrangements.
(f) "confidential information" means information, processes, know-how,
data, trade secrets, techniques, knowledge and other confidential
information not generally known to the public relating to or
connected with the business or corporate affairs and operations of
the Corporation and its affiliates.
(g) "control" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(h) "person" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(i) "subsidiary" of a corporation means, at any time, a corporation of
which the corporation has control at that time, whether directly or
indirectly through one or more subsidiaries.
2. EMPLOYMENT
2.1 Position, Duties and Responsibilities of Executive
The Executive shall have such responsibilities and powers as the Board of
Directors or the by-laws of the Corporation or the Executive's superiors may
from time to time prescribe. The Executive shall devote the whole of his time to
the Executive's duties hereunder and shall use his best efforts to promote the
interests of the Corporation. The executive shall, during the term of this
agreement:
<PAGE> 4
-4-
(a) perform such managerial duties and responsibilities for the
Corporation as may be assigned to him by the Chief Executive
Officer and by the Board of Directors of the Corporation, and at no
additional remuneration, shall serve in such other comparable
positions with affiliates and associates of the Corporation as the
Board of Directors of the Corporation may from time to time
determine; and
(b) accept such office or offices to which he may be elected or
appointed by the Chief Executive Officer or by the Board of
Directors of the Corporation in addition to those of Vice-President
North America, provided that the performance of the duties of such
offices shall be consistent with the scope of the duties assigned
in accordance with or as provided for in section 2.1(a) above.
2.2 Term of Agreement
The term of this Agreement shall commence on the date hereof, and shall
continue in effect to and including the earlier of:
(a) the date of voluntary retirement of the Executive in accordance
with the retirement policies established for senior employees of
the Corporation; or
(b) the voluntary resignation of the Executive other than a voluntary
resignation pursuant to either section 2.6(b)(ii) or section
2.6(b)(iii) hereof.
2.3 Termination of Agreement upon Disability of Executive
If at the end of any month the Executive is and has been for a period of
more than twelve (12) consecutive months unable to perform the duties specified
pursuant to this Agreement in the normal and regular manner due to mental or
physical disability, this Agreement may be terminated by the Corporation on 30
days' notice. Notwithstanding anything contained in this Section 2.3, the
Executive shall be entitled to all benefits provided under the disability and
pension plans of the Corporation or its affiliates applicable to the Executive
at the date of this Agreement.
2.4 Termination of Agreement upon Death of Executive
If the Executive dies, this Agreement shall be terminated immediately on
the date of the Executive's death. Provided that the Executive is insurable at
reasonable premium rates, the Corporation shall cause to be obtained and
maintained during the term of this
<PAGE> 5
-5-
Agreement a life insurance policy naming beneficiaries specified by the
Executive, which life insurance policy shall provide a lump sum payment of not
less than two times the Executive's salary to such beneficiaries in the event
that the Executive dies during the term of this Agreement. This insurance policy
shall be in addition to and not in substitution for any insurance policies
provided to the Executive under the Corporation's benefit plans and programmes.
2.5 Termination of Agreement by the Corporation for Cause
The Corporation may terminate this Agreement at any time without notice in
the event the Executive shall be convicted of a criminal act of dishonesty
resulting or intended to result directly or indirectly in gain or personal
enrichment of the Executive at the expense of the Corporation, or for other
sufficient cause pursuant to written notice setting forth particulars of such
cause.
2.6 Severance Entitlement Upon Termination of Employment of the Executive
(a) The provisions of sub-section 2.6(c) shall not apply to, and the
Executive shall not be entitled to receive any severance payments
or other benefits as provided for in this Agreement as a result of
any circumstance where the termination of the Executive's
employment arises from the occurrence of any event described in any
of sections 2.2, 2.3, 2.4 or 2.5 hereof.
(b) The provisions of sub-section 2.6(c) shall, except as specifically
provided in sub-section 2.6(a) hereof, apply in all circumstances
where the Executive's employment with the Corporation terminates,
including, without limiting the generality of the foregoing, any of
the following circumstances:
(i) where the Corporation terminates the employment of the
Executive for any reason other than for cause; or,
(ii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the Corporation
within ninety (90) days following constructive dismissal of
the Executive;
(iii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the Corporation
within ninety (90) days following a change of control of
the Corporation as described in section 1(c)(i).
<PAGE> 6
-6-
(c) In the event of the termination of the Executive's employment as
provided in sub-section 2.6(b) hereof, the following provisions
shall apply:
(i) the Executive shall be entitled to receive and the
Corporation shall forthwith pay to the Executive, a
retiring allowance (hereinafter called the "Retiring
Allowance") in an undiscounted cash amount equal to one (1)
month's base salary multiplied by the number of years of
service of the Executive with the Corporation subject to a
minimum entitlement and payment equal to twenty-four (24)
months' base salary and a maximum entitlement and payment
equal to thirty (30) months' base salary;
(ii) in addition, the Executive shall be entitled to receive and
the Corporation shall forthwith pay to the Executive an
undiscounted cash amount equal to the value to the
Executive of all those benefits plans and programmes
provided by the Corporation and listed in Schedule "A"
attached hereto for a period of time equal to one (1) month
for every year of service of the Executive with the
Corporation with a minimum entitlement and payment equal to
twenty-four (24) months of benefits value and a maximum
entitlement and payment equal to thirty (30) months of
benefits value. All amounts payable under this sub-section
2(c)(ii) shall be determined by a Fellow of the Canadian
Institute of Actuaries acceptable to the Corporation and
the Executive;
(iii) in addition, the Executive may be entitled, at the
discretion of executive management, to receive and the
Corporation shall forthwith pay to the Executive an
undiscounted amount equal to the product obtained by
multiplying by two (2) the Executive's target bonus under
the Corporation's Total Compensation Plan or such other
similar plan that may have replaced the Total Compensation
Plan for the year in which his employment is terminated;
(iv) all options for the purchase of shares of the Corporation
which have been granted by the Corporation to the Executive
prior to January 31, 1995 under the Executive Stock Option
Plan (1990) or (1994) but not yet vested shall immediately
vest on the date of
<PAGE> 7
-7-
termination of the Executive and the Executive shall be
entitled to exercise all such options for the purchase of
shares of the Corporation for a period of five (5) years
from the date of termination of the Executive whether the
options vested on or before the date of termination of the
Executive;
(v) all options for the purchase of shares of the Corporation
granted by the Corporation to the Executive since January
1, 1995 under the Incentive Stock Option Plan (1994) or
otherwise (including, without limitation, those options
granted to the Executive on January 31, 1995) to the date
of termination of the Executive but not yet vested shall
immediately vest on the date of termination of the
Executive and the Executive shall be entitled to exercise
any or all such options for the purchase of shares of the
Corporation for a period of one (1) year from the date of
termination of the Executive whether such options vested on
or before the date of termination of the Executive;
(vi) the Corporation and the Executive agree that the provisions
of section 2.6(c) are fair and reasonable and that the
amounts payable by the Corporation to the Executive
pursuant to section 2.6(c) are reasonable estimates of the
damages which will be suffered by the Executive in the
event of the termination of his employment with the
Corporation in any and all of the circumstances set out in
section 2.6(b) and shall not be construed as a penalty;
and,
(vii) all amounts paid by the Corporation to the Executive
pursuant to section 2.6(c) shall satisfy and forever
discharge all liabilities, claims or actions that the
Executive may or shall have against the Corporation arising
from the termination of employment of the Executive whether
at common law or under statute or otherwise and such
payment shall be made against delivery by the Executive to
the Corporation of a release in form and terms reasonably
satisfactory to the Corporation and the Executive.
<PAGE> 8
-8-
2.7 Directors' and Officers' Liability Insurance
Unless otherwise agreed between the parties hereto, Gulf shall purchase and
maintain, or cause to be purchased and maintained, while the Executive remains
an officer of Gulf and for a period of 10 years thereafter, directors' and
officers' errors and omissions insurance for the benefit of the Executive on
terms no less favourable in terms of coverage, and amounts, to the extent
available on reasonable commercial terms, than such insurance maintained in
effect by the Corporation on the date hereof.
3. INTEGRATION
Except for the Executive's rights to continued participation in the
Corporation's employee benefit plans, including, without limitation, the
Corporation's or its affiliates' stock option plans and savings plans and
conditions of employment generally available to other Executives of the
Corporation or its affiliates, this Agreement contains the entire agreement
between the parties and supersedes all prior oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by the Executive
before the date of this Agreement. No amendments to this Agreement may be made
except in writing signed by both parties.
4. CONFIDENTIAL INFORMATION
In the event of termination of employment of the Executive, the Executive
agrees to keep confidential all information of a confidential or proprietary
nature concerning the Corporation, its subsidiaries and affiliates and their
respective operations, assets, finances, business and affairs and further agrees
not to use such information for personal advantage or the advantage of an
employer, provided that nothing herein shall prevent disclosure of information
which is publicly available or which is required to be disclosed under
appropriate statues, rules of law or legal process.
5. SEVERABILITY
The invalidity and unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
<PAGE> 9
-9-
6. BENEFIT OF AGREEMENT
This Agreement shall enure to and be binding upon the Corporation and its
successors and the Executive and his legal representatives but otherwise it is
not assignable. It shall be a condition of any transfer by the Corporation of
the Executive to any affiliate or associate of the Corporation that, on request
of the Executive, such affiliate or associate agree to observe all the covenants
of and be bound by all obligations imposed on the Corporation under this
Agreement. The failure to do so shall be deemed to constitute a constructive
dismissal of the Executive for the purposes of section 2.6.
7. CHOICE OF LAW
This Agreement shall be governed and interpreted in accordance with the
laws of the Province of Alberta, which Province shall be the sole and proper
forum with respect to any suit brought with respect to this Agreement.
8. COPY OF AGREEMENT
The Executive hereby acknowledges having received a copy of this Agreement
duly signed by the Corporation.
IN WITNESS WHEREOF the parties hereto have duly executed and delivered this
Agreement.
GULF CANADA RESOURCES LIMITED
_____________________________
_____________________________
____________________________________ _____________________________
Witness DONALD G. HRAP
<PAGE> 10
SCHEDULE "A"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
<PAGE> 11
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS of Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost with a lifetime maximum of
$2,000. The Corporation pays 100% of the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
<PAGE> 12
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executives retires
or leaves the Corporation.
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELLING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counselling services to a maximum value
of $20,000 or cash, in lieu thereof, of $20,000.
<PAGE> 1
Exhibit 10.10
AMENDING AGREEMENT
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
DONALD G. HRAP
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of September 2, 1997 to reflect the changes to certain policies of the
Corporation and certain benefits provided to the Executive;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1,
the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed
that:
1. Section 2.6(c)(6) is amended by changing "one (1) year" to
"two (2) years".
2. 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/ DONALD G. HRAP
__________________________________ ___________________________________
Witness DONALD G. HRAP
<PAGE> 2
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
2
<PAGE> 3
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under
3
<PAGE> 4
18 and is paid at 50% of the cost with a lifetime maximum of
$2,000. The Corporation pays 100% of the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
4
<PAGE> 5
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
5
<PAGE> 1
Exhibit 10.11
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT is dated as of September 2, 1997.
BETWEEN:
GULF CANADA RESOURCES LIMITED
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
DOUGLAS G. MANNER
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS
(a) The Executive is an officer of the Corporation and is
considered by the Board of Directors of the Corporation to be
a valued employee of the Corporation and has acquired
outstanding and special skills and abilities and an extensive
background in and knowledge of the Corporation's business and
the industry in which it is engaged;
(b) The Board of Directors recognizes that it is essential, in the
best interests of the Corporation, that the Corporation retain
the continuing dedication of the Executive to his office and
employment and that the past service of the Executive to the
Corporation requires that the Executive receive fair
treatment, particularly in the event of an actual or
constructive termination of his employment with the
Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants herein contained and in consideration of the Executive
remaining in office and in the employment of the Corporation at the present time
and throughout the period of material change of ownership or organization of the
Corporation, it is hereby agreed as follows:
<PAGE> 2
-2-
1. DEFINITIONS
In this Agreement:
(a) "affiliate" means:
(i) one body corporate is an affiliate of another body
corporate if one of them is the subsidiary of the
other or both are subsidiaries of the same body
corporate or each of them is under the control of the
same person; and
(ii) two bodies corporate that are an affiliate of the
same body corporate at the same time are affiliates
of each other.
(b) "associate" has the meaning ascribed to that term in the
Canada Business Corporations Act.
(c) "change of control" means or shall be deemed to have occurred
if and when:
(i) the acquisition, by whatever means (including without
limitation, amalgamation, consolidation, liquidation,
arrangement or merger), by a person (or two or more
persons who in such acquisition have acted jointly
or in concert or intend to exercise jointly or in
concert any voting rights attaching to the securities
acquired), directly or indirectly, of the beneficial
ownership of such number of voting securities or
rights to voting securities of the Corporation, which
together with such person's then owned voting
securities and rights to voting securities, if any,
represent (assuming the full exercise of such rights
to voting securities) more than 20% of the combined
voting power of the Corporation's then outstanding
voting securities, together with the voting
securities acquired and such person's previously
owned rights to voting securities; or
(ii) individuals who were members of the Board of
Directors of the Corporation immediately prior to a
meeting of the shareholders of the Corporation
involving a contest for or on an item of business
relating to the election of directors shall not
constitute a majority of the Board of Directors
following such election.
(d) "Compensation Committee" means the Committee of the Board of
Directors of the Corporation from time to time appointed to
fix the remuneration of executives of the Corporation or, if
such Committee has not been appointed, means the Board of
Directors of the Corporation.
<PAGE> 3
-3-
(e) "constructive dismissal" means, unless consented to by the
Executive in writing, any action by the Corporation which
constitutes constructive dismissal of the Executive,
including, without limiting the generality of the foregoing:
(i) any material reduction in the Executive's office,
titles, positions, duties, responsibilities, powers
or reporting relationships;
(ii) any reduction in the annual salary of the Executive;
(iii) a requirement to relocate to another province, state
or country; and
(iv) any reduction in the value of the Executive's
employee benefits plans and programmes, including,
without limiting the generality of the foregoing,
bonus arrangements.
(f) "confidential information" means information, processes,
know-how, data, trade secrets, techniques, knowledge and other
confidential information not generally known to the public
relating to or connected with the business or corporate
affairs and operations of the Corporation and its affiliates.
(g) "control" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(h) "person" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(i) "subsidiary" of a corporation means, at any time, a
corporation of which the corporation has control at that time,
whether directly or indirectly through one or more
subsidiaries.
2. EMPLOYMENT
2.1 Position, Duties and Responsibilities of Executive
The Executive shall have such responsibilities and powers as the Board
of Directors or the by-laws of the Corporation or the Executive's superiors may
from time to time prescribe. The Executive shall devote the whole of his time to
the Executive's duties hereunder and shall use his best efforts to promote the
interests of the Corporation. The executive shall, during the term of this
agreement:
(a) perform such managerial duties and responsibilities for the
Corporation as may be assigned to him by the Chief Executive
Officer and by the Board of Directors of the Corporation, and
at no additional remuneration, shall serve in such other
comparable positions with affiliates and associates of the
<PAGE> 4
-4-
Corporation as the Board of Directors of the Corporation may
from time to time determine; and
(b) accept such office or offices to which he may be elected or
appointed by the Chief Executive Officer or by the Board of
Directors of the Corporation in addition to those of
Vice-President, International, provided that the performance
of the duties of such offices shall be consistent with the
scope of the duties assigned in accordance with or as provided
for in section 2.1(a) above.
2.2 Term of Agreement
The term of this Agreement shall commence on the date hereof, and shall
continue in effect to and including the earlier of:
(a) the date of voluntary retirement of the Executive in
accordance with the retirement policies established for senior
employees of the Corporation; or
(b) the voluntary resignation of the Executive other than a
voluntary resignation pursuant to either section 2.6(b)(ii) or
section 2.6(b)(iii) hereof.
2.3 Termination of Agreement upon Disability of Executive
If at the end of any month the Executive is and has been for a period
of more than twelve (12) consecutive months unable to perform the duties
specified pursuant to this Agreement in the normal and regular manner due to
mental or physical disability, this Agreement may be terminated by the
Corporation on 30 days' notice. Notwithstanding anything contained in this
Section 2.3, the Executive shall be entitled to all benefits provided under the
disability and pension plans of the Corporation or its affiliates applicable to
the Executive at the date of this Agreement.
2.4 Termination of Agreement upon Death of Executive
If the Executive dies, this Agreement shall be terminated immediately
on the date of the Executive's death. Provided that the Executive is insurable
at reasonable premium rates, the Corporation shall cause to be obtained and
maintained during the term of this Agreement a life insurance policy naming
beneficiaries specified by the Executive, which life insurance policy shall
provide a lump sum payment of not less than two times the Executive's salary to
such beneficiaries in the event that the Executive dies during the term of this
Agreement. This insurance policy shall be in addition to and not in substitution
for
<PAGE> 5
-5-
any insurance policies provided to the Executive under the Corporation's
benefit plans and programmes.
2.5 Termination of Agreement by the Corporation for Cause
The Corporation may terminate this Agreement at any time without notice
in the event the Executive shall be convicted of a criminal act of dishonesty
resulting or intended to result directly or indirectly in gain or personal
enrichment of the Executive at the expense of the Corporation, or for other
sufficient cause pursuant to written notice setting forth particulars of such
cause.
2.6 Severance Entitlement Upon Termination of Employment of the Executive
(a) The provisions of sub-section 2.6(c) shall not apply to, and
the Executive shall not be entitled to receive any severance
payments or other benefits as provided for in this Agreement
as a result of any circumstance where the termination of the
Executive's employment arises from the occurrence of any event
described in any of sections 2.2, 2.3, 2.4 or 2.5 hereof.
(b) The provisions of sub-section 2.6(c) shall, except as
specifically provided in sub-section 2.6(a) hereof, apply in
all circumstances where the Executive's employment with the
Corporation terminates, including, without limiting the
generality of the foregoing, any of the following
circumstances:
(i) where the Corporation terminates the employment of
the Executive for any reason other than for cause;
or,
(ii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following
constructive dismissal of the Executive;
(iii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following a
change of control of the Corporation as described in
section 1(c)(i).
<PAGE> 6
-6-
(c) In the event of the termination of the Executive's employment
as provided in sub-section 2.6(b) hereof, the following
provisions shall apply:
(i) the Executive shall be entitled to receive and the
Corporation shall forthwith pay to the Executive, a
retiring allowance (hereinafter called the "Retiring
Allowance") in an undiscounted cash amount equal to
one (1) month's base salary multiplied by the number
of years of service of the Executive with the
Corporation subject to a minimum entitlement and
payment equal to twenty-four (24) months' base salary
and a maximum entitlement and payment equal to thirty
(30) months' base salary;
(ii) in addition, the Executive shall be entitled to
receive and the Corporation shall forthwith pay to
the Executive an undiscounted cash amount equal to
the value to the Executive of all those benefits
plans and programmes provided by the Corporation and
listed in Schedule "A" attached hereto for a period
of time equal to one (1) month for every year of
service of the Executive with the Corporation with a
minimum entitlement and payment equal to twenty-four
(24) months of benefits value and a maximum
entitlement and payment equal to thirty (30) months
of benefits value. All amounts payable under this
sub-section 2(c)(ii) shall be determined by a Fellow
of the Canadian Institute of Actuaries acceptable to
the Corporation and the Executive;
(iii) in addition, the Executive may be entitled, at the
discretion of executive management, to receive and
the Corporation shall forthwith pay to the Executive
an undiscounted amount equal to the product obtained
by multiplying by two (2) the Executive's target
bonus under the Corporation's Total Compensation Plan
or such other similar plan that may have replaced the
Total Compensation Plan for the year in which his
employment is terminated;
(iv) all options for the purchase of shares of the
Corporation which have been granted by the
Corporation to the Executive prior to January 31,
1995 under the Executive Stock Option Plan (1990) or
(1994) but not yet vested shall immediately vest on
the date of termination of the Executive and the
Executive shall be entitled to
<PAGE> 7
-7-
exercise all such options for the purchase of shares
of the Corporation for a period of five (5) years
from the date of termination of the Executive whether
the options vested on or before the date of
termination of the Executive;
(v) all options for the purchase of shares of the
Corporation granted by the Corporation to the
Executive since January 1, 1995 under the Incentive
Stock Option Plan (1994) or otherwise (including,
without limitation, those options granted to the
Executive on January 31, 1995) to the date of
termination of the Executive but not yet vested shall
immediately vest on the date of termination of the
Executive and the Executive shall be entitled to
exercise any or all such options for the purchase of
shares of the Corporation for a period of one (1)
year from the date of termination of the Executive
whether such options vested on or before the date of
termination of the Executive;
(vi) the Corporation and the Executive agree that the
provisions of section 2.6(c) are fair and reasonable
and that the amounts payable by the Corporation to
the Executive pursuant to section 2.6(c) are
reasonable estimates of the damages which will be
suffered by the Executive in the event of the
termination of his employment with the Corporation in
any and all of the circumstances set out in section
2.6(b) and shall not be construed as a penalty; and,
(vii) all amounts paid by the Corporation to the Executive
pursuant to section 2.6(c) shall satisfy and forever
discharge all liabilities, claims or actions that the
Executive may or shall have against the Corporation
arising from the termination of employment of the
Executive whether at common law or under statute or
otherwise and such payment shall be made against
delivery by the Executive to the Corporation of a
release in form and terms reasonably satisfactory to
the Corporation and the Executive.
2.7 Directors' and Officers' Liability Insurance
Unless otherwise agreed between the parties hereto, Gulf shall purchase
and maintain, or cause to be purchased and maintained, while the Executive
remains an
<PAGE> 8
-8-
officer of Gulf and for a period of 10 years thereafter, directors' and
officers' errors and omissions insurance for the benefit of the Executive on
terms no less favourable in terms of coverage, and amounts, to the extent
available on reasonable commercial terms, than such insurance maintained in
effect by the Corporation on the date hereof.
3. INTEGRATION
Except for the Executive's rights to continued participation in the
Corporation's employee benefit plans, including, without limitation, the
Corporation's or its affiliates' stock option plans and savings plans and
conditions of employment generally available to other Executives of the
Corporation or its affiliates, this Agreement contains the entire agreement
between the parties and supersedes all prior oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by the Executive
before the date of this Agreement. No amendments to this Agreement may be made
except in writing signed by both parties.
4. CONFIDENTIAL INFORMATION
In the event of termination of employment of the Executive, the
Executive agrees to keep confidential all information of a confidential or
proprietary nature concerning the Corporation, its subsidiaries and affiliates
and their respective operations, assets, finances, business and affairs and
further agrees not to use such information for personal advantage or the
advantage of an employer, provided that nothing herein shall prevent disclosure
of information which is publicly available or which is required to be disclosed
under appropriate statues, rules of law or legal process.
5. SEVERABILITY
The invalidity and unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
6. BENEFIT OF AGREEMENT
This Agreement shall enure to and be binding upon the Corporation and
its successors and the Executive and his legal representatives but otherwise it
is not assignable. It shall be a condition of any transfer by the Corporation of
the Executive to
<PAGE> 9
-9-
any affiliate or associate of the Corporation that, on request of the Executive,
such affiliate or associate agree to observe all the covenants of and be bound
by all obligations imposed on the Corporation under this Agreement. The failure
to do so shall be deemed to constitute a constructive dismissal of the Executive
for the purposes of section 2.6.
7. CHOICE OF LAW
This Agreement shall be governed and interpreted in accordance with the
laws of the Province of Alberta, which Province shall be the sole and proper
forum with respect to any suit brought with respect to this Agreement.
8. COPY OF AGREEMENT
The Executive hereby acknowledges having received a copy of this
Agreement duly signed by the Corporation.
IN WITNESS WHEREOF the parties hereto have duly executed and delivered
this Agreement.
GULF CANADA RESOURCES LIMITED
_____________________________
_____________________________
/s/ DOUGLAS G. MANNER
________________________________ _____________________________
Witness DOUGLAS G. MANNER
<PAGE> 10
SCHEDULE "A"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
<PAGE> 11
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS of Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost with a lifetime maximum of
$2,000. The Corporation pays 100% of the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
<PAGE> 12
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executives retires
or leaves the Corporation.
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELLING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counselling services to a maximum value
of $20,000 or cash, in lieu thereof, of $20,000.
<PAGE> 1
Exhibit 10.12
AMENDING AGREEMENT
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
DOUGLAS G. MANNER
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of September 2, 1997 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,
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> 2
(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).
2
<PAGE> 3
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
___________________________________
___________________________________
__________________________________ ___________________________________
Witness DOUGLAS G. MANNER
3
<PAGE> 4
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
4
<PAGE> 5
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at
5
<PAGE> 6
50% of the cost with a lifetime maximum of $2,000. The Corporation pays 100% of
the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
6
<PAGE> 7
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
7
<PAGE> 1
Exhibit 10.13
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT is dated as of September 2, 1997.
BETWEEN:
GULF CANADA RESOURCES LIMITED
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
LYNNE WALKER
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS
(a) The Executive is an officer of the Corporation and is
considered by the Board of Directors of the Corporation to be
a valued employee of the Corporation and has acquired
outstanding and special skills and abilities and an extensive
background in and knowledge of the Corporation's business and
the industry in which it is engaged;
(b) The Board of Directors recognizes that it is essential, in the
best interests of the Corporation, that the Corporation retain
the continuing dedication of the Executive to his office and
employment and that the past service of the Executive to the
Corporation requires that the Executive receive fair
treatment, particularly in the event of an actual or
constructive termination of his employment with the
Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants herein contained and in consideration of the Executive
remaining in office and in the employment of the Corporation at the present time
and throughout the period of material change of ownership or organization of the
Corporation, it is hereby agreed as follows:
<PAGE> 2
-2-
1. DEFINITIONS
In this Agreement:
(a) "affiliate" means:
(i) one body corporate is an affiliate of another body
corporate if one of them is the subsidiary of the
other or both are subsidiaries of the same body
corporate or each of them is under the control of the
same person; and
(ii) two bodies corporate that are an affiliate of the
same body corporate at the same time are affiliates
of each other.
(b) "associate" has the meaning ascribed to that term in the
Canada Business Corporations Act.
(c) "change of control" means or shall be deemed to have occurred
if and when:
(i) the acquisition, by whatever means (including
without limitation, amalgamation, consolidation,
liquidation, arrangement or merger), by a person
(or two or more persons who in such acquisition have
acted jointly or in concert or intend to exercise
jointly or in concert any voting rights attaching to
the securities acquired), directly or indirectly, of
the beneficial ownership of such number of voting
securities or rights to voting securities of the
Corporation, which together with such person's then
owned voting securities and rights to voting
securities, if any, represent (assuming the full
exercise of such rights to voting securities) more
than 20% of the combined voting power of the
Corporation's then outstanding voting securities,
together with the voting securities acquired and such
person's previously owned rights to voting
securities; or
(ii) individuals who were members of the Board of
Directors of the Corporation immediately prior to a
meeting of the shareholders of the Corporation
involving a contest for or on an item of business
relating to the election of directors shall not
constitute a majority of the Board of Directors
following such election.
(d) "Compensation Committee" means the Committee of the Board of
Directors of the Corporation from time to time appointed to
fix the
<PAGE> 3
-3-
remuneration of executives of the Corporation or, if
such Committee has not been appointed, means the Board of
Directors of the Corporation.
(e) "constructive dismissal" means, unless consented to by the
Executive in writing, any action by the Corporation which
constitutes constructive dismissal of the Executive,
including, without limiting the generality of the foregoing:
(i) any material reduction in the Executive's office,
titles, positions, duties, responsibilities, powers
or reporting relationships;
(ii) any reduction in the annual salary of the Executive;
(iii) a requirement to relocate to another province, state
or country; and
(iv) any reduction in the value of the Executive's
employee benefits plans and programmes, including,
without limiting the generality of the foregoing,
bonus arrangements.
(f) "confidential information" means information, processes,
know-how, data, trade secrets, techniques, knowledge and other
confidential information not generally known to the public
relating to or connected with the business or corporate
affairs and operations of the Corporation and its affiliates.
(g) "control" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(i) "person" has the meaning ascribed to that term in the Canada
Business Corporations Act.
(j) "subsidiary" of a corporation means, at any time, a
corporation of which the corporation has control at that time,
whether directly or indirectly through one or more
subisdiaries.
2. EMPLOYMENT
2.1 Position, Duties and Responsibilities of Executive
The Executive shall have such responsibilities and powers as the Board
of Directors or the by-laws of the Corporation or the Executive's superiors may
from time to time prescribe. The Executive shall devote the whole of his time to
the Executive's duties hereunder and shall use his best efforts to promote the
interests of the Corporation. The executive shall, during the term of this
agreement:
<PAGE> 4
-4-
(a) perform such managerial duties and responsibilities for the
Corporation as may be assigned to him by the Chief Executive
Officer and by the Board of Directors of the Corporation, and
at no additional remuneration, shall serve in such other
comparable positions with affiliates and associates of the
Corporation as the Board of Directors of the Corporation may
from time to time determine; and
(b) accept such office or offices to which he may be elected or
appointed by the Chief Executive Officer or by the Board of
Directors of the Corporation in addition to those of
Vice-President, Human Resources and Corporate Services,
provided that the performance of the duties of such offices
shall be consistent with the scope of the duties assigned in
accordance with or as provided for in section 2.1(a) above.
2.2 Term of Agreement
The term of this Agreement shall commence on the date hereof, and shall
continue in effect to and including the earlier of:
(a) the date of voluntary retirement of the Executive in
accordance with the retirement policies established for senior
employees of the Corporation; or
(b) the voluntary resignation of the Executive other than a
voluntary resignation pursuant to either section 2.6(b)(ii) or
section 2.6(b)(iii) hereof.
2.3 Termination of Agreement upon Disability of Executive
If at the end of any month the Executive is and has been for a period
of more than twelve (12) consecutive months unable to perform the duties
specified pursuant to this Agreement in the normal and regular manner due to
mental or physical disability, this Agreement may be terminated by the
Corporation on 30 days' notice. Notwithstanding anything contained in this
Section 2.3, the Executive shall be entitled to all benefits provided under the
disability and pension plans of the Corporation or its affiliates applicable to
the Executive at the date of this Agreement.
2.4 Termination of Agreement upon Death of Executive
If the Executive dies, this Agreement shall be terminated immediately
on the date of the Executive's death. Provided that the Executive is insurable
at reasonable premium rates, the Corporation shall cause to be obtained and
maintained during the term of this
<PAGE> 5
-5-
Agreement a life insurance policy naming beneficiaries specified by the
Executive, which life insurance policy shall provide a lump sum payment of not
less than two times the Executive's salary to such beneficiaries in the event
that the Executive dies during the term of this Agreement. This insurance policy
shall be in addition to and not in substitution for any insurance policies
provided to the Executive under the Corporation's benefit plans and programmes.
2.5 Termination of Agreement by the Corporation for Cause
The Corporation may terminate this Agreement at any time without notice
in the event the Executive shall be convicted of a criminal act of dishonesty
resulting or intended to result directly or indirectly in gain or personal
enrichment of the Executive at the expense of the Corporation, or for other
sufficient cause pursuant to written notice setting forth particulars of such
cause.
2.6 Severance Entitlement Upon Termination of Employment of the Executive
(a) The provisions of sub-section 2.6(c) shall not apply to, and
the Executive shall not be entitled to receive any severance
payments or other benefits as provided for in this Agreement
as a result of any circumstance where the termination of the
Executive's employment arises from the occurrence of any event
described in any of sections 2.2, 2.3, 2.4 or 2.5 hereof.
(b) The provisions of sub-section 2.6(c) shall, except as
specifically provided in sub-section 2.6(a) hereof, apply in
all circumstances where the Executive's employment with the
Corporation terminates, including, without limiting the
generality of the foregoing, any of the following
circumstances:
(i) where the Corporation terminates the employment of
the Executive for any reason other than for cause;
or,
(ii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following
constructive dismissal of the Executive;
(iii) where the Executive, by notice in writing to the
Corporation, terminates his employment with the
Corporation within ninety (90) days following a
change of control of the Corporation as described in
section 1(c)(i).
<PAGE> 6
-6-
(c) In the event of the termination of the Executive's employment
as provided in sub-section 2.6(b) hereof, the following
provisions shall apply:
(i) the Executive shall be entitled to receive and the
Corporation shall forthwith pay to the Executive, a
retiring allowance (hereinafter called the "Retiring
Allowance") in an undiscounted cash amount equal to
one (1) month's base salary multiplied by the number
of years of service of the Executive with the
Corporation subject to a minimum entitlement and
payment equal to twenty-four (24) months' base salary
and a maximum entitlement and payment equal to thirty
(30) months' base salary;
(ii) in addition, the Executive shall be entitled to
receive and the Corporation shall forthwith pay to
the Executive an undiscounted cash amount equal to
the value to the Executive of all those benefits
plans and programmes provided by the Corporation and
listed in Schedule "A" attached hereto for a period
of time equal to one (1) month for every year of
service of the Executive with the Corporation with a
minimum entitlement and payment equal to twenty-four
(24) months of benefits value and a maximum
entitlement and payment equal to thirty (30) months
of benefits value. All amounts payable under this
sub-section 2(c)(ii) shall be determined by a Fellow
of the Canadian Institute of Actuaries acceptable to
the Corporation and the Executive;
(iii) in addition, the Executive shall be entitled to
receive and the Corporation shall forthwith pay to
the Executive an undiscounted amount equal to the
product obtained by multiplying by two (2) the
Executive's target bonus under the Corporation's
Total Compensation Plan or such other similar plan
that may have replaced the Total Compensation Plan
for the year in which his employment is terminated;
(iv) all options for the purchase of shares of the
Corporation which have been granted by the
Corporation to the Executive prior to January 31,
1995 under the Executive Stock Option Plan (1990) or
(1994) but not yet vested shall immediately vest on
the date of termination of the Executive and the
Executive shall be entitled to
<PAGE> 7
-7-
exercise all such options for the purchase of shares
of the Corporation for a period of five (5) years
from the date of termination of the Executive
whether the options vested on or before the date of
termination of the Executive;
(v) all options for the purchase of shares of the
Corporation granted by the Corporation to the
Executive since January 1, 1995 under the Incentive
Stock Option Plan (1994) or otherwise (including,
without limitation, those options granted to the
Executive on January 31, 1995) to the date of
termination of the Executive but not yet vested shall
immediately vest on the date of termination of the
Executive and the Executive shall be entitled to
exercise any or all such options for the purchase of
shares of the Corporation for a period of one (1)
year from the date of termination of the Executive
whether such options vested on or before the date
of termination of the Executive;
(vi) the Corporation and the Executive agree that the
provisions of section 2.6(c) are fair and reasonable
and that the amounts payable by the Corporation to
the Executive pursuant to section 2.6(c) are
reasonable estimates of the damages which will be
suffered by the Executive in the event of the
termination of his employment with the Corporation in
any and all of the circumstances set out in section
2.6(b) and shall not be construed as a penalty; and,
(vii) all amounts paid by the Corporation to the Executive
pursuant to section 2.6(c) shall satisfy and forever
discharge all liabilities, claims or actions that the
Executive may or shall have against the Corporation
arising from the termination of employment of the
Executive whether at common law or under statute or
otherwise and such payment shall be made against
delivery by the Executive to the Corporation of a
release in form and terms reasonably satisfactory to
the Corporation and the Executive.
2.7 Directors' and Officers' Liability Insurance
Unless otherwise agreed between the parties hereto, Gulf shall purchase
and maintain, or cause to be purchased and maintained, while the Executive
remains an
<PAGE> 8
-8-
officer of Gulf and for a period of 10 years thereafter, directors' and
officers' errors and omissions insurance for the benefit of the Executive on
terms no less favourable in terms of coverage, and amounts, to the extent
available on reasonable commercial terms, than such insurance maintained in
effect by the Corporation on the date hereof.
3. INTEGRATION
Except for the Executive's rights to continued participation in the
Corporation's employee benefit plans, including, without limitation, the
Corporation's or its affiliates' stock option plans and savings plans and
conditions of employment generally available to other Executives of the
Corporation or its affiliates, this Agreement contains the entire agreement
between the parties and supersedes all prior oral and written agreements,
understandings, commitments and practices between the parties, including all
prior employment agreements, whether or not fully performed by the Executive
before the date of this Agreement. No amendments to this Agreement may be made
except in writing signed by both parties.
4. CONFIDENTIAL INFORMATION
In the event of termination of employment of the Executive, the
Executive agrees to keep confidential all information of a confidential or
proprietary nature concerning the Corporation, its subsidiaries and affiliates
and their respective operations, assets, finances, business and affairs and
further agrees not to use such information for personal advantage or the
advantage of an employer, provided that nothing herein shall prevent disclosure
of information which is publicly available or which is required to be disclosed
under appropriate statues, rules of law or legal process.
5. SEVERABILITY
The invalidity and unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
6. BENEFIT OF AGREEMENT
This Agreement shall enure to and be binding upon the Corporation and
its successors and the Executive and his legal representatives but otherwise it
is not assignable. It shall be a condition of any transfer by the Corporation of
the Executive to
<PAGE> 9
-9-
any affiliate or associate of the Corporation that, on request
of the Executive, such affiliate or associate agree to observe all the covenants
of and be bound by all obligations imposed on the Corporation under this
Agreement. The failure to do so shall be deemed to constitute a constructive
dismissal of the Executive for the purposes of section 2.6.
7. CHOICE OF LAW
This Agreement shall be governed and interpreted in accordance with the
laws of the Province of Alberta, which Province shall be the sole and proper
forum with respect to any suit brought with respect to this Agreement.
8. COPY OF AGREEMENT
The Executive hereby acknowledges having received a copy of this
Agreement duly signed by the Corporation.
IN WITNESS WHEREOF the parties hereto have duly executed and delivered
this Agreement.
GULF CANADA RESOURCES LIMITED
_____________________________
_____________________________
/s/ LYNNE WALKER
_____________________________ _____________________________
Witness LYNNE WALKER
<PAGE> 10
SCHEDULE "A"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
<PAGE> 11
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS of Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost with a lifetime maximum of
$2,000. The Corporation pays 100% of the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
<PAGE> 12
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executives retires
or leaves the Corporation.
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELLING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counselling services to a maximum value
of $20,000 or cash, in lieu thereof, of $20,000.
<PAGE> 1
Exhibit 10.14
AMENDING AGREEMENT
Dated effective as of February 19, 1998 between
GULF CANADA RESOURCES LIMITED
(hereinafter the "Corporation")
OF THE FIRST PART
- and -
LYNNE WALKER
(hereinafter called the "Executive")
OF THE SECOND PART
WHEREAS the parties desire to amend the Executive Employment Contract
dated as of September 2, 1997 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,
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> 2
(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).
2
<PAGE> 3
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
___________________________________
___________________________________
__________________________________ ___________________________________
Witness LYNNE WALKER
3
<PAGE> 4
Schedule "A-1"
BENEFITS PROVIDED TO EXECUTIVES
GROUP LIFE INSURANCE
Plan provides basic coverage equal to two times annual salary to a maximum of
$750,000. This is 100% Corporation paid and is in addition to the personal life
insurance referred to in section 2.4 of the Employment Agreement.
Voluntary insurance and dependent insurance are also available and all premiums
are paid by the employee.
ACCIDENTAL DEATH AND DISMEMBERMENT
Canadian based executives:
Plan provides coverage of three times annual salary in the event of accidental
death to a maximum of $500,000. Lesser amounts are paid for loss of limb, etc.
Premiums are 100% Corporation paid.
U.S. based executives:
Plan provides coverage of two times salary in the event of accidental death to a
maximum of $750,000. Lesser amounts are paid for loss of limb, etc. Premiums are
100% Corporation paid.
SICK LEAVE
Depending on your years of service, the Corporation pays up to 26 weeks at full
pay and 26 weeks at two-thirds pay.
LONG TERM DISABILITY
Canadian based executives:
Plan provides coverage of two-thirds of salary to a maximum benefit of $6,000
per month. Premiums are cost shared with the Corporation paying 2/3 and the
employee paying 1/3.
U.S. based executives:
Plan provides coverage of 60% of salary to a maximum benefit of $10,000 per
month. Premiums are cost shared with the Corporation paying 2/3 and the employee
paying 1/3.
4
<PAGE> 5
PROVINCIAL HEALTH CARE
For Canadian based employees the Corporation will pay 50% of the premiums for
health care in any province where premiums are charged.
HEALTH CARE BENEFIT
Canadian based executives:
The plan provides 100% coverage for semi-private hospital rooms and 85% coverage
for most other health services including generic prescription drugs,
physiotherapy, and para-medical practitioners. An annual $25 deductible applies
to most services and premiums are shared between the Corporation and the
employee.
U.S. based executives:
The plan provides 100% coverage for all medical services including doctor's
appointments, hospital rooms, generic prescription drugs, physiotherapy, and
para-medical practitioners. A co-payment by the employee is required for most
services. Premiums are shared with the Corporation paying the full cost of an
HMO plan for the employee and 50% of all costs for dependents. Employees pay the
cost difference for a more comprehensive plan (i.e. POS or Indemnity) and 50% of
the cost for dependents.
VISION CARE
Canadian based executives:
Plan covers 85% of the cost for glasses/contact lenses to a maximum of $175 plus
85% of the cost of an eye exam per person every two calendar years. Corporation
pays 100% of the premiums.
U.S. based executives:
Plan covers 100% of the cost of glasses/contact lenses and eye exams per person
once per calendar year. Employees pay a $20 co-payment and the Corporation pays
100% of the premiums.
DENTAL PLAN
Canadian based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at 50% of the cost to an annual maximum of $1,500
and a lifetime maximum of $5,000. The Corporation pays 100% of the premiums.
U.S. based executives:
Plan pays 80% of routine dental care and 50% of major dental care to a maximum
of $1,500 per person per calendar year. Orthodontic coverage is provided for
children under 18 and is paid at
5
<PAGE> 6
50% of the cost with a lifetime maximum of $2,000. The Corporation pays 100% of
the premiums.
HEALTH SPENDING ACCOUNT
To assist with medical/dental expenses not covered by the above plans, an annual
amount of $800 will be provided by the Corporation. This money can be used to
pay for deductibles and co-payments on an after tax basis if left in the account
or can be taken as cash and added to the semi-monthly pay. U.S. employees may
top up this amount from their own earnings if they wish.
SAVINGS ALLOWANCE
A payment of 4.5% of base salary is made to all executives. In Canada this is
added to semi-monthly pay and in the U.S. it is contributed to the 401(k) plan
to the maximum amount allowed, with any excess added to semi-monthly pay.
PENSION PLAN
Any employee with service as an executive prior to January 1, 1996 has pension
accrued under the Executive Pension Plan and Superannuation Plan. Service in
these plans has been frozen and the resulting pension will be calculated based
on earnings at the time of termination/retirement.
For service after January 1, 1996 all employees participate in a defined
contribution pension plan. No employee contributions are allowed and the
Corporation's contribution is based on years of plan membership. Contributions
are made monthly to the registered plan to the maximum amount allowed under
legislation and the employee directs the investment of these funds. If the
annual contribution exceeds the amount allowed by legislation, the excess is
added to semi-monthly pay.
PARKING
Executives are eligible for parking for one vehicle at the Corporation's office.
LUNCHEON CLUB
Executives may join a luncheon club with the Corporation paying annual dues and
assessments. Luncheon club memberships are taken in the Corporation's name so
they may be reassigned to other individuals in the event the executive retires
or leaves the Corporation.
6
<PAGE> 7
PERQUISITE ALLOWANCE
In addition to regular salary, the Corporation will pay a perquisite allowance
of $12,000 per year. These funds are to be used at the discretion of the
employee.
OUTPLACEMENT COUNSELING
If severance is payable under section 2.6(c) of the Employment Agreement, the
Corporation shall provide outplacement counseling services to a maximum value of
$20,000 or cash, in lieu thereof, of $20,000.
7
<PAGE> 1
Exhibit 10.15
GULF CANADA RESOURCES LIMITED
- and -
THE LENDERS NAMED HEREIN
- and -
BANK OF MONTREAL
(AS AGENT FOR THE LENDERS)
--------------------
LOAN AGREEMENT
--------------------
SEPTEMBER 18, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE I DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 Definitions.................................................... 2
1.2 Certain Rules of Interpretation................................ 20
1.3 Accounting Principles.......................................... 20
1.4 Cross-References............................................... 20
1.5 Ratings........................................................ 21
1.6 Currency....................................................... 21
1.7 Schedules...................................................... 21
ARTICLE II THE FACILITY
2.1 The Facility................................................... 21
2.2 Purpose........................................................ 23
2.3 Availment of Facility.......................................... 23
2.4 Drawdown Notices............................................... 24
2.5 Notice of Drawdown to Lenders.................................. 25
2.6 Funding........................................................ 25
2.7 Funding Reliance; Lender's Failure to Fund..................... 27
2.8 Several Funding Obligations.................................... 28
2.9 Pro-Rata Treatment of Drawdowns................................ 28
2.10 Restrictions on Drawdowns...................................... 29
2.11 Conversion Option.............................................. 30
2.12 Rollovers...................................................... 31
2.13 Evidence of Indebtedness....................................... 31
2.14 Netting........................................................ 31
ARTICLE III FURTHER PROVISIONS RELATING TOLIBOR DRAWDOWNS,
BANKERS'ACCEPTANCES AND LETTERS OF CREDIT
3.1 Effects of Change of Law....................................... 32
3.2 Illegality..................................................... 33
3.3 Bankers' Acceptances........................................... 34
3.4 Issuance of Letters of Credit.................................. 35
ARTICLE IV PAYMENT OF INTEREST AND OTHER FEES
4.1 Interest on Prime Rate Drawdowns............................... 35
4.2 Interest on Base Rate Drawdowns................................ 36
4.3 Interest on Libor Drawdowns.................................... 36
4.4 Stamping Fees on Bankers' Acceptances.......................... 37
4.5 Fees for Letters of Credit..................................... 37
4.6 Incremental Interest and Fees.................................. 37
4.7 Interest on Unpaid Costs and Expenses.......................... 38
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
4.8 Annual Rates of Interest....................................... 38
4.9 Commitment Fee................................................. 38
4.10 Limitation on Interest......................................... 39
4.11 Increased Costs................................................ 39
4.12 Waiver of Judgment Interest Act (Alberta)...................... 40
ARTICLE V REPAYMENTS AND PREPAYMENTS
5.1 Amounts Under Facility May be Reborrowed....................... 40
5.2 Repayment under the Facility after Term Out Date............... 40
5.3 Voluntary Prepayments.......................................... 41
5.4 Currency Fluctuations.......................................... 42
5.5 Voluntary Reduction of Commitments............................. 42
ARTICLE VI CONDITIONS PRECEDENT TO DRAWDOWNS
6.1 Conditions Precedent to First Drawdown......................... 42
6.2 Conditions Precedent to All Drawdowns.......................... 43
6.3 Waiver......................................................... 43
ARTICLE VII BORROWER'S REPRESENTATIONS AND WARRANTIES
7.1 Borrower's Representations and Warranties...................... 44
ARTICLE VIII COVENANTS
8.1 Covenants..................................................... 48
8.2 Environmental Indemnity........................................ 55
8.3 Restricted/Unrestricted Subsidiaries........................... 55
8.4 Certain Requirements in Respect of Mergers, etc................ 57
ARTICLE IX EVENTS OF DEFAULT
9.1 Events of Default.............................................. 58
9.2 Termination and Acceleration................................... 60
9.3 Remedies Cumulative and Waivers................................ 61
9.4 Setoff......................................................... 61
ARTICLE X THE AGENT AND THE LENDERS
10.1 The Agent...................................................... 62
10.2 The Agent's Responsibility..................................... 62
10.3 The Agent's Duties............................................. 63
10.4 Protection of Agent............................................ 64
10.5 Indemnification of Agent....................................... 65
10.6 Termination or Resignation of an Agent......................... 65
10.7 Rights of the Agent as Lender.................................. 66
10.8 Financial Information Concerning Gulf.......................... 66
10.9 Knowledge of Financial Situation of the Borrower............... 66
10.10 Legal Proceedings.............................................. 67
10.11 Capacity as Agent.............................................. 67
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XI PAYMENT
11.1 Payments to Agent.............................................. 68
11.2 Payments by Lenders to Agent................................... 68
11.3 Payments by Agent to Borrower.................................. 69
11.4 No Set-Off or Counterclaim by Borrower......................... 69
11.5 Non-Receipt by Agent........................................... 69
11.6 When Due Date Not Specified.................................... 69
11.7 Agent's Authority to Debit..................................... 69
ARTICLE XII GENERAL
12.1 Costs and Expenses............................................. 69
12.2 Indemnifications by the Borrower............................... 70
12.3 Funds.......................................................... 71
12.4 Notice......................................................... 72
12.5 Governing Law.................................................. 73
12.6 Judgment Currency.............................................. 73
12.7 Amendments, Etc................................................ 73
12.8 Severability................................................... 74
12.9 Whole Agreement................................................ 74
12.10 Binding Effect; Assignments.................................... 74
12.11 Participations................................................. 75
12.12 Further Assurances............................................. 76
12.13 Counterparts................................................... 77
</TABLE>
-iii-
<PAGE> 5
Schedule A - Schedule of Lenders
Schedule B - Compliance Certificate
Schedule C - Drawdown Notice
Schedule D - Bankers' Acceptance Undertaking
Schedule E - Extension Agreement
Schedule F - Extension Request
Schedule G - Bank Transfer Agreement
Schedule H - Borrower's Counsel's Opinion
Schedule I - Lenders' Counsel's Opinion
Schedule J - Notice of Amendment of Unrestricted Subsidiaries
Schedule K - Letter of Credit Documentation
Schedule L - List of Unrestricted Subsidiaries
-iv-
<PAGE> 6
LOAN AGREEMENT
THIS AGREEMENT, made as of the 18th day of September, 1998,
B E T W E E N:
GULF CANADA RESOURCES LIMITED, a corporation governed by the
laws of Canada
(hereinafter called the "Borrower")
- and -
THE LENDERS NAMED IN SCHEDULE A to this Agreement as amended
from time to time
(hereinafter called the "Lenders")
- and -
BANK OF MONTREAL, a bank existing under the laws of Canada,
as the Agent on behalf of the Lenders
(hereinafter, in such capacity, called the "Agent")
WITNESSES THAT WHEREAS the Borrower has requested the Facility
(as hereinafter defined) for general corporate purposes and the Lenders have
agreed to provide the Facility to the Borrower on the terms and conditions
herein set forth;
NOW THEREFORE in consideration of the premises and mutual
agreements and covenants contained in this Agreement and other good and valuable
consideration (the receipt and adequacy of which are hereby mutually
acknowledged), the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
<PAGE> 7
-2-
I.1 Definitions - Whenever used in this Agreement, unless there is
something inconsistent in the subject matter or context, the following words and
terms shall have the meaning set out below:
"ADVANCE" means a utilization of the Facility by the Borrower by way of
a Prime Rate Drawdown, Base Rate Drawdown, Libor Drawdown, Bankers'
Acceptance Drawdown or L/C Drawdown from a Lender, in each case, in
accordance herewith;
"AGENT" means Bank of Montreal or such other Person as shall have been
appointed as a successor agent pursuant to Section 10.6;
"AGREEMENT" means this agreement, including all schedules and all
instruments supplementing or amending this Agreement, "HEREOF",
"HERETO" and "HEREUNDER" and similar expressions mean and refer to this
Agreement and not any particular article or section of this Agreement;
"APPLICABLE LAW" means, with respect to any Person, property,
transaction or event, and whether or not having the force of law, all
applicable laws, statutes, regulations, rules, guidelines, by-laws,
treaties, orders, policies, judgments, decrees and official directives
of Government Authorities or Persons acting under the authority of any
Government Authority including, for greater certainty, the proposals
for international convergence of capital measurement and capital
standards developed by the Bank for International Settlements subject
to the implementation measures to be adopted in Canada in respect
thereto as referred to in a bulletin of the Office of the
Superintendent of Financial Institutions Canada dated August 19, 1988;
"APPLICABLE SPREAD" means, at any time, the number of Basis Points, if
any, by which the number of incremental Basis Points, at such time,
applicable in respect of Bankers' Acceptances exceeds the number of
incremental Basis Points, at such time, applicable in respect of Prime
Rate Drawdowns;
"AUDITORS" means the present auditors of the Borrower or such other
national firm of chartered accountants who from time to time may become
the auditors of the Borrower;
"AVAILABLE FACILITY AMOUNT" means at any time U.S. $500,000,000 (as
reduced or cancelled from time to time in accordance herewith) less the
aggregate Outstanding Amount at such time;
"BANKERS' ACCEPTANCE" means a non-interest bearing depository bill
subject to the Depository Bills and Notes Act or bill of exchange in
Canadian Dollars, having a term of not less than 10 nor more than 365
days and maturing on a Business Day, drawn by the Borrower and accepted
by the Lender as evidenced by the Lender's endorsement thereof at the
direction of the Borrower;
<PAGE> 8
-3-
"BANKERS' ACCEPTANCE DRAWDOWN" means a Drawdown in Canadian Dollars
effected by the sale or purchase of a Bankers' Acceptance pursuant to
the terms of this Agreement;
"BANKERS' ACCEPTANCE LOAN" means, at any time, the aggregate face
amount of all Bankers' Acceptances then outstanding as a result of all
Bankers' Acceptance Drawdowns;
"BANKERS' ACCEPTANCE PROCEEDS" means, in respect of each Bankers'
Acceptance Drawdown, funds in an amount which is equal to:
Face Amount
-----------------
1 + (Rate x Term)
-----------
365
(where "Face Amount" is the principal amount of the Bankers' Acceptance
being purchased, "Rate" is the Reference BA Discount Rate divided by
100 and "Term" is the number of days in the term of the Bankers'
Acceptance), less the applicable stamping fees in respect thereof;
"BANKERS' ACCEPTANCE UNDERTAKING" means an agreement substantially in
the form set forth in Schedule D;
"BASE RATE" means, at any time, the rate of interest, expressed as an
annual rate on the basis of a year of 365 days, or 366 days in the case
of a leap year, established by the Agent from time to time as the
reference rate of interest it will charge for loans made in Canada in
U.S. Dollars to Canadian customers;
"BASE RATE DRAWDOWN" means a Drawdown in U.S. Dollars with respect to
which the Borrower has elected or is deemed to have elected to have
interest calculated by reference to the Base Rate or to which, in
accordance with the provisions of this Agreement, the Base Rate is
deemed or stated to apply;
"BASE RATE LOAN" means, at any time, the aggregate of the principal
amounts of all Base Rate Drawdowns then outstanding;
"BASIS POINT" OR "BP" means one one-hundredth (0.01) of one percent;
"BUSINESS DAY" means a day on which banks are open for business in
Calgary and Toronto which is not a Saturday or a Sunday and,
additionally, in respect of any Libor Drawdown or Libor Loan, a day on
which dealings in United States Dollar deposits are transacted in the
London eurodollar interbank market;
"CANADIAN DOLLARS" and the symbol "CDN. $" mean the lawful currency of
Canada;
<PAGE> 9
-4-
"CHANGE OF CONTROL" means the acquisition, directly or indirectly, of
more than 50% of the Voting Securities of the Borrower by any Person
(or group of Persons acting in concert with respect to the ownership or
voting of such Voting Securities);
"COMMITMENT" means, with respect to each Lender, such Lender's
obligation to make Advances hereunder pursuant to Section 2.1;
"COMMITMENT AMOUNT" has the meaning ascribed to it in Section 2.1;
"COMMODITY SWAP" means an agreement entered into between the Borrower
and a counterparty on a case by case basis, the purpose and effect of
which is to mitigate or eliminate the Borrower's exposure to
fluctuations in commodity prices;
"COMPLIANCE CERTIFICATE" means a certificate of the Borrower
substantially in the form set out in Schedule B and signed by a senior
officer (including the President, any Vice-President, the Treasurer or
any Assistant Treasurer) of the Borrower;
"CONFLICTED LENDER" means, with respect to any Potentially Hostile
Acquisition, a Lender that is the lead bank, lead agent or sole lender
to the Person who is the target of such Potentially Hostile
Acquisition;
"CONTROLLED" in respect of an entity, means that the Borrower has the
power to direct the management and operations of that entity;
"CONVERSION" means a conversion of a Drawdown pursuant to Section 2.11;
"CORRIDOR PROJECT" means the project for the commercial development of
gas reserves from the Corridor Block Production Sharing Contract area
of South Sumatra, Indonesia and associated lands;
"CORRIDOR SUPPORT AGREEMENT" means the Sponsor Support Agreement dated
February 26, 1997 between the Borrower and The Sumitomo Bank, Limited,
as agent for the lenders for the Corridor Project, a copy of which has
been provided by the Borrower to the Agent;
"CURRENCY SWAP" means a contract entered into between the Borrower and
a counterparty on a case by case basis in connection with forward rate,
currency swap or currency exchange and other similar currency related
transactions, the purpose and effect of which is to mitigate or
eliminate the Borrower's exposure to fluctuations in exchange rates;
"DATE OF CONFIRMATION" means, in the case of any extension of the Term
Out Date in accordance with Section 2.1, the earliest of: (i) the date
the Agent gives notice to the Borrower that each of the Revolving
Lenders has executed and delivered to the Agent the
<PAGE> 10
-5-
Extension Agreement; (ii) the date the Borrower (provided the Borrower
is entitled to do so) provides the notice to the Agent of its election
pursuant to paragraph 2.1(c)(i) or 2.1(c)(ii) to extend the Term Out
Date with respect to the Commitments of the Extending Lenders; and
(iii) the Term Out Date as the same was determined prior to the
Extension Request to which the Extension Agreement relates;
"DESIGNATED PROJECT GUARANTEES" means, collectively, all Financial
Guarantees in respect of the Corridor Project, including the Corridor
Support Agreement (and any other project of Gulf that the Borrower
requests, and the Majority Lenders agree, be included in this
paragraph) in respect of which any Person has or may have recourse to
any member of the Restricted Group;
"DRAWDOWN" means an Advance, a Conversion or a Rollover, as the context
requires;
"DRAWDOWN DATE" means the date proposed for a Drawdown requested by the
Borrower pursuant to the provisions of this Agreement;
"DRAWDOWN NOTICE" means a notice by the Borrower to the Agent in
respect of a Drawdown, given either in writing or by fax (in the case
of fax notice with prompt original written confirmation thereof
pursuant to the provisions of Section 2.4) substantially in the form
set forth in Schedule C;
"EBITDA" means with respect to any period, the earnings (loss) from
continuing operations in the ordinary course of business (which for
certainty shall not include gains or losses from sales of assets and
sales of securities and shall not include dividends and other earnings
distributed to the Restricted Group by Unrestricted Subsidiaries)
before income taxes of the Borrower and the Restricted Group
(determined on a consolidated basis for such entities in accordance
with GAAP) plus, to the extent deducted in the determination of the
foregoing, without duplication, the sum of: (i) interest expense, (ii)
depreciation and depletion expense, (iii) amortization expense, (iv)
expensed exploration (in accordance with the successful efforts method
of accounting), and (v) any other non-cash charges;
"EFFECTIVE DATE" means the date of this Agreement;
"ELIGIBLE LENDER" means, any of the Lenders and/or any other financial
institution(s) resident in Canada for purposes of the Income Tax Act
(Canada) and listed in Schedule I or Schedule II to the Bank Act
(Canada) acceptable to the Borrower and the Agent, each acting
reasonably;
"ELIGIBLE PARTNERSHIP" means a partnership formed pursuant to the laws
of the Province of Alberta, all the interests of which from and after
the transfer of assets hereinafter mentioned are owned by the Borrower
and Restricted Subsidiaries and to which all or substantially all of
the assets of the Borrower have been transferred in accordance with
Section 8.4;
<PAGE> 11
-6-
"ENVIRONMENTAL APPROVALS" means all applicable permits, licences,
authorizations, consents, directions or approvals required by
Government Authorities pursuant to the Environmental Laws with respect
to the operation of Gulf's business;
"ENVIRONMENTAL LAWS" means in respect of any jurisdiction, Canadian or
foreign, all laws, by-laws, rules, regulations, orders, codes and
judgments of any Government Authority relating to the protection of the
environment and public health and safety and, without restricting the
generality of the foregoing, includes without limitation those
Environmental Laws relating to the storage, transportation, treatment
and disposal of Hazardous Substances, product safety, and the emission,
discharge, release or threatened release of Hazardous Substances into
the air, surface water, ground water, land surface, subsurface strata
or any building or structure and, in each such case, as such
Environmental Laws may be amended or supplemented from time to time;
"EQUITY" means, in respect of any body corporate, the aggregate of: (i)
the share capital attributable to the issued shares, or any right to
acquire shares, outstanding on the date of determination, (excluding,
in the case of the Borrower, any share capital attributable to
securities, or any right to acquire securities, in each case, other
than Equity Shares); (ii) (without duplication) any surplus (whether
contributed or capital); (iii) any retained earnings (or deficit); and
(iv) any cumulative foreign currency translation adjustment; in each
case, of the body corporate and as determined in accordance with GAAP;
"EQUITY SHARES" means the ordinary shares and Preferred Shares of the
Borrower as constituted on the Effective Date and shares, issued after
the Effective Date, of any class or series of shares of the Borrower
provided that the rights, privileges, terms and conditions of or
attaching to such shares (whether as set forth in the constating
documents of the Borrower or in any agreement or understanding with the
Borrower, any Subsidiary or any Person not acting at arm's length with
the Borrower) do not entitle the holder thereof to redeem, retract or
otherwise have the shares repurchased or retired in whole or in part
other than by the issuance of securities that are, themselves, Equity
Shares as otherwise defined herein;
"EQUIVALENT AMOUNT" means, on any date, the amount of Canadian Dollars
or United States Dollars, as the case may be, which can be purchased
with the specified amount of United States Dollars or Canadian Dollars,
as the case may be, at the applicable Exchange Rate on that date;
"EVENT OF DEFAULT" means any of the events described in Section 9.1;
"EXCHANGE RATE" means, on any date, for any conversion of United States
Dollars into Canadian Dollars, or vice versa, the applicable spot
buying rate for Canadian Dollars or United States Dollars, as the case
may be, reported by the Bank of Canada as its daily official
<PAGE> 12
-7-
noon (Toronto time) rate of exchange on such date if it is a Business
Day or on the immediately preceding Business Day if such date is not a
Business Day;
"EXISTING LOAN FACILITY" means the facilities provided pursuant to the
loan agreement made as of July 18, 1997, between the Borrower, Bank of
Montreal, as agent, and the lenders named therein;
"EXTENDING LENDERS" has the meaning ascribed to it in Section 2.1;
"EXTENSION AGREEMENT" means an agreement substantially in the form set
forth in Schedule E;
"EXTENSION REQUEST" means a document substantially in the form set
forth in Schedule F, accompanied by an Extension Agreement duly
completed and executed by the Borrower;
"FACILITY" has the meaning ascribed to it in Section 2.1;
"FACILITY AMOUNT" means the aggregate of the Outstanding Amount and the
Available Facility Amount;
"FAIR MARKET VALUE" means the highest price available in an open and
unrestricted market between informed, prudent parties, acting at arm's
length and under no compulsion to act, expressed in terms of money or
money's worth;
"FINANCIAL GUARANTEE" means, without duplication, any Guarantee and any
undertaking to assume, guarantee, endorse, contingently agree to
purchase or to provide funds for the payment of, or otherwise become
liable in respect of, any indebtedness, liability or obligation of any
Person provided in connection with, or as a condition of, the
availability or provision of Funded Debt to any other Person (including
the Corridor Support Agreement, but excluding any Guarantee or
undertaking that: (A) would otherwise be a Financial Guarantee but in
respect of which recourse is limited to securities of an Unrestricted
Subsidiary; or (B) which is provided by a member of the Restricted
Group in respect of any indebtedness, liabilities or obligations of a
member of the Restricted Group); provided, at any particular time, that
the amount of each Financial Guarantee shall be deemed to be the amount
guaranteed thereby determined as at such time, unless the Financial
Guarantee is limited to a specified amount or to realization on
specified assets, in which case the amount of such Financial Guarantee
shall be deemed to be the lesser of (i) such specified amount or the
Fair Market Value of such specified assets, as the case may be, and
(ii) the amount guaranteed thereby;
"FINANCIAL STATEMENTS" means the financial statements of Gulf for the
fiscal year ended December 31, 1997, consisting of the balance sheet
and the statements of income, retained earnings and changes in
financial position and all notes to such financial statements as
<PAGE> 13
-8-
reported upon by Ernst & Young, together with the unaudited financial
statements of Gulf for the six months ended June 30, 1998;
"FISCAL QUARTER" means a three month period ending on the last day of
March, June, September or December in each year;
"FUNDED DEBT" means, without duplication, (i) the amount of any
indebtedness, liabilities and obligations in respect of monies
borrowed; (ii) the book value of any capital leases or other leases
classified as debt under GAAP or for Canadian income tax purposes;
(iii) amounts constituting any Prepaid Obligation; (iv) amounts owing
as deferred consideration for the acquisition of assets or receipt of
services or both unless the same are payable on normal trade terms in
less than six months from the date such assets are acquired or such
services are received and are not the subject of any renewal or
extension provisions or arrangements (together with any Funded Debt
thereof assumed or acquired therewith); and (v) any Guarantee in
respect of Funded Debt as hereinbefore defined, but for greater
certainty, shall, in respect of the Borrower, exclude the Preferred
Shares;
"GAAP" has the meaning ascribed to it in Section 1.3;
"GOVERNMENT AUTHORITIES" means any nation or government, any province,
state, city or other political subdivision and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including without limitation,
all applicable federal, provincial and municipal agencies, ministries,
departments, inspectors and officials;
"GUARANTEE" means any undertaking to assume, guarantee, endorse,
contingently agree to purchase or to provide funds for the payment of,
or otherwise become liable in respect of, any Funded Debt of any Person
(other than an undertaking that, at any particular time, would
otherwise constitute a Guarantee but in respect of which recourse is
limited to securities of an Unrestricted Subsidiary); provided that at
any particular time, the amount of each Guarantee shall be deemed to be
the amount of the Funded Debt guaranteed thereby determined as at such
time, unless the Guarantee is limited to a specified amount or to
realization on specified assets, in which case the amount of such
guarantee shall be deemed to be the lesser of (i) such specified amount
or the Fair Market Value of such specified assets, as the case may be,
and (ii) the amount of such Funded Debt;
"GULF" means the Borrower and all of its Subsidiaries;
<PAGE> 14
-9-
"HAZARDOUS SUBSTANCE" means any contaminant, pollutant or hazardous
substance that is likely to cause harm or degradation to the
environment or risk to human health or safety, and without restricting
the generality of the foregoing, includes without limitation, any
pollutant, contaminant, waste, hazardous waste, toxic substance or
dangerous good which is defined or identified in any Environmental Law
or industry standard, or which is present in the environment in such
quantity or state that it contravenes any Environmental Law;
"INTER-RESTRICTED GROUP FUNDED DEBT" means Funded Debt of one or more
members of the Restricted Group owed solely to one or more other
members of the Restricted Group in respect of which Funded Debt no
Person, other than a member of the Restricted Group, has or may have
recourse to the assets of the member of the Restricted Group who has
the Funded Debt;
"INTEREST PAYMENT DATE" means,
(i) with respect to a Prime Rate Drawdown and a Base Rate
Drawdown, the first Business Day of each calendar month; and
(ii) with respect to a Libor Drawdown, the last day of the
Libor Interest Period applicable thereto and also, if the
Libor Interest Period is longer than 93 days, the last day of
each 90 day period during such Libor Interest Period or, if
any such day is not a Business Day, the Business Day next
following;
"INTEREST SWAP" means a contract entered into between the Borrower and
a counterparty on a case by case basis, in connection with interest
rate swap transactions, interest rate options, cap transactions, floor
transactions, collar transactions and other similar interest rate
related transactions, including forward rate agreements, the purpose
and effect of which is to mitigate or eliminate the Borrower's exposure
to fluctuations in interest rates;
"LENDERS" means the Lenders listed in Schedule A hereof, as amended
from time to time in accordance herewith;
"LENDING OFFICE" with respect to any Lender, means the office of such
Lender specified as its "Lending Office" opposite its name on Schedule
A or such other office of such Lender in Canada as such Lender may from
time to time specify to the Borrower and the Agent;
"L/C DRAWDOWN" means a Drawdown by way of Letter of Credit;
"LETTER OF CREDIT" means an irrevocable letter of credit or letter of
guarantee, in each case, in Canadian Dollars or U.S. Dollars issued or
that may be issued from time to time by the Lenders at the request of
the Borrower;
<PAGE> 15
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"LETTER OF CREDIT DOCUMENTATION" means the documentation substantially
in the form set forth in Schedule K;
"LETTERS OF CREDIT LOANS" means, at any time, the aggregate of the
maximum liability undertaken by the Lenders as a result of all L/C
Drawdowns then outstanding;
"LIABILITIES" means, without duplication, all obligations, contingent
and otherwise, which are classified as liabilities in accordance with
GAAP;
"LIBOR DRAWDOWN" means a Drawdown in U.S. Dollars with respect to which
the Borrower has elected to have interest calculated by reference to
the Libor Rate or to which, in accordance with the provisions of this
Agreement, the Libor Rate is stated to apply;
"LIBOR INTEREST PERIOD" means, for any Libor Drawdown, the period of 1,
2, 3, or 6 months, or such other period as may be agreed to by all
Lenders, as may be selected by the Borrower pursuant to the relevant
Drawdown Notice, commencing on the Drawdown Date of such Libor Loan,
provided that:
(i) if such Interest Period would otherwise end on a day which
is not a Business Day, such Libor Interest Period shall end on
the next following Business Day (unless such next following
Business Day is the first Business Day of a calendar month, in
which case such Libor Interest Period shall end on the
Business Day immediately preceding the day on which such Libor
Interest Period would otherwise end); and
(ii) Libor Interest Periods shall terminate on such dates as
will permit the repayment of the Facility on the dates and in
the manner provided for herein;
"LIBOR LOAN" means, at any time, the aggregate of the principal amounts
of all Libor Drawdowns then outstanding;
"LIBOR RATE" means, for the Libor Interest Period applicable to a Libor
Drawdown, the average interest rate per annum (expressed on the basis
of a 360 day year) for a period equal to the number of days in such
Libor Interest Period at which U.S. Dollar deposits are offered for
deposit in the London eurodollar interbank market at approximately
11:00 a.m. (London, England time) on the second Business Day preceding
the first day of such Libor Interest Period as published on the Reuters
Service Page LIBOR (or such other page as may, from time to time,
replace such page on that service for the purpose of displaying the
rates at which U.S. Dollar deposits are offered for deposit in the
London eurodollar interbank market) or, failing the availability of
such service, as published on page 3750 of the Telerate screen (or such
other page as may, from time to time, replace such page on that service
for the purpose of displaying the rates at which U.S. Dollar deposits
are offered for deposit in the London eurodollar interbank market);
<PAGE> 16
-11-
"LOANS" means, at any time, the aggregate of all Bankers' Acceptance
Loans, Prime Rate Loans, Base Rate Loans, Libor Loans and Letters of
Credit Loans then outstanding;
"MAJORITY LENDERS" means one or more Lenders who, in the aggregate,
have outstanding more than 66 2/3% of the principal amount of the Loans
or, if no such principal amount is then outstanding, Lenders who have
more than 66 2/3% of the Commitments and except in respect of the
matters requiring approval by all Lenders as set forth in Section 12.7,
any reference to Lenders in the context of a requirement for any
approval, consent or waiver shall be deemed to be a reference to
Majority Lenders;
"MATERIALLY ADVERSE" means any state of fact, change, event or
occurrence which would:
(i) materially adversely affect the Borrower's ability to
perform its obligations under, or the validity or
enforceability of, this Agreement; or
(ii) be materially adverse to the financial condition of the
Restricted Group;
"MATURITY DATE" means the date which is the fourth anniversary of the
Term Out Date;
"MINIMUM TANGIBLE NET WORTH" means Cdn. $1,700,000,000 plus 70% of
Gulf's net income (loss) determined in accordance with GAAP, for the
period commencing on June 30, 1998 and ending on the last day of the
most recently completed Fiscal Quarter on a cumulative basis, provided
that in no circumstance shall Minimum Tangible Net Worth be less than
Cdn. $1,700,000,000;
"MOODY'S" means Moody's Investors Service, Inc. and its successors;
"NET PROCEEDS" means all cash proceeds paid to the Borrower or any of
its Restricted Subsidiaries or any Unrestricted Subsidiary to the
extent distributed to the Restricted Group in respect of (i) the sale
of an asset after repayment of any debt secured by the asset or
required to be paid to complete such sale; (ii) the issuance of
securities; and (iii) the secondary distribution of securities, in each
case after deduction of reasonable legal and other fees, Taxes,
commissions, usual adjustments and other usual expenses, and such other
amounts as may be agreed to by the Majority Lenders;
"NON-MATERIAL RESTRICTED SUBSIDIARY" means a Restricted Subsidiary
having a gross asset value (as shown on the latest financial statements
of the Subsidiary) of less than Cdn. $1,000,000 and having no
indebtedness, liabilities or obligations in respect of which any Person
may have recourse to the Borrower or any other Restricted Subsidiary in
excess of Cdn. $1,000,000;
"NONEXTENDING LENDERS" has the meaning ascribed to it in Section 2.1;
<PAGE> 17
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"NONREVOLVING LENDERS" means the Lenders whose Loans are in the Term
Period;
"NOTICE OF AMENDMENT OF UNRESTRICTED SUBSIDIARIES" means a notice
substantially in the form set forth in Schedule J;
"OUTSTANDING AMOUNT", with respect to any Loan or Loans outstanding
hereunder, means the aggregate amount of indebtedness of the Borrower
outstanding thereunder, excluding interest, fees and any other amounts
which have accrued but are not yet due in respect of such Loan(s);
"PARTIES" means the Borrower, the Lenders and the Agent and "PARTY"
refers to any one of them;
"PAYMENT OFFICE" means the office that is designated by the Agent to
the Borrower and Lenders from time to time as the office where payments
to be made to the Agent pursuant to this Agreement shall be made;
"PERMITTED DESIGNATED PROJECT GUARANTEE AMOUNT" means the amount equal
to:
(i) U.S. $150,000,000; and
(ii) the amount, if any, by which:
(A) 5% of the Equity of Gulf exceeds
(B) the aggregate amount of Financial Guarantees
excluding Designated Project Guarantees;
"PERMITTED ENCUMBRANCES" means:
(i) liens or privileges imposed by law such as carriers',
warehousemens', mechanics' and materialmens' liens and
privileges; or liens and privileges arising out of judgments
or awards in respect of which an appeal or proceedings for
review are being prosecuted in good faith and with respect to
which a stay of execution shall have been secured pending such
appeal or proceedings for review or security or other
appropriate protection of its properties and assets (excluding
such security) from seizure shall have been provided; or liens
for taxes, assessments or governmental charges or levies not
at the time due or delinquent or the validity of which is
being contested at the time in good faith in proceedings
before a court or other Government Authority and in each case,
in respect of which any appropriate reserves have been taken;
or liens in favour of operators and non-operators pursuant to
oil and gas operating agreements and oil and gas facility or
pipeline operating agreements and other similar operating
agreements; undetermined or inchoate liens, privileges and
<PAGE> 18
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charges incidental to current operations which have not at
such time been filed pursuant to law or which relate to
obligations not due or delinquent; or the deposit of cash or
securities in connection with any lien or privilege
hereinbefore in this paragraph referred to;
(ii) minor encumbrances, including, without limitation,
easements, rights of way, servitudes or other similar rights
in land granted to or reserved by other Persons, rights of way
for sewers, electric lines, telegraph and telephone lines and
other similar purposes, or zoning or other restrictions as to
the use of real property, which encumbrances, easements,
servitudes, rights of way, other similar rights and
restrictions do not in the aggregate either materially detract
from the value of the property and assets of the Restricted
Group or materially impair its use, in each case, in the
operation of Gulf's business;
(iii) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, licence, franchise, grant or permit or by any statutory
provision, to terminate any such lease, licence, franchise,
grant or permit, or to require annual or other periodic
payments as a condition of the continuance thereof;
(iv) security given to a public utility or any municipality or
governmental or other public authority when required by such
utility or municipality or other authority in connection with
the operation of Gulf's business, all in the ordinary course
of its business;
(v) the reservations, limitations, provisos and conditions, if
any, expressed in any original grants from the Crown;
(vi) security up to a maximum of $50,000,000 given in respect
of any Interest Swaps, Currency Swaps or Commodity Swaps in
the ordinary course of its business provided that such
security is cash, marketable securities, a letter of credit
(in respect of which the liability is included in Total Senior
Debt) or a Financial Guarantee;
(vii) purchase money security interests as defined in the
Personal Property Security Act (Alberta) as such Act may be
amended from time to time, in the aggregate for such security
interests up to a maximum of 5% of the Equity of Gulf at the
date the security is created, incurred or assumed;
(viii) security created, incurred or assumed in the ordinary
course of business in the aggregate for such types of security
up to a maximum of 5% of the Equity of Gulf at the date the
security is created, incurred or assumed;
<PAGE> 19
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(ix) security created, incurred or assumed in respect of
Funded Debt of the Restricted Group in the aggregate for such
types of security up to a maximum (excluding Inter-Restricted
Group Funded Debt) of 5% of the Equity of Gulf at the date the
security is created, incurred or assumed;
(x) security in respect of obligations of an Unrestricted
Subsidiary over shares of Unrestricted Subsidiaries held by
the Restricted Group;
(xi) security in respect of accounts receivable for sales
under the Receivables Purchase and Sale Agreement dated
November 29, 1994, as amended, among the Borrower, Corporate
Receivables Trust and Toronto Dominion Securities Inc., or any
replacement of such arrangement, provided that in no event
shall proceeds thereunder exceed Cdn. $125,000,000;
(xii) security in respect of Funded Debt of acquired entities
provided the same complies with subsection 8.3(b);
(xiii) security given by a Restricted Subsidiary that is a
Restricted Subsidiary pursuant to subsection 8.3(b) if such
security was given prior to the Restricted Subsidiary becoming
a Restricted Subsidiary pursuant to such paragraph;
(xiv) security given by a Restricted Subsidiary to the
Borrower or to a Restricted Subsidiary in respect of
Inter-Restricted Group Funded Debt; and
(xv) security granted by Crusader Limited (now Gulf Australia
Resources Limited) for the benefit of the holders of certain
notes issued by Crusader Limited creating a security interest
in shares of Triton Energy Corporation and property exchanged
for such shares, which notes are exchangeable for shares of
Triton Energy Corporation;
"PERSON" means any individual, sole proprietorship, partnership,
limited partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate, and a
natural person in his or her capacity as trustee, executor,
administrator or other legal representative or Government Authority;
"POTENTIALLY HOSTILE ACQUISITION" means the acquisition of more than
9.5% of the Voting Securities of, amalgamation or merger with, a Person
any of the securities of which are publicly traded unless the
acquisition, amalgamation or merger is approved by the board of
directors, board of trustees or other individuals in a similar capacity
of such Person;
"PREFERRED SHARES" means the Fixed/Adjustable Rate Senior Preference
Shares Series 1 and the Cumulative Redeemable Auction Perpetual Senior
Preference Shares, Series 2 of the Borrower as constituted on the
Effective Date;
<PAGE> 20
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"PREPAID OBLIGATIONS" means "take-or-pay" or similar prepaid
Liabilities of a Person whereby such Person is obligated to settle, at
some future date more than 60 days from the date the obligation is
incurred, payment in respect of petroleum substances, whether by
deliveries (accelerated or otherwise) of petroleum substances, payment
of money or otherwise howsoever;
"PREVIOUS FOUR FISCAL QUARTERS" means, at the time of any
determination, the four consecutive completed Fiscal Quarters ending
on, or last preceding, the date of such determination;
"PRIME RATE" means, at any time, the greater of: (i) the floating
annual rate of interest publicly announced from time to time by the
Agent as its prime rate, being a reference rate in effect on the date
of such announcement, based on a year of 365, or 366 days in the case
of a leap year, for Canadian dollar loans to commercial customers in
Canada; and (ii) the Agent's Reference BA Discount Rate in respect of
bankers' acceptances having a term of 30 days plus the Applicable
Spread;
"PRIME RATE DRAWDOWN" means a loan in Canadian Dollars by the Lenders
to the Borrower with respect to which the Borrower has elected, or is
deemed to have elected, to have interest calculated by reference to the
Prime Rate or to which, in accordance with the provisions of this
Agreement, the Prime Rate is deemed or stated to apply;
"PRIME RATE LOAN" means, at any time, the aggregate of the principal
amounts of all Prime Rate Drawdowns then outstanding;
"REFERENCE BA DISCOUNT RATE" means, in respect of a Bankers' Acceptance
being accepted by a Lender on a Drawdown Date, (i) for a Lender that is
listed in Schedule I to the Bank Act (Canada), the average bankers'
acceptance rate as quoted on Reuters CDOR page (or such other page as
may, from time to time, replace such page on that service for the
purpose of displaying quotations for bankers' acceptances accepted by
leading Canadian financial institutions) at approximately 10:00 a.m.
(Toronto time) on such Drawdown Date for bankers' acceptances having a
comparable maturity date as the maturity date of such bankers'
acceptance (the "CDOR Rate"); or, if such rate is not available at or
about such time, the average of the bankers' acceptance rates
(expressed to five decimal places) as quoted to the Agent by the
Schedule I BA Reference Banks as of 10:00 a.m. (Toronto time) on such
Drawdown Date for bankers' acceptances having a comparable maturity
date as the maturity date of such Bankers' Acceptance ; and (ii) for a
Lender that is listed in Schedule II to the Bank Act (Canada), the rate
established by the Agent to be the lesser of (A) the CDOR Rate plus 10
Basis Points; and (B) the average of the bankers' acceptance rates
(expressed to five decimal places) as quoted to the Agent by the
Schedule II BA Reference Banks as of 10:00 a.m. (Toronto time) on such
Drawdown Date for bankers' acceptances having a comparable maturity
date as the maturity date of such Bankers' Acceptance;
<PAGE> 21
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"REMEDIAL ORDER" means any control order, stop order or other
administrative complaint, direction, order or sanction issued, filed or
imposed by a Government Authority pursuant to the Environmental Laws
requiring any remediation or clean-up, or requiring that any on-going
activity be reduced, modified or eliminated, in each case as a result
of any release or threatened release of any Hazardous Substance into
the environment or any violation of Environmental Law;
"RESTRICTED GROUP" means, collectively, the Borrower and the Restricted
Subsidiaries;
"RESTRICTED SUBSIDIARIES" means all Subsidiaries that are not
Unrestricted Subsidiaries;
"REVOLVING LENDERS" means the Lenders the Loans of which are in the
Revolving Period;
"REVOLVING PERIOD" means, the period commencing on the Effective Date
and ending on the Term Out Date;
"ROLLOVER" means a rollover of a Drawdown pursuant to subsection
2.12(a);
"SCHEDULE I BA REFERENCE BANKS" means the Lenders listed in Schedule I
to the Bank Act (Canada) as are, at such time, designated by the Agent,
with the prior consent of the Borrower (acting reasonably), as the
Schedule I BA Reference Banks;
"SCHEDULE II BA REFERENCE BANKS" means the Lenders listed in Schedule
II to the Bank Act (Canada) as are, at such time, designated by the
Agent, with the prior consent of the Borrower (acting reasonably), as
the Schedule II BA Reference Banks;
"SENIOR DEBT" means all Funded Debt of the Borrower, on an
unconsolidated basis, ranking at least pari passu with the Loans and
includes, without limitation, the 9% Debentures due 1999, the 8.35%
Senior Notes due 2006, and the 8.25% Senior Notes due 2017;
"STANDARD & POOR'S" means Standard & Poor's Corporation and its
successors;
"SUBSIDIARY" means any body corporate in respect of which such Person
owns, directly or indirectly, more than 50% of the Voting Securities
(provided that such Person shall be deemed (for the purposes of
determining whether any body corporate is a Subsidiary) to own,
directly or indirectly, all of the Voting Securities of any Subsidiary
owned by any other Subsidiary if such Person, directly or indirectly
owns more than 50% of the Voting Securities of the second mentioned
Subsidiary), together with any other body corporate with which such
Person is consolidated in such Person's consolidated financial
statements;
"TANGIBLE NET WORTH" means the Equity of Gulf less the book value of
the intangible assets of Gulf determined in accordance with GAAP;
<PAGE> 22
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"TAXES" means all domestic federal or provincial taxes, imposts, rates,
levies, assessments and governmental charges including, without
limitation, all income taxes, capital gains, sales, excise, use,
property, capital, payroll, GST, business, transfer and value added
taxes and all customs and import duties, together with all interest,
fines and penalties with respect thereto;
"TERM OUT DATE" means, in respect of each Lender, the 364th day
following the Effective Date or, in respect of each Extending Lender,
in the case of any extension of such date in accordance with Section
2.1, the 364th day (or such lesser period as may be set forth in the
Extension Agreement relating to such extension) following the Date of
Confirmation;
"TERM PERIOD" means the period from the Term Out Date to the Maturity
Date;
"TOTAL SENIOR DEBT" shall include, without duplication: (i) all Funded
Debt of the Restricted Group; and (ii) for greater certainty, the
aggregate amount of Designated Project Guarantees (other than those
subordinate to the Loans) in excess of the Permitted Designated Project
Guarantees Amount, but shall exclude: (iii) the aggregate amount of
Designated Project Guarantees up to but not exceeding the Permitted
Designated Project Guarantees Amount; (iv) any Inter-Restricted Group
Funded Debt; and (v) the principal amount of the Subordinated
Debentures of Gulf outstanding as at June 30, 1998 which was U.S.
$500,000,000 and any replacement subordinated debt;
"TRANSACTION PRICE" means, in respect of any acquisition, merger,
purchase or sale, the aggregate of:
(i) in the case of an acquisition, merger or purchase, the sum
of: (A) the aggregate Fair Market Value, as of the date of the
acquisition, merger or purchase, of the consideration paid or
delivered by Gulf, directly or indirectly, for the assets
acquired pursuant to such acquisition, merger or purchase; and
(B) the aggregate amount of all Liabilities assumed by Gulf,
directly or indirectly, in respect of the assets acquired
pursuant to such acquisition, merger or purchase; and
(ii) in the case of a sale, the sum of: (A) the aggregate Fair
Market Value, as of the date of the sale, of the consideration
paid or delivered to Gulf, directly or indirectly, for the
assets sold; and (B) the aggregate amount of all Liabilities
assumed by the purchaser of the assets from Gulf, directly or
indirectly, in respect of the assets sold;
"UNITED STATES DOLLARS", "U.S. DOLLARS" and the symbol "U.S. $" mean
the lawful currency of the United States of America;
"UNRESTRICTED SUBSIDIARIES" means all of the following Subsidiaries:
<PAGE> 23
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(i) each body corporate of which the Restricted Group
beneficially owns, directly or indirectly, less than 100% of
the Voting Securities;
(ii) any other Subsidiary that has Funded Debt unless any one
or more of the following exceptions apply:
(A) such Funded Debt is non recourse to the Borrower,
any Restricted Subsidiary and such Subsidiary (other
than such representations, warranties and covenants
as are customary in non recourse financing not
pertaining to the payment of principal or interest);
(B) the Funded Debt is owed to a member of the
Restricted Group;
(C) the Senior Debt of the Borrower is assigned a
rating of at least BB+ by Standard and Poor's and Ba1
by Moody's and the Funded Debt of that Subsidiary
consolidated with the Funded Debt of its direct and
indirect wholly owned Subsidiaries (other than those
Subsidiaries designated as Unrestricted Subsidiaries
in accordance with subsection 8.3(d)) does not exceed
2.5 times the aggregate EBITDA of that Subsidiary
consolidated with the EBITDA of such direct and
indirect wholly owned Subsidiaries, and each such
Subsidiary shall also be a Restricted Subsidiary
(whether or not it individually meets the foregoing
test) unless the Borrower designates such Subsidiary
as an Unrestricted Subsidiary in accordance with
subsection 8.3(d);
(D) the Senior Debt of the Borrower is assigned a
rating of at least BBB- by Standard and Poor's and
Baa3 by Moody's and the Borrower is in compliance
with subsection 8.1(l);
(E) the Subsidiary has delivered to the Agent a
guarantee in form and substance acceptable to the
Agent, acting reasonably, pursuant to which such
Subsidiary guarantees all present and future
indebtedness and liabilities to the Lenders under
this Agreement together with an opinion in form and
substance acceptable to the Agent, acting reasonably,
including without limitation such matters as the
enforceability of such guarantee and the absence of
any conflict, breach or contravention with or of any
material agreement relating to Funded Debt, provided
however that the Agent, on behalf of the Lenders,
shall release and cancel such guarantee upon the
request of the Borrower if the Borrower subsequently
designates such Subsidiary as an Unrestricted
Subsidiary pursuant to subsection 8.3(d) or if such
Subsidiary is then qualified to be a Restricted
Subsidiary under another exception in this paragraph
(ii); or
<PAGE> 24
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(F) the aggregate of the Funded Debt of all such
Subsidiaries qualifying as a Restricted Subsidiary
pursuant to this paragraph (F) (excluding
Subsidiaries that are otherwise qualified to be
Unrestricted Subsidiaries pursuant to this definition
or subsection 8.3(e)) does not exceed U.S.
$10,000,000;
(iii) any other Subsidiary designated by the Borrower as an
Unrestricted Subsidiary pursuant to subsection 8.3(d);
(iv) any Subsidiary (which does not otherwise qualify as an
Unrestricted Subsidiary pursuant to the foregoing paragraphs
or paragraph (v)) the designation of which as an Unrestricted
Subsidiary is requested by the Borrower and approved by the
Majority Lenders; and
(v) any Subsidiary of a Subsidiary that is an Unrestricted
Subsidiary,
but shall not include:
(vi) any Subsidiary that would otherwise qualify as an
Unrestricted Subsidiary pursuant to paragraph (ii) if the
Subsidiary has irrevocably deposited with a trustee as trust
funds money in the respective currency in which the Funded
Debt is payable in an amount sufficient to pay and discharge
the entire indebtedness, liabilities and obligations in
respect of such Funded Debt (including interest on amounts in
default, if any) for the purpose of, specifically pledged as
security for and dedicated solely to the retirement of all of
such Funded Debt;
(vii) any Subsidiary that would otherwise qualify as an
Unrestricted Subsidiary pursuant to paragraphs (i), (ii),
(iii) or (v), the designation of which as a Restricted
Subsidiary is requested by the Borrower and approved by the
Majority Lenders; and
(viii) any Unrestricted Subsidiary in respect of which the
Borrower exercises the option in accordance with subsection
8.3(b) to treat such Subsidiary as a Restricted Subsidiary;
and, as at the Effective Date, all of such Unrestricted Subsidiaries
are set forth in Schedule L;
"VOTING SECURITIES" means securities to which are attached votes that
may be cast to elect the directors, trustees or other individuals in a
similar capacity of the issuer either under all circumstances or under
some circumstances that have occurred and are continuing;
"YEAR 2000 FAILURE" means any failure by computer hardware, software,
middleware or any system used in the business or operations of the
Borrower and its Subsidiaries to function as effectively and reliably
in respect of dates or time periods after December 31, 1999,
<PAGE> 25
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including the making of accurate leap year calculations, as in the case
of dates or time periods before January 1, 2000; and
"YEAR 2000 ISSUE" means any risk that computer hardware, software,
middleware or any system used in the business or operations of the
Borrower and its Subsidiaries, will not, in respect of dates or time
periods after December 31, 1999, function as effectively and reliably
as in the case of dates or time periods before January 1, 2000,
including the making of accurate leap year calculations.
I.2 Certain Rules of Interpretation - In this Agreement
(a) time is of the essence in the performance of the Parties'
respective obligations;
(b) the headings of Articles and Sections are inserted solely for
convenience of reference and are not intended as complete or accurate
descriptions of content;
(c) the use of words in the singular or plural, or with a particular
gender, shall not limit the scope or exclude the application of any
provision of this Agreement to such Person or Persons or circumstances
as the context otherwise permits;
(d) whenever a provision of this Agreement requires an approval or
consent by a Party to this Agreement and notification of such approval
or consent is not delivered within the applicable time limit, then,
unless otherwise specified, the Party whose consent or approval is
required shall be conclusively deemed to have withheld its consent or
approval;
(e) unless otherwise specified, time periods within or following which
any payment is to be made or act is to be done shall be calculated by
excluding the day on which the period commences and including the day
which ends the period and by extending the period to the next Business
Day following if the last day of the period is not a Business Day; and
(f) whenever any payment is to be made or action to be taken under this
Agreement is required to be made or taken on a day other than a
Business Day, such payment shall be made or action taken on the next
Business Day following.
I.3 Accounting Principles - Wherever in this Agreement reference is made to
generally accepted accounting principles ("GAAP"), such reference shall be
deemed to be to consistently applied generally accepted accounting principles in
effect in Canada, from time to time, provided that, for greater certainty, any
change thereto shall not be applied retroactively to any circumstance prior to
such change.
I.4 Cross-References - Unless otherwise specified, references in this Agreement
to any Article, Section, subsection, paragraph or Schedule are references to
such Article, Section, subsection, paragraph or Schedule of this Agreement and,
unless otherwise specified, references in
<PAGE> 26
-21-
any Article, Section, subsection, paragraph or Schedule to any clause are
references to such clause of such Article, Section, subsection, paragraph or
Schedule.
I.5 Ratings - A rating, whether public or private by Standard & Poor's or
Moody's shall be deemed to be in effect on the receipt by the Agent of an
announcement or publication by Standard & Poor's or Moody's, as the case may be,
of such rating or, in the absence of such announcement or publication, of a
written statement of the rating agency and will remain in effect until such date
as any change in such rating is deemed to be in effect.
I.6 - Currency - Unless otherwise denoted or the context otherwise requires, any
references to dollars, currency or $ herein are references to U.S. Dollars.
I.7 Schedules - The following are the Schedules to this Agreement and are
incorporated by reference and deemed to be part of this Agreement:
Schedule A - Schedule of Lenders
Schedule B - Compliance Certificate
Schedule C - Drawdown Notice
Schedule D - Bankers' Acceptance Undertaking
Schedule E - Extension Agreement
Schedule F - Extension Request
Schedule G - Bank Transfer Agreement
Schedule H - Borrower's Counsel's Opinion
Schedule I - Lenders' Counsel's Opinion
Schedule J - Notice of Amendment of Unrestricted Subsidiaries
Schedule K - Letter of Credit Documentation
Schedule L - List of Unrestricted Subsidiaries
ARTICLE II
THE FACILITY
II.1 The Facility
(a) Commitment - Upon the terms and subject to the conditions herein
set forth, the Lenders severally agree to establish in favour of the
Borrower a revolving/term credit facility of up to a maximum of U.S.
$500,000,000 (the "Facility") to be available to the Borrower in either
U.S. Dollars or the Equivalent Amount of Canadian Dollars, or any
combination thereof and otherwise in accordance with the provisions of
this Agreement from time to time on any Business Day during the
Revolving Period in an aggregate amount not to exceed at any time the
amount set forth opposite such Lender's name on Schedule A, as reduced
in accordance with this Agreement, (being such Lender's "Commitment
Amount"). Each
<PAGE> 27
-22-
Drawdown shall be, for each Revolving Lender, in an aggregate amount
not greater than such Revolving Lender's Commitment Amount less the
Loans owed to it and shall consist of Advances made by it, rateably
(subject to decrease in accordance with subsections 2.6(b) and 2.6(e)
increase in accordance with subsection 2.6(c) and modification in
accordance with Section 2.9) according to the proportion of the
aggregate of all Revolving Lender's Commitment Amounts constituted by
such Revolving Lender's Commitment Amount. Within the limits of each
Lender's Commitment and subject to Section 2.7, the Borrower may
borrow, repay and reborrow under this Section during the Revolving
Period. Prior to the Term Out Date, any prepayments or repayments made
by the Borrower in respect of Loans in the Revolving Period shall not
reduce the Revolving Lender's Commitment Amounts.
(b) Extension - Not more than 180 nor less than 60 days before the Term
Out Date, the Borrower may, by delivery to the Agent of an Extension
Request, request that the Revolving Lenders extend the Term Out Date
with respect to the Commitment of such Lenders as the same was
determined prior to giving effect to such Extension Request. Upon
receipt of such Extension Request, the Agent shall distribute such
Extension Request to each Revolving Lender. If the Agent receives
confirmation from each of the Revolving Lenders of their execution of
the Extension Agreement to which such Extension Request relates within
30 days of receipt by such Lenders of the aforesaid Extension Request
from the Agent, the Term Out Date with respect to the Commitments of
such Revolving Lenders shall be extended for a number of days (not
exceeding 364 days) as set forth in the Extension Agreement, from the
date the Agent gives notice to the Borrower that each Revolving Lender
has executed and delivered to the Agent the Extension Agreement.
Anything herein contained to the contrary notwithstanding, (i) no
Lender shall have any obligation to extend the Term Out Date hereunder
and its decision to extend the Term Out Date shall be in its absolute
discretion, and (ii) if the Agent does not receive confirmations from
the Revolving Lenders of their execution of the Extension Agreement
within the 30 days provided above, such fact shall not preclude the
extension of the Term Out Date, provided such confirmations are
received before the Borrower makes an election pursuant to subsection
2.1(c).
(c) Extension Options - If one or more Revolving Lenders do not confirm
their execution of the Extension Agreement to which such Extension
Request relates within the aforesaid 30 days (such Revolving Lenders
being hereinafter referred to as "Nonextending Lenders"), the Borrower
shall be entitled to:
(i) extend the Term Out Date with respect to the Commitments
of the Revolving Lenders who have so confirmed their execution
of the Extension Agreement (such Revolving Lenders being
hereinafter referred to as the "Extending Lenders") for a
number of days (not exceeding 364 days) as set forth in the
Extension Agreement from the date the Borrower notifies the
Agent of the Borrower's exercise of this entitlement and to
terminate the Commitment(s) of the Nonextending Lender(s)
<PAGE> 28
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unutilized as of the Term Out Date as the same was determined
prior to giving effect to such Extension Request; or
(ii) extend the Term Out Date with respect to the Commitments
of the Extending Lenders for a number of days (not exceeding
364 days) as set forth in the Extension Agreement from the
date the Borrower notifies the Agent of the Borrower's
exercise of this entitlement; prior to the fifth Business Day
preceding the Term Out Date as the same was determined prior
to giving effect to such Extension Request, replace one or
more of the Nonextending Lenders with one or more Eligible
Lenders (in respect of whom, the Term Out Date shall be the
same date as the Term Out Date with respect to the Commitments
of the Extending Lenders); and terminate the Commitment(s) of
the Nonextending Lender(s), to the extent not so replaced,
unutilized as of the Term Out Date as the same was determined
prior to the Extension Request; or
(iii) elect to revoke such Extension Request;
provided that: (i) if the Borrower does not notify the Agent of its
election hereunder prior to the fifth Business Day preceding the Term
Out Date as the same was determined prior to giving effect to such
Extension Request with respect to the Commitments of such Revolving
Lenders, the Borrower shall be deemed to have elected to revoke such
Extension Request; and (ii) if the Commitments of the Nonextending
Lenders constitute 25% or more of the Facility, all of the unutilized
Commitments of all Revolving Lenders shall be terminated on the Term
Out Date as the same was determined prior to giving effect to such
Extension Request and the Term Out Date shall not be extended.
(d) Cancellation of Unutilized Commitments - If the Borrower elects or
is deemed to have elected to revoke the Extension Request, the
unutilized portion of the Commitments of Nonextending Lenders and of
all Revolving Lenders shall terminate on the Term Out Date.
II.2 Purpose - The Facility shall be available to the Borrower for its general
corporate purposes. Advances shall be used by the Borrower (i) for the repayment
in full of the Existing Acquisition Facility and (ii) thereafter for lawful
general corporate purposes of the Borrower and its Subsidiaries including,
without limitation, the financing of oil and gas acquisitions and exploration
and development activities.
II.3 Availment of Facility
Upon the terms and subject to the conditions herein set forth,
the Borrower may borrow under the Facility by way of:
(i) Prime Rate Drawdowns;
<PAGE> 29
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(ii) Base Rate Drawdowns;
(iii) Libor Drawdowns;
(iv) Bankers' Acceptance Drawdowns; and
(v) L/C Drawdowns;
or any combination or combinations of the foregoing at the discretion of the
Borrower.
II.4 Drawdown Notices
A Drawdown Notice shall be substantially in the form set forth
in Schedule C and shall state the type of Drawdown being requested, the proposed
Drawdown Date, together with any other information required by such Schedule or
this Section 2.4.
If a Drawdown Notice is given by fax, the Borrower shall send
to the Agent written confirmation bearing an original signature of an authorized
signatory of the Borrower of such notice within two Business Days of the giving
of such notice. Any notice on which the Agent has acted, whether made by fax or
otherwise in writing shall be irrevocable and binding on the Borrower.
The following notice periods shall apply to each type of
Drawdown:
(a) Prime Rate Drawdowns and Base Rate Drawdowns - Subject to the terms
and conditions of this Agreement, the Borrower shall be entitled to
Prime Rate Drawdowns or Base Rate Drawdowns by giving a Drawdown Notice
to the Agent by 10:00 a.m. (Calgary time) on no less than the number of
Business Days prior to the proposed Drawdown Date set forth below:
<TABLE>
<CAPTION>
Amount of Drawdown (U.S.) Number of Business Days
------------------------- -----------------------
<S> <C>
$0 - $10,000,000 one
$10,000,001 - $50,000,000 two
Greater than $50,000,000 three
</TABLE>
where the Amount of Drawdown shall be based upon the currency of the
Advance proposed in the Drawdown Notice (or, where a Prime Rate
Drawdown is requested, on the Equivalent Amount in U.S. Dollars) and
more than one Drawdown Notice in respect of the same Drawdown Date
shall for the purposes of this subsection be considered one Drawdown
Notice.
(b) Libor Drawdowns - Subject to the terms and conditions of this
Agreement, the Borrower shall be entitled to Libor Drawdowns under the
Facility by delivering a Drawdown
<PAGE> 30
-25-
Notice to the Agent by 10:00 a.m. (Calgary time) no less than three
Business Days prior to the proposed Drawdown Date, which notice shall
also specify the principal amount of the Drawdown and the Libor
Interest Period selected in respect of such Drawdown;
(c) Bankers' Acceptance Drawdowns - Subject to the terms and conditions
of this Agreement, the Borrower shall be entitled to Bankers'
Acceptance Drawdowns under the Facility, by delivering a Drawdown
Notice to the Agent, by 10:00 a.m. (Calgary time) no less than one
Business Day prior to the proposed Drawdown Date, which notice shall
also specify the term and the aggregate face amount of the Bankers'
Acceptances to be accepted by the Lenders; and
(d) L/C Drawdowns - Subject to the terms and conditions of this
Agreement, the Borrower shall be entitled to require the Lenders to
issue Letters of Credit under the Facility by delivering a Drawdown
Notice to the Agent with respect to the Letters of Credit being
requested, by 10:00 a.m. (Calgary time) no less than five Business Days
prior to the proposed Drawdown Date;
provided that if the Drawdown is an Advance to be used in whole or in part for
any Potentially Hostile Acquisition, the Borrower shall deliver the Drawdown
Notice relating to such Drawdown an additional two Business Days prior to the
proposed Drawdown Date and the Drawdown Notice shall provide the name of the
entity subject to the Potentially Hostile Acquisition. If the Borrower intends
to use the Facility, in whole or in part, for any Potentially Hostile
Acquisition in respect of which the Transaction Price may be in excess of U.S.
$50,000,000, the Borrower shall provide written notice of its intention to so
use the Facility to the Agent within one Business Day after its public
announcement of the Potentially Hostile Acquisition and the Agent shall
forthwith and, in any event, within one Business Day of receipt of such notice
from the Borrower provide such notice to the Lenders. Each Drawdown Notice shall
be irrevocable and binding on the Borrower.
II.5 Notice of Drawdown to Lenders - Promptly upon receipt of any Drawdown
Notice or upon a drawing under any Letter of Credit, the Agent shall notify each
Lender by facsimile of the proposed Drawdown or the drawing, as applicable, of
such Lender's proportionate share thereof and of the other matters covered by
the Drawdown Notice. In the case of a proposed Bankers' Acceptance Drawdown, the
Agent shall also, on the Drawdown Date, notify each Lender and the Borrower of
the applicable Reference BA Discount Rate. In the case of a proposed Drawdown by
way of L/C Drawdown, the Agent shall also notify each Lender of the other
relevant particulars of the Drawdown. Any such notice in respect of a drawing
under a Letter of Credit shall be deemed to be a request for a Prime Rate
Drawdown if the Letter of Credit is denominated in Canadian Dollars or a Base
Rate Drawdown if the Letter of Credit is denominated in U.S. Dollars, in the
amount of such drawing with a Drawdown Date on the next Business Day.
II.6 Funding
<PAGE> 31
-26-
(a) Each Lender shall, before 11:00 a.m. (Calgary time) on the Drawdown
Date (other than in respect of Bankers' Acceptance Drawdowns which are
addressed in subsection 2.6(d)) or the date a drawing by a beneficiary
is to be made under a Letter of Credit, make available (for the account
of such Lender's Lending Office) to the Agent at its Payment Office, in
same day funds, such Lender's rateable portion (subject to subsection
2.6(e)) of any such Drawdown (other than an L/C Drawdown) or of such
drawing under a Letter of Credit, as the case may be. In the case of a
Drawdown (other than an L/C Drawdown), upon fulfilment of the
applicable conditions precedent set forth in Article VI, the Agent will
make such funds available to the Borrower at the Payment Office.
Subject to subsections 2.6(e) and (f) in the case of an L/C Drawdown,
upon fulfilment of the applicable conditions precedent set forth in
Article VI, each Lender shall issue a Letter of Credit in the amount of
such Lender's rateable portion of the amount of the L/C Drawdown based
upon such Lender's Commitment and deliver the same to the Borrower at
the Payment Office or at such other office of the Agent as the Borrower
may reasonably request, and upon such issuance, each Lender shall be
deemed to have made an Advance to the Borrower in such amount. In the
case of a drawing by a beneficiary under a Letter of Credit, the Agent
shall pay such funds to the beneficiary thereof and the Borrower shall
be deemed to have converted such portion of the Advance which was
deemed to occur on the issuance of the Letter of Credit into a Prime
Rate Drawdown if the Letter of Credit is denominated in Canadian
Dollars or a Base Rate Drawdown if the Letter of Credit is denominated
in U.S. Dollars, in the amount of such payment on the date of such
payment by the Agent.
(b) At the option of the Borrower to be exercised by delivery of notice
to that effect to the Agent at least five Business Days prior to the
date of any proposed L/C Drawdown, the Borrower may obtain from up to
five Lenders (which shall include the Agent as Lender) designated by
the Borrower in such notice a quotation of the fees which such Lender
would charge to act as issuer of the relevant Letter of Credit to be
issued in connection with the L/C Drawdown. Upon the giving of such
notice to such designated Lenders, any such Lender (including the Agent
as Lender) may provide such a quotation to the Borrower not less than
three Business Days prior to the date of the proposed L/C Drawdown. The
Borrower shall accept the tender which is the lowest quotation tendered
unless there are no quotations tendered that are less than 0.125% per
annum, or there are quotations tendered that are equal to but no
quotations less than 0.125% per annum, in which cases the Agent shall
be deemed to have tendered a quotation of 0.125% per annum and the
Agent shall be chosen to issue the relevant Letter of Credit on behalf
of all Lenders (and for so doing, as set out below, shall be entitled
to such fee of 0.125%). Forthwith following the tendering of the
quotations, the Borrower shall notify the Agent of the identity of the
issuing Lender and the face amount of the Letter of Credit to be
issued. The Lender whose tender was so selected, shall, upon the
request of the Borrower, issue the relevant Letter of Credit on behalf
of all Lenders as provided in subsection 2.6(c) below, and shall be
entitled to retain the full amount of the fee quoted or deemed to have
been quoted by it. All fees under this paragraph shall be based on the
face amount of the relevant Letter of Credit and payable quarterly in
arrears in the same manner as described in Section 4.5.
<PAGE> 32
-27-
(c) In the event that pursuant to subsection 2.6(b), the Agent or
any other Lender acts as issuer of a Letter of Credit, the provisions
of this Agreement with respect to L/C Drawdowns and drawings under a
Letter of Credit shall apply mutatis mutandis and, without limiting the
generality of the foregoing, upon issuance of the relevant Letter of
Credit, each Lender shall be deemed to have made available the relevant
L/C Drawdown and shall be liable to, and hereby indemnifies, the
issuing Lender in respect of such Letter of Credit to the extent of
such Lender's ratable portion of the face amount of such Letter of
Credit, based on such Lender's Commitment. The Borrower shall provide
to the issuing Lender of such Letter of Credit such documentation (not
inconsistent with the provisions of Schedule K) as such issuing Lender
may reasonably require in connection with such Letter of Credit and the
Agent, acting reasonably, shall be entitled to determine any procedures
to be followed in connection with the issuance of such Letter of Credit
and any drawings thereunder.
(d) Each Lender shall, before 11:00 a.m. (Calgary time) on the
Drawdown Date in the case of a Bankers' Acceptance Drawdown, make
available the Bankers' Acceptance Proceeds in respect of such Bankers'
Acceptances. After the Agent's receipt of such funds and upon
fulfilment of the applicable conditions precedent set forth in Article
VI, the Agent will make such funds available to the Borrower at the
Payment Office.
(e) Notwithstanding subsection (a) and anything else to the contrary
set forth herein, a Revolving Lender shall not be required to make
available any portion of any Drawdown that will be used directly and
indirectly in, or result, directly or indirectly, in a Potentially
Hostile Acquisition, if the Revolving Lender is a Conflicted Lender
provided that a Lender will be deemed not to be a Conflicted Lender in
respect of any Drawdown unless the Lender gives notice to the Agent of
the Lender's status as a Conflicted Lender within one Business Day of
the notice to the Lender by the Agent of such Drawdown, provided
further that a Conflicted Lender that does not make available a
Drawdown that will be used directly or indirectly in, or result,
directly or indirectly, in a Potentially Hostile Acquisition shall
(notwithstanding any other provision of this Agreement) not be entitled
to vote in respect of any determination required by Majority Lenders in
connection with such Drawdown and the principal amount of the Loans or
the amount of the Commitment of such Conflicted Lender shall be
excluded in the determination of the Majority Lenders in such
connection. In respect of any Subsequent Drawdown(s) in respect of
which a previously Conflicted Lender is not a Conflicted Lender, the
portion of such Drawdown(s) to be made available by such Conflicted
Lender shall be allocated by the Agent so as to result, to the extent
possible, in the outstanding Loans of the Revolving Lenders, including
such Conflicted Lender, being in the same proportion as the aggregate
of all Revolving Lenders' Commitments constituted by such Revolving
Lender's Commitment.
(f) If the Agent receives notice from a Conflicted Lender prior to
the date of any Drawdown that such Lender's rateable portion of such
Drawdown will not be made available in reliance upon subsection 2.6(e),
the portion of the Drawdown to be provided by each other
<PAGE> 33
-28-
Revolving Lender shall be increased so as to equal the proportion of
the aggregate of all Revolving Lender's Commitments, excluding the
Commitment of the Conflicted Lender, constituted by such other
Revolving Lender's Commitment provided that, after giving effect to the
Drawdown, such Revolving Lender's Outstanding Amount does not exceed
such Revolving Lender's Commitment Amount.
II.7 Funding Reliance; Lender's Failure to Fund - Unless the Agent shall have
received notice from a Lender prior to any Drawdown Date that such Lender's
rateable portion of such Drawdown will not be made available as provided for in
subsection 2.6(e), the Agent may assume that each Lender will make available to
the Agent its ratable portion of any Drawdown requested in a Drawdown Notice on
the date of such Drawdown in accordance (other than an L/C Drawdown) with
Section 2.6 and the Agent may, in reliance upon such assumption, but shall not
be obligated to, make available to the Borrower on such date a corresponding
amount. If and to the extent any such Lender shall not have so made such
rateable portion available to the Agent and the Agent shall have so made such
corresponding amount available to the Borrower, such Lender and the Borrower
severally agree to pay or repay to the Agent (on the next Business Day following
notice thereof by the Agent to the Borrower) such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Agent, at (i) in the
case of the Borrower, the interest rate applicable at the time to Drawdowns
hereunder and (ii) in the case of such Lender, the Prime Rate and, on demand, to
indemnify the Agent against any cost or loss it may suffer or incur in
connection with or related to the Agent having made such amount available to the
Borrower prior to having received the corresponding amount. If such Lender shall
pay to the Agent such corresponding amount, such amount so paid shall constitute
such Lender's Advance as part of such Drawdown for purposes of this Agreement.
II.8 Several Funding Obligations - The failure of any Lender to make an
Advance to be made by it as part of any Drawdown shall not relieve any other
Lender of its obligation, if any, hereunder to make its Advance on the Drawdown
Date, but no Lender shall be responsible for the failure of any other Lender to
make the Advance to be made by such other Lender on the Drawdown Date.
II.9 Pro-Rata Treatment of Drawdowns
(a) Each Drawdown shall be made available by each Lender and all
repayments and reductions in respect thereof shall be made and applied
in a manner so that the Drawdowns outstanding hereunder to each Lender
will, to the extent possible, thereafter be pro rata to the respective
Commitments of the Lenders. Subject to subsections 2.6(e) and (f), the
Agent is authorized by the Borrower and each Lender to determine, in
its sole and unfettered discretion, the portion of each Drawdown and
each type of Drawdown to be made available by each Lender and the
application of repayments and reductions of Loans to give effect to the
provisions of this Section provided that, no Lender shall, as a result
of any such determination, have Loans outstanding in an amount which is
in excess of the amount of its Commitment.
<PAGE> 34
-29-
(b) In the event it is not practicable to allocate Bankers'
Acceptances to each Lender such that the aggregate amount of Bankers'
Acceptances required to be purchased by such Lender hereunder is in a
whole multiple of Cdn. $100,000, the Agent is authorized by the
Borrower and each Lender to make such allocation as the Agent
determines in its sole and unfettered discretion may be equitable in
the circumstances and, if the aggregate amount of such Bankers'
Acceptances is not a whole multiple of Cdn. $100,000, then the Agent
may allocate (on a basis considered by it to be equitable) the excess
of such Drawdown over the next lowest whole multiple of Cdn. $100,000
to one Lender, which shall purchase a Bankers' Acceptance with a face
amount equal to the excess and having the same term as the
corresponding Bankers' Acceptances. In no event shall the portion of
the outstanding Loans of a Lender exceed the proportion of the
aggregate of all Lender's Commitments constituted by such Lenders'
Commitment by more than Cdn. $100,000 as a result of such exercise of
discretion by the Agent.
II.10 Restrictions on Drawdowns - Each Drawdown under the Facility shall be
subject to the following restrictions, as applicable:
(a) all Drawdowns shall be made on a Business Day;
(b) after giving effect to a Drawdown, the Outstanding Amount
shall not exceed the aggregate of the Commitment Amounts;
(c) no Drawdowns will be permitted if an Event of Default has
occurred and is continuing or (other than in the case of a Conversion
or Rollover, provided that, in the case of a Conversion or Rollover
into a Bankers' Acceptance Drawdown or Libor Drawdown, the maturity
date or the applicable Libor Interest Period shall not extend beyond
the earliest date upon which the event would constitute an Event of
Default) if an event has occurred and is continuing which with the
giving of notice, the passing of time, or both, would constitute an
Event of Default;
(d) Drawdowns shall be in Canadian Dollars or United States Dollars
as stipulated and at such time stipulated in the Drawdown Notice duly
provided by the Borrower to the Agent in respect thereof, subject to
the restrictions and limitations of this Agreement and upon fulfilment
of all conditions precedent to such Drawdown;
(e) each Drawdown by way of a Bankers' Acceptance Drawdown shall be
in a minimum principal amount of Cdn. $10,000,000 and additional
increments of integral multiples of Cdn. $1,000,000;
(f) each Drawdown by way of a Libor Drawdown shall be in a minimum
principal amount of U.S. $10,000,000 and additional increments of
integral multiples of U.S. $1,000,000;
<PAGE> 35
-30-
(g) each Letter of Credit shall be in a minimum amount of Cdn.
$5,000,000 or U.S. $5,000,000, as the case may be;
(h) no Libor Drawdown, Bankers' Acceptance or Letter of Credit
issued pursuant to an L/C Drawdown shall have a maturity or expiry date
later than the Maturity Date or that is inconsistent with any other
obligation to repay the whole or any part of the principal amount of
Loans under this Agreement;
(i) the obligation of any Lender to make any Libor Drawdown for any
period exceeding 6 months (including the Conversion of any other
Drawdown into a Libor Drawdown) is contingent upon its favourable
determination that sufficient U.S. Dollars are available to it to fund
such Libor Drawdown for such period;
(j) the amount of Letters of Credit Loans at any time shall not
exceed U.S. $100,000,000; and
(k) no Letter of Credit shall have an expiry date of more than one
year from the date of issuance of such Letter of Credit.
II.11 Conversion Option - Subject to the provisions of this Agreement, the
Borrower may, by giving to the Agent a Drawdown Notice in accordance with
Section 2.4:
(a) convert all or any portion of a Prime Rate Drawdown into a Base
Rate Drawdown, Libor Drawdown or Bankers' Acceptance Drawdown;
(b) convert all or any portion of a Base Rate Drawdown into a Prime
Rate Drawdown, Libor Drawdown or Bankers' Acceptance Drawdown;
(c) on the last day of the Libor Interest Period, convert all or
any portion of such Libor Drawdown into a Prime Rate Drawdown, Base
Rate Drawdown or Bankers' Acceptance Drawdown; or
(d) on the maturity date of a Bankers' Acceptance Drawdown, convert
all or any portion of such Bankers' Acceptance Drawdown into a Prime
Rate Drawdown, Base Rate Drawdown or Libor Drawdown.
In respect of any Conversion which effects a change in the currency of
such Drawdown from Canadian Dollars to U.S. Dollars, or vice versa, repayment
shall be made in the currency of the Drawdown being converted and the Conversion
shall be made at the Exchange Rate on the date of such Conversion provided that
for the purposes of determining compliance with subsection 2.10(b) in respect of
any Conversion which effects a change in the currency of such Drawdown from
<PAGE> 36
-31-
Canadian Dollars to U.S. Dollars or vice versa, the Equivalent Amount of
Canadian Dollars shall be determined as of the date of the Drawdown Notice.
In the case of a Conversion of a Prime Rate Drawdown, Base Rate
Drawdown or Libor Drawdown into a Bankers' Acceptance Drawdown, the Bankers'
Acceptance Proceeds shall be retained by the Agent to be applied to the
principal amount of the converted Drawdown and the Borrower shall pay to the
Agent on the date of such Conversion an amount equal to the difference between
the principal amount at maturity of the Bankers' Acceptance and the Bankers'
Acceptance Proceeds therefrom.
II.12 Rollovers
(a) The Borrower may roll over any Libor Drawdown (on the last day
of the applicable Libor Interest Period) into another Libor Drawdown or
Bankers' Acceptance Drawdown (on the maturity of the applicable
Bankers' Acceptance) into another Bankers' Acceptance Drawdown, by
giving the Agent the appropriate Drawdown Notice pursuant to Section
2.4.
(b) The Bankers' Acceptance Proceeds of the new Bankers' Acceptance
shall be retained by the Agent to be applied by it to the principal
amount of the maturing Bankers' Acceptance and the Borrower shall pay
to the Agent, on the maturity date of the maturing Bankers' Acceptance
an amount equal to the difference between the principal amount at
maturity of the maturing Bankers' Acceptance and the Bankers'
Acceptance Proceeds of the replacement Bankers' Acceptance.
(c) Notwithstanding any other provision of this Agreement, if the
Borrower fails to deliver such a Drawdown Notice to the Agent in
respect of a Libor Drawdown (or pay to the Agent an amount equal to
such Libor Drawdown on or before the expiration of such Libor Interest
Period as applicable) or in any case, during the continuance of an
Event of Default, then the relevant amount of the Libor Drawdown shall,
at the expiration of such Libor Interest Period, be deemed to be
converted into a Base Rate Drawdown, in an amount equal to the
principal amount of such Libor Drawdown.
(d) Notwithstanding any other provision of this Agreement, if the
Borrower fails to deliver such a Drawdown Notice to the Agent in
respect of a Bankers' Acceptance Drawdown (or pay to the Agent an
amount equal to the principal amount of the maturing Bankers'
Acceptance on or before the maturity date thereof), then the maturing
Bankers' Acceptance paid by the Agent shall be deemed, upon such
payment, to be converted into a Prime Rate Drawdown in an amount equal
to the face amount of such maturing Bankers' Acceptance.
II.13 Evidence of Indebtedness - The Agent shall open and maintain on its
books at the Payment Office, accounts in respect of the Facility to evidence the
Loans under the Facility and all other amounts owing by the Borrower to the
Lenders or the Agent hereunder. The Agent shall enter
<PAGE> 37
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in the foregoing accounts details of all amounts from time to time owing, paid
or repaid by the Borrower hereunder. The information entered in the foregoing
accounts shall constitute prima facie evidence of the obligations of the
Borrower to the Lenders and the Agent hereunder with respect to the Loans and
all other amounts owing by the Borrower to the Lenders or the Agent hereunder.
The Borrower shall, on reasonable notice to the Agent, be entitled to obtain
from the Agent extracts of all entries made in such accounts.
II.14 Netting - On any transaction date, the Agent shall be entitled to net
amounts payable on such date by the Agent to a Lender against amounts payable on
such date by such Lender to the Agent, in connection with transactions conducted
under this Agreement in the same type of Advance, for the account of the
Borrower. Similarly, on any transaction date, the Borrower hereby authorizes
each Lender to net amounts payable on such date by such Lender to the Agent, for
the account of the Borrower, against amounts payable on such date by the
Borrower to such Lender under this Agreement in accordance with the Agent's
calculations.
ARTICLE III
FURTHER PROVISIONS RELATING TO
LIBOR DRAWDOWNS, BANKERS'
ACCEPTANCES AND LETTERS OF CREDIT
III-1 Effects of Change of Law - If, at any time, a Lender determines in good
faith, which determination shall be final, conclusive and binding upon the
Borrower, absent manifest error, that: (a) by reason of circumstances affecting
financial markets inside or outside the United States, deposits of U.S. Dollars
are unavailable to such Lender in London; (b) adequate and fair means do not
exist for ascertaining the applicable interest rate on the basis provided in the
definition of Libor Rate; (c) the making or continuation of any Libor Drawdown
has been made impracticable: (i) by the occurrence of a contingency which
materially and adversely affects the funding, in the London interbank market
generally, of Libor Loans at any interest rate computed on the basis of the
Libor Rate; or (ii) by reason of a change since the date of this Agreement in
any Applicable Law by any Government Authorities charged with the administration
thereof affecting such Lender or any relevant financial market, the Libor Rate
shall no longer represent the effective cost to such Lender of deposits to fund
Libor Drawdowns; or (d) any change to present Law or the enactment of any future
Law or any change therein or in the interpretation or application thereof by any
Government Authorities charged with the administration thereof or by any court,
has made it unlawful for such Lender to make or maintain or to give effect to
its obligations in respect of Libor Drawdowns as contemplated hereby, then:
(a) the right of the Borrower to request Libor Drawdowns from such
Lender shall be suspended until such Lender determines that the
circumstances causing such suspension no longer exist;
<PAGE> 38
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(b) if any affected Libor Drawdown from such Lender is not yet
outstanding, any applicable outstanding Advance Notice shall be deemed
to be an Advance Notice for a Base Rate Advance in the same amount;
(c) if any Libor Drawdown from such Lender is outstanding at any
time when the right of the Borrower to request Libor Drawdowns from
such Lender is suspended, it and all other Libor Drawdowns from such
Lender shall become, on the last day of the then current Libor Interest
Period applicable thereto (or on such earlier date as may be required
to comply with any Applicable Law), a Base Rate Drawdown and shall
remain outstanding as a Base Rate Drawdown, until such time as such
Lender determines that the circumstances causing such suspension no
longer exist; and
(d) upon a determination by such Lender that the circumstances
causing the suspension of Libor Loans no longer exist, each Base Rate
Drawdown outstanding as a result of subsection 3.1(c) may be converted,
subject to availability, by the Borrower in accordance herewith to a
Libor Drawdown maturing on the last day of any Libor Interest Period
for any outstanding Libor Drawdowns or, if no Libor Drawdowns are then
outstanding, at any time by giving the Agent the appropriate Drawdown
Notice pursuant to Section 2.4.
III.2 Illegality
(a) If after the date of this Agreement any change occurs in any
Applicable Law, or in the interpretation or application thereof by any
court or by any Government Authority or other authority or entity
charged with the administration thereof, which makes it unlawful for
any Lender (in its opinion, acting reasonably and in good faith) to
make, fund or maintain any part of the Facility or to give effect to
its obligations in respect of any Drawdowns thereunder, the Lender may,
by written notice thereof to the Borrower and the Agent, declare its
obligations under this Agreement to be terminated with respect to such
affected part of the Facility (which notice shall be final, conclusive
and binding upon the Borrower, absent manifest error), whereupon the
same shall forthwith terminate.
(b) Any such notice shall be accompanied by a certificate of an
officer of the Lender identifying in reasonable detail the event or
condition which makes it unlawful for the Lender to lend or allow to
remain outstanding such portions of the Facility or any Drawdowns
thereunder (such notice to be final, conclusive and binding upon the
Borrower, absent manifest error).
(c) The Borrower shall: (i) prepay to the Lender within the greater
of: (A) ten Business Days after such notice; and (B) the time required
by such law, (or at the end of such longer period as the Lender at its
discretion has agreed) the principal amount of all Drawdowns so
affected together with accrued interest and such other amounts which
may be payable hereunder as a result of such prepayment (excluding any
cost associated with the repayment by the Borrower of a Libor Drawdown
other than at the expiration of the applicable Libor
<PAGE> 39
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Interest Period); or (ii) prior to the date of such required repayment,
replace such Lender with one or more Eligible Lenders (in respect of
whom the Term Out Date shall be the same date as the Term Out Date with
respect to the Commitment of the Lender being replaced).
(d) If any such change shall only affect a portion of the Lender's
obligations under this Agreement which is, in the reasonable opinion of
the Lender, severable from the remainder of this Agreement so that the
remainder of this Agreement may be continued in full force and effect
without otherwise affecting any of the obligations of the Lender or the
Borrower hereunder in respect of such Lender or under any of the other
documents contemplated hereby, the Lender shall only declare its
obligations under the affected portion so terminated.
(e) In the event that the provisions of this Section 3.2 are, or
threaten to become applicable in respect of any Lender, such Lender
shall use its reasonable efforts (at the expense of the Borrower) to
change its Lending Office or take such other action as may be
reasonable in the circumstances to eliminate the applicability of this
Section 3.2 to such Lender.
III.3 Bankers' Acceptances
(a) Delivery of Blank Drafts - To facilitate the acceptance of
Bankers' Acceptances pursuant to this Agreement the Borrower shall,
upon the execution of this Agreement and from time to time as required
by the Lenders, provide to the Lenders drafts duly endorsed in blank by
the Borrower in quantities sufficient for the Lenders to fulfil their
obligations hereunder. None of the Agent and the Lenders shall be
responsible or liable for any failure to issue a Bankers' Acceptance as
required hereunder if the cause of such failure is, in whole or in
part, due to the failure of the Borrower to provide requested drafts to
the Lender on a timely basis, nor shall any of the Agent and the
Lenders be liable for any damage, loss or other claim arising by reason
of any loss or improper use of any such draft except a loss or improper
use arising by reason of the failure of the Agent or the Lender, as the
case may be, to exercise the same degree of care with respect to such
draft as it exercises for its own securities.
(b) Documentation - Prior to any Bankers' Acceptance Drawdown being
made available, the Borrower shall have executed and delivered to the
Agent the Bankers' Acceptance Undertaking.
(c) Maturing Bankers' Acceptances - In anticipation of the maturity
of each Bankers' Acceptance issued hereunder, the Borrower may either:
(i) deliver to the Agent a Drawdown Notice requesting the
Conversion or Rollover of such Bankers' Acceptance pursuant to
the provisions of Section 2.11 or 2.12, respectively; or
<PAGE> 40
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(ii) not later than 10:00 a.m. (Calgary time) on the
maturity date of the relevant Bankers' Acceptance, pay to the
Agent an amount equal to the principal amount of the maturing
Bankers' Acceptance.
In the event the Borrower shall fail to so notify the Agent of a
Rollover or Conversion or shall fail to make such payment, as the case
may be, the face amount of the maturing Bankers' Acceptance shall be
converted into a Prime Rate Drawdown on the relevant maturity date.
(d) Discount Rate - The Agent shall advise the Borrower, as soon as
practicable but in any event prior to 10:30 a.m. (Calgary time) on the
date of any Bankers' Acceptance Drawdown, of the Reference BA Discount
Rate applicable to each Bankers' Acceptance thereunder.
III.4 Issuance of Letters of Credit
(a) Form of Letters of Credit - Any Letter of Credit to be issued
by the Lenders under the Facility shall be in such form as may be
agreed upon by the Borrower and the relevant issuing Lender, each
acting reasonably.
(b) Documentation - Prior to any L/C Drawdowns, the Borrower shall
have executed and delivered the Letter of Credit Documentation to the
issuer of the relevant Letter of Credit.
(c) Prepayment - The Borrower may, at any time, and shall, if the
repayment or required repayment of any of the Loans would require the
reduction of L/C Drawdowns, surrender to the Agent any Letter(s) of
Credit having an aggregate remaining face amount at least equal to the
required reduction to the Agent or, deposit cash with the Agent for the
account of each of the Lenders rateably in accordance with the Letters
of Credit Loans outstanding to such Lender, in an interest-bearing
collateral cash account of the Borrower with the Agent, with interest
at the Agent's prevailing rate for similar deposits, in an amount equal
to the required reduction. Upon such surrender or receipt of such cash,
the L/C Drawdowns outstanding under the Facility shall be deemed to
have been reduced by the aggregate remaining face amount of the Letters
of Credit so surrendered or the amount of such cash so deposited
together with interest thereon as applicable.
ARTICLE IV
PAYMENT OF INTEREST AND OTHER FEES
IV.1 Interest on Prime Rate Drawdowns - The Borrower shall pay interest in
Canadian Dollars on the principal amount of each Prime Rate Drawdown (with,
subject to Section 4.7, interest on overdue interest at the same rate) at a
nominal rate per annum equal to the Prime Rate in effect
<PAGE> 41
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from time to time plus the incremental number of Basis Points set forth in
respect of Prime Rate Drawdowns in Section 4.6.
Interest on each Prime Rate Drawdown shall accrue daily on the outstanding
principal balance thereof and shall be calculated and payable in arrears:
(a) on each successive Interest Payment Date, for the period then
ending;
(b) in the case of a prepayment of part or all of a Prime Rate
Drawdown, on the date of such prepayment, with respect to interest
accrued on the amount of principal being prepaid;
(c) in the case of amounts repaid pursuant to Section 5.2 or 5.4, on
the date of such repayment, with respect to interest accrued on the
amount of principal of any Prime Rate Drawdown being repaid; and
(d) on the date that all amounts owing hereunder are repaid in full,
whether on demand, by reason of acceleration or otherwise;
on the basis of the actual number of days for which a particular principal
amount is outstanding computed on the basis of a year of 365 days, or 366 days
in the case of a leap year. Interest on overdue interest on Prime Rate Drawdowns
shall be payable on demand. Changes in the Prime Rate shall cause an immediate
and automatic adjustment of the interest rate applicable to each Prime Rate
Drawdown as and from the effective date of such change without the necessity of
any notice to the Borrower, such notice being hereby expressly waived by the
Borrower. Interest on the Prime Rate Drawdowns shall be payable in accordance
with the foregoing after as well as before demand, default, maturity and
judgment.
IV.2 Interest on Base Rate Drawdowns - The Borrower shall pay interest in
United States Dollars to the Agent on the principal amount of each Base Rate
Drawdown (with, subject to Section 4.7, interest on overdue interest at the same
rate) at a nominal rate per annum equal to the Base Rate in effect from time to
time plus the incremental number of Basis Points set forth in respect of Base
Rate Drawdowns in Section 4.6.
Interest on each Base Rate Drawdown shall accrue daily on the
outstanding principal balance thereof and shall be calculated and payable in
arrears:
(a) on each successive Interest Payment Date, for the period then
ending;
(b) in the case of a prepayment of part or all of a Base Rate
Drawdown, on the date of such prepayment, with respect to interest
accrued on the amount of principal being prepaid;
<PAGE> 42
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(c) in the case of amounts repaid pursuant to Section 5.2 or 5.4, on
the date of such repayment with respect to interest accrued on the
amount of the principal of any Base Rate Drawdown being repaid; and
(d) on the date that all amounts owing hereunder are repaid in full,
whether on demand, by reason of acceleration or otherwise;
on the basis of the actual number of days for which a particular principal
amount is outstanding, computed on the basis of a year of 365 days or 366 days
in the case of a leap year. Interest on overdue interest on Base Rate Drawdowns
shall be payable on demand. Changes in the Base Rate shall cause an immediate
and automatic adjustment of the interest rate applicable to each Base Rate
Drawdown as and from the effective date of such change without the necessity of
any notice to the Borrower, such notice being hereby expressly waived by the
Borrower. Interest on the Base Rate Drawdowns shall be payable in accordance
with the foregoing after as well as before demand, default, maturity and
judgment.
IV.3 Interest on Libor Drawdowns - The Borrower shall pay interest in United
States Dollars on the principal amount of each Libor Drawdown for the Libor
Interest Period applicable thereto at a nominal rate per annum equal to the
Libor Rate applicable to such Libor Drawdown plus the incremental number of
Basis Points set forth in respect of Libor Drawdowns in Section 4.6.
Interest on each Libor Drawdown shall accrue daily on the amount of such Libor
Drawdown and shall be calculated and payable in arrears on each successive
Interest Payment Date applicable to a Libor Drawdown, on the basis of the actual
number of days for which such Libor Drawdown is outstanding, computed on the
basis of a year of 360 days. Interest on each Libor Drawdown shall be payable in
accordance with the foregoing after as well as before demand, default, maturity
and judgment.
IV.4 Stamping Fees on Bankers' Acceptances - The Borrower shall pay, in
respect of each draft accepted by the Lenders as a Bankers' Acceptance, a
stamping fee equal to a nominal rate per annum equal to the number of Basis
Points set forth in respect of Bankers' Acceptances in Section 4.6, in each
case, of the face amount of such Bankers' Acceptance and calculated over the
term of such Bankers' Acceptance, such stamping fee to be payable on the date of
issuance of the Bankers' Acceptance.
IV.5 Fees for Letters of Credit - The Borrower shall pay with respect to
each Letter of Credit issued hereunder, in addition to any fee payable under
Section 2.6, a fee equal to a nominal rate per annum equal to the number of
Basis Points set forth in respect of Letters of Credit in Section 4.6,
calculated on the face amount of the relevant Letter of Credit over the term of
the Letter of Credit, such fee to be payable at the time of issuance. If any
Letter of Credit is cancelled or drawndown prior to expiration of its term, the
fee applicable to the remaining term thereof shall be refunded to the Borrower.
<PAGE> 43
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IV.6 Incremental Interest and Fees - The applicable Basis Points or
incremental Basis Points payable in respect of Loans shall be as set forth below
in the column setting forth the Total Senior Debt/EBITDA ratio as calculated
pursuant to Section 8.1(l) (ii). The applicable Basis Points or incremental
Basis Points payable shall be effective and, if necessary, adjusted, from the
day the Compliance Certificate is required to be delivered pursuant to Section
8.1(d)(iii). For the period from the Effective Date until the Compliance
Certificate is required to be delivered in respect of the Fiscal Quarter ended
September 30, 1998, the applicable Basis Points or incremental Basis Points in
respect of Loans shall be as set forth in the column where the Total Senior
Debt/EBITDA Ratio is 2.5 to less than 3.0.
<TABLE>
<CAPTION>
Total Senior Debt/EBITDA Ratio
-------------------------------------------------------------------------------------
Less than 2.0 2.0 to less 2.5 to less 3.0 to less 3.5 and greater
than 2.5 than 3.0 than 3.5
------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Interest Rates and Fees
Prime Rate Drawdowns 0 bp 0 bp 0 bp 0 bp 0 bp
(Prime Rate plus)
Base Rate Drawdowns 0 bp 0 bp 0 bp 0 bp 0 bp
(Base Rate plus)
Bankers' Acceptances 50 bp 75 bp 100 bp 125 bp 137.50 bp
(Stamping Fee)
LIBOR Drawdowns 50 bp 75 bp 100 bp 125 bp 137.50 bp
(Libor Rate plus)
Letters of Credit 50 bp 75 bp 100 bp 125 bp 137.50 bp
Commitment Fee 10 bp 12.50 bp 15 bp 20 bp 30 bp
</TABLE>
IV.7 Interest on Unpaid Costs and Expenses - Unless the payment of interest
is otherwise specifically provided for herein, where the Borrower fails to pay
to the Agent any amount required to be paid by it to the Agent hereunder
(including unpaid interest), the Borrower shall pay interest on such unpaid
amount from the time such amount is due until such amount is paid in full at a
nominal rate per annum, equal to the Prime Rate in effect from time to time plus
2% with respect to amounts required to be paid by the Borrower in Canadian
Dollars, and at a nominal rate per annum, equal to the Base Rate in effect from
time to time plus 2% with respect to amounts required to be paid by the Borrower
in U.S. Dollars, such interest to be computed on the basis of a year of 365 days
or 366 days in the case of a leap year and to be calculated and (to the maximum
extent permitted by Applicable Law) compounded monthly on each Interest Payment
Date and to be payable on demand as well after as before default, maturity and
judgment, with interest on any unpaid interest at the same rate.
IV.8 Annual Rates of Interest - For the purposes of the Interest Act
(Canada), whenever interest payable pursuant to this Agreement is calculated on
the basis of a period other than a calendar year (the "Interest Period"), each
rate of interest determined pursuant to such calculation expressed as an annual
rate is equivalent to such rate as so determined multiplied by the actual
<PAGE> 44
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number of days in the calendar year in which the same is to be ascertained and
divided by the number of days in the Interest Period.
IV.9 Commitment Fee
(a) Calculation and Payment - Commencing on the Effective Date, the
Borrower shall pay to the Agent a commitment fee in U.S. Dollars equal
to a nominal rate per annum set forth in respect of the Commitment Fee
in Section 4.6 (based on a 365 day year, or 366 days in the case of a
leap year) on the undrawn portion of the Facility, such fee to be
calculated quarterly in arrears on the daily undrawn portion of the
Facility, to accrue to and including the last day of each Fiscal
Quarter to be invoiced by the Agent to the Borrower and to be paid
quarterly on or before the third Business Day of the next succeeding
Fiscal Quarter following receipt of such invoice.
(b) Calculation of Undrawn Portion - The undrawn portion of the
Facility shall be calculated by deducting the Outstanding Amount from
the aggregate of the Commitment Amounts.
IV.10 Limitation on Interest - Notwithstanding any other provisions of this
Agreement or any other document entered into in connection with this Agreement,
the Borrower shall not be obliged to make any payments of interest or other
amounts payable to the Agent hereunder or under any other document entered into
in connection with this Agreement in an amount or rate equal to or in excess of
that which would be prohibited by law or would result in the receipt by the
Lenders of interest at a criminal rate (as the terms "interest" and "criminal
rate" are defined under the Criminal Code (Canada)) or which would contravene
any local usury laws which may be applicable to any obligations of the Borrower
to the Lenders or the Agent under or in connection with this Agreement.
IV.11 Increases Costs - If, after the Effective Date, there is adopted any
Applicable Law, any change therein or any change in the interpretation or
application thereof by any court or by any Government Authority or other
authority or entity charged with the administration thereof, whether or not
having the force of law, which:
(a) subjects any Lender to any Taxes or changes the basis of
taxation, or increases any existing Taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Lender under
this Agreement (except for Taxes on the overall net income or capital
of the Lender);
(b) imposes, modifies or deems applicable any reserve, cash margin,
special deposit or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other acquisition
of funds by the relevant funding office of any Lender; or
(c) imposes on any Lender or any Person controlling such Lender a
requirement to maintain or allocate additional capital in relation to
the Facility;
<PAGE> 45
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(other than as a result of a change in the credit rating of the Borrower) in a
manner uniform with other financial institutions listed in the same Schedule to
the Bank Act (Canada) as the Lender if such other financial institutions were
substituted for the Lender hereunder and the result of any of the foregoing is,
in the opinion of such Lender (acting reasonably and in good faith), to increase
the cost to such Lender of making or maintaining any Drawdown or reduce the
income receivable by such Lender in respect of any Drawdown by an amount which
is material, then upon such Lender giving written notice thereof, from time to
time, to the Agent and the Borrower (such notice to set out in reasonable detail
the facts giving rise to and a summary calculation of, such increased cost or
reduced income and to be final, conclusive and binding upon the Borrower, absent
manifest error), the Borrower shall pay to such Lender, not later than five
Business Days after such notice, that amount which shall compensate such Lender
for such additional cost or reduction in income (arising to or incurred by the
Lender not more than 90 days prior to the date of such notice) and thereafter on
each issuance of a Bankers' Acceptance and date for payment of fees in respect
of Letters of Credit and Interest Payment Date, in all other cases. For greater
certainty, the Borrower shall not be required to compensate any Lender for any
withholding taxes which the Borrower is required to withhold and remit in
respect of any principal, interest or other amount paid or payable by the
Borrower to any Lender in accordance with the terms of this Agreement unless
such obligation arises as a result of an action by the Borrower.
IV.12 Waiver of Judgment Interest Act (Alberta) - To the extent permitted by
Applicable Law, the provisions of the Judgment Interest Act (Alberta) shall not
apply to this Agreement and are hereby expressly waived by the Borrower.
ARTICLE V
REPAYMENTS AND PREPAYMENTS
V.1 Amounts Under Facility May be Reborrowed - Subject to the other terms
and conditions of this Agreement and as long as there shall not have occurred
and be continuing an Event of Default or any event which with the giving of
notice, the passing of time, or both, would constitute an Event of Default, any
amounts borrowed under the Facility and repaid from time to time may be
reborrowed during the Revolving Period.
V.2 Repayment under the Facility after Term Out Date - The Borrower shall
repay to each of the Lenders the principal amount of the Loans made by such
Lender under the Facility by payment, on each of the dates set forth below, of
that amount (in U.S. Dollars) as will reduce the principal amount of such Loans
outstanding on the date of such payment (denominated in U.S. Dollars) to that
proportion of the principal amount of such Loans outstanding on the Term Out
Date set forth opposite the date of such payment:
<PAGE> 46
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Proportion of the principal amount
of such Loans outstanding
Payment Date on the Term Out Date
------------ ----------------------------------
- 6 month anniversary of the 7/8
Term Out Date
- 12 month anniversary of the 6/8
Term Out Date
- 18 month anniversary of the 5/8
Term Out Date
- 24 month anniversary of the 4/8
Term Out Date
- 30 month anniversary of the 3/8
Term Out Date
- 36 month anniversary of the 2/8
Term Out Date
- 42 month anniversary of the 1/8
Term Out Date
- Maturity Date 0
together with any accrued and unpaid interest at the Maturity Date payable on
the Maturity Date. On and after the Term Out Date, any repayment made by the
Borrower in respect of Loans in the Term Period shall reduce each Lender's
Commitment Amount.
V.3 Voluntary Prepayments -
(a) The Borrower may at any time during the Term Period upon not
less than three Business Days prior notice but without premium or
penalty, prepay to the Nonrevolving Lenders in whole or in part, any
Prime Rate Drawdown or Base Rate Drawdown together with accrued
interest thereon to the date of such prepayment. Any such prepayment of
the Facility shall be applied to scheduled repayments thereof in the
order requested by the Borrower.
<PAGE> 47
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(b) If any Libor Drawdown or Bankers' Acceptance Drawdown is repaid
on other than the expiration of the applicable Libor Interest Period or
the maturity of the Bankers' Acceptance, respectively, the Borrower
shall, within three Business Days after notice from the Agent, pay to
the Agent for the account of each Lender rateably in accordance with
the portion of the Libor Drawdown or Bankers' Acceptance Drawdown
outstanding to such Lender:
(i) in the case of the prepayment of any Libor Drawdown,
all reasonable loss (excluding loss of profit) or
expense incurred as a result of such prepayment
including, without limitation, any cost or expense
incurred by reason of the liquidation or
re-employment in whole or in part of deposits or
other funds required by the Lenders to fund any Libor
Drawdown; and
(ii) in the case of the prepayment of any Bankers'
Acceptance Drawdown, the amount determined by the
Agent acting reasonably, to be the amount required to
be paid on the date of such prepayment to yield to
the Lenders the face amount of the Bankers'
Acceptance to be prepaid on the maturity thereof.
(c) On and after the Term Out Date, any prepayment made by the
Borrower in respect of the Loans in the Term Period shall rateably
reduce each Lender's Commitment Amount.
V.4 Currency Fluctuations - Notwithstanding any other provision of this
Agreement, if any Loan outstanding is denominated in Cdn. Dollars the Agent
shall have the right to calculate the Outstanding Amount for all purposes
including making a determination from time to time of the available undrawn
portion of the Facility. If following such calculation, the Agent determines
that the Outstanding Amount is greater than 105% of the Loans permitted hereby
to be outstanding at such time, then the Agent shall so advise the Borrower and
the Borrower shall repay, on the later of three Business Days after such advice
and the next applicable Interest Payment Date immediately following such date of
calculation, an amount sufficient to eliminate the excess over and above the
aggregate amount of the Loans permitted hereby to be outstanding at such time,
together with all accrued interest on the amount so paid.
V.5 Voluntary Reduction of Commitments - The Borrower may at any time,
without penalty, upon that number of Business Days prior notice to the Agent as
would be applicable to a Prime Rate Drawdown of like amount, terminate in whole
or reduce rateably (in accordance with the Lenders' respective Commitments) in
part the unutilized portions of the respective Commitments of the Lenders
provided that each partial reduction shall be in the aggregate amount of U.S.
$10,000,000 (or such other amounts as the Agent may approve) and additional
increments of integral multiples of U.S. $1,000,000. All accrued Commitment Fees
on the aggregate amount by which such Commitments are terminated or reduced
shall be due and payable by the Borrower on the effective date of such
termination or reduction. All terminations or reductions of the Commitments
<PAGE> 48
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shall be rateable among the Lenders in proportion to their respective Commitment
Amounts and shall be permanent.
ARTICLE VI
CONDITIONS PRECEDENT TO DRAWDOWNS
VI.1 Conditions Precedent to First Drawdown - The obligation of the Lenders
to advance the first Drawdown of the Facility is subject to the condition
precedent that the Agent shall have received on or before the Drawdown Date of
the proposed first Drawdown all of the following in form and substance
satisfactory to the Agent and the Agent's counsel (in each case, acting
reasonably):
(a) a certified copy of all documentation with respect to the
authority of the Borrower to execute, deliver and perform this
Agreement;
(b) the opinion of legal counsel to the Borrower, substantially in
the form attached hereto as Schedule H;
(c) the opinion of legal counsel to the Agent and the Lenders
substantially in the form attached hereto as Schedule I;
(d) a certificate of a senior officer of the Borrower stating that
as of such date, all of the representations and warranties made by the
Borrower herein are true and correct and that no event has occurred
which constitutes or would constitute, with the giving of notice, the
passing of time, or both, an Event of Default; and
(e) a Drawdown Notice for an Advance of the amount to fully repay,
upon the first Drawdown Date, all amounts owing by the Borrower under
the Existing Loan Facility together with:
(i) an irrevocable direction to apply such Advance to the
repayment of the amounts owing by the Borrower under the
Existing Loan Facility; and
(ii) an irrevocable notice from the Borrower terminating in
whole the Existing Loan Facility effective on such first
Drawdown Date.
VI.2 Conditions Precedent to All Drawdowns - The obligations of the Lenders
to advance any Drawdown of the Facility shall, in addition to any other
requirements of this Agreement, be subject to the following conditions
precedent:
(a) the Agent shall have received, if applicable, a proper and
timely Drawdown Notice;
<PAGE> 49
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(b) there shall not have occurred and be continuing any event which
constitutes or (other than in the case of a Conversion or Rollover,
provided, that in the case of a Conversion or Rollover into a Bankers'
Acceptance Drawdown or Libor Drawdown, the maturity date or period
shall not extend beyond the earliest date upon which such event would
constitute an Event of Default) would constitute, with the giving of
notice, the passing of time, or both, an Event of Default;
(c) each of the representations and warranties made in subsections
7.1(a), (c), (d), (e), (g), (p) and (q) shall be true and correct (and
the acceptance by the Borrower of such Drawdown shall be deemed to
constitute a further representation and warranty by the Borrower that
such statements are true and correct) as if given on, and with effect
as of, the Drawdown Date other than with respect to a Conversion or
Roll-over; and
(d) such other documentation as the Agent may reasonably request in
respect of any Letter of Credit.
VI.3 Waiver - The conditions set forth in Sections 6.1 and 6.2 are provided
for the sole benefit of the Lenders and may, with the prior consent of Majority
Lenders, be waived by the Agent, in whole or in part (with or without terms or
conditions) in respect of any Drawdown without prejudicing the right of the
Lenders at any time to assert such conditions in respect of any subsequent
Drawdown.
ARTICLE VII
BORROWER'S REPRESENTATIONS AND WARRANTIES
VII.1 Borrower's Representations and Warranties - To induce the Lenders to
make available the Facility, the Borrower represents and warrants to and in
favour of the Lenders as follows, which representations and warranties of the
Borrower shall survive the execution and delivery of this Agreement and the
making of each Drawdown, notwithstanding any investigations or examinations
which may be made by the Agent, the Lenders or the Agent's counsel:
(a) Existence of Borrower - Each of the Borrower and the Restricted
Subsidiaries (excluding Non-Material Restricted Subsidiaries) is a
corporation duly incorporated or continued, organized, and validly
subsisting under the jurisdiction of its incorporation and has all
necessary corporate power and authority to own its properties and carry
on its business as presently carried on;
(b) Qualification - Each of the Borrower and the Restricted
Subsidiaries is duly licensed and qualified to carry on business in
each jurisdiction in which the location of its respective
<PAGE> 50
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property or assets or the conduct of its business require such licence
or qualification save and except, in the aggregate, where such failure
would not be Materially Adverse;
(c) Corporate Authority - The Borrower has all necessary corporate
power, authority and capacity to enter into this Agreement and to do
all such acts and things as are required hereunder to be done, observed
or performed by it, in accordance with the terms of this Agreement;
(d) Valid Authorization of Agreement - The Borrower has taken all
necessary action to authorize the execution, delivery and performance
of this Agreement in accordance with its terms;
(e) Enforceability - This Agreement constitutes a valid and legally
binding obligation enforceable against the Borrower in accordance with
its terms, subject, however, to limitations with respect to enforcement
imposed by law in connection with bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally
and to the extent that equitable remedies such as specific performance
and injunction are in the discretion of the court from which they are
sought;
(f) Title - Each member of the Restricted Group has good and
marketable title to its properties and assets, free and clear of all
liens, claims, restrictions or encumbrances other than Permitted
Encumbrances except where the absence of such title would not, in the
aggregate, be Materially Adverse;
(g) Validity of Agreement - Non-Conflict - None of the Borrower nor
the Restricted Subsidiaries is a party to, bound or affected by or
subject to any indenture, mortgage, lease, agreement, contractual
obligation, instrument, charter or by-law provision, resolution of
directors or shareholders of the Borrower or any of the Restricted
Subsidiaries, order, rule, judgment, decree, licence, or permit which
would be violated, contravened, breached by, or under which default
would occur or a lien, claim, restriction or encumbrance would be
created upon any of the properties or assets of any member of the
Restricted Group as a result of the execution and delivery of this
Agreement or the carrying out of the Borrower's obligations hereunder
where such violation, contravention, breach, default, lien, claim,
restriction or encumbrance, in the aggregate, would be Materially
Adverse;
(h) Government Approval, Regulation, etc. - No authorization or
approval or other action by, and no notice to or filing with, any
Government Authority or regulatory body or other Person is required for
the due execution, delivery or performance by the Borrower of this
Agreement except for authorizations, approvals, actions, notices or
filings which have been duly obtained or made and are in full force and
effect except where the violation or the absence of or lack of good
standing under any such authorization would not, in the aggregate, be
Materially Adverse;
<PAGE> 51
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(i) Absence of Litigation - There is not now in progress, pending
or, to the Borrower's knowledge, threatened against the Borrower or any
Restricted Subsidiary, any litigation, action, suit, investigation,
claim, complaint or other proceeding, including appeals and
applications for review, by or before any court, tribunal, governmental
agency, commission, board, bureau, agency or instrumentality, domestic
or foreign which would, in the aggregate, be Materially Adverse;
(j) Financial Statements - The Financial Statements and the notes to
such Financial Statements have been prepared in accordance with GAAP
applied on a basis consistent with that of the preceding periods and
present fairly (i) all of the assets, liabilities and financial
position of Gulf as at December 31, 1997 and as at June 30, 1998, and
(ii) the results of operations and changes in financial position of
Gulf for the fiscal year ended December 31, 1997 and for the six months
ended June 30, 1998, all financial reports and financial statements
delivered to the Agent or the Lenders pursuant to this Agreement,
including without limitation any financial information on which any
compliance certificates are based have been prepared in accordance with
GAAP and present fairly the financial information set out therein;
(k) No Event of Default - No Event of Default has occurred and is
continuing and no event has occurred which, with the giving of notice,
the passing of time, or both, would constitute an Event of Default;
(l) Compliance with Laws - None of the Borrower nor any Restricted
Subsidiary is in violation of any indenture, mortgage, lease,
agreement, obligation, instrument, charter or by-law provision,
judgment, decree, license, order, statute, rule, permit or regulation
relating in any way to the Restricted Group, to the operation of its
business or to its property or assets and each of the Borrower and the
Restricted Subsidiaries has obtained all licences, franchises, permits,
registrations and similar authorizations, all of which are in good
standing, necessary for the conduct by it of its businesses, except
where the violation or the absence of or lack of good standing under
any such authorization would not, in the aggregate, be Materially
Adverse;
(m) Environmental Laws
(i) each of the Borrower and its Subsidiaries is in
compliance with all Environmental Laws and material
Environmental Approvals, except to the extent that failure to
comply therewith would not, in the aggregate, be Materially
Adverse;
(ii) each of the Borrower and its Subsidiaries:
(A) possesses or has applied for all Environmental
Approvals required in order to conduct its business
operations; and
<PAGE> 52
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(B) all such Environmental Approvals are valid and
in full force and effect; and
(C) is now in compliance in all respects with all
such Environmental Approvals; and
(D) no consent or approval is required of the
Borrower in connection with the transactions
contemplated herein in order to maintain such
Environmental Approvals in full force and effect;
except to the extent that failure to apply for, obtain, comply
with or maintain such Environmental Approvals would not, in
the aggregate, be Materially Adverse;
(iii) except to the extent that failure to so comply would
not, in the aggregate, be Materially Adverse, each of the
Borrower, and its Subsidiaries has complied with all
reporting, notification and inspection requirements imposed by
Environmental Laws, and all operating, monitoring and
reporting records have been maintained in accordance with all
Environmental Laws and Environmental Approvals; and
(iv) except to the extent that failure to do so would not,
in the aggregate, be Materially Adverse, each of the Borrower
and its Subsidiaries has complied with all contracts and
agreements entered into by the Borrower and its Subsidiaries
with Government Authorities relating to environmental matters;
(n) Insurance - Each of the Borrower and the Restricted Subsidiaries
has insurance with respect to its properties, assets and business and
against such casualties and contingencies and in such types and such
amounts, as is in accordance with sound business practices for
corporations of the size and type of business and operations thereof;
(o) Taxes - Each of the Borrower and the Restricted Subsidiaries
has: (i) duly and timely filed all tax returns and reports as required
by law, has duly and correctly reported all income and other amounts
required to be reported and has paid all Taxes, penalties, interest,
fines and governmental charges in respect thereof, to the extent that
such Taxes, penalties, interest, fines and other governmental charges
have been assessed by the relevant taxation authority, except any such
taxes or charges which are being diligently contested in good faith by
appropriate proceedings for which adequate reserves in accordance with
GAAP shall have been set aside on its books; and (ii) duly and timely
paid all instalments of Taxes required to be paid by it and has made
full provision on its books for all taxes and all penalties, interest
and fines in respect thereof which relate to periods ending immediately
prior to the date hereof, except such failures with respect to (i) and
(ii) which would not, in the aggregate, be Materially Adverse. Other
than actions, suits, proceedings, investigations, audits, claims and
matters which would not, in the aggregate, be Materially Adverse, there
are no actions, suits, proceedings, investigations, audits or claims
now pending or, to the best of the knowledge, information and belief of
the senior officers of the Borrower after due enquiry, threatened
against the Borrower or any Restricted Subsidiary in respect of any
Taxes or any penalties, interest and fines in respect thereof and there
are no matters under discussion with any
<PAGE> 53
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taxation or other Government Authority relating to any such matters not
provided for in the Financial Statements; and
(p) Accuracy of Information - All factual information furnished by
or on behalf of Gulf in writing to the Agent or the Lenders for
purposes of or in connection with this Agreement (including, without
limitation, all engineering and other information with respect to the
proved and probable reserves attributable to the petroleum and natural
gas interests of Gulf and the interests of Gulf in the assets on which
such information is based) or any transaction contemplated hereby
provided on or before the Effective Date is, and all other such factual
information provided pursuant to this Agreement to the Agent or the
Lenders (excluding information provided pursuant to paragraph
8.1(d)(vi) other than pursuant to a written request) will be, true and
accurate on the date as of which such information is dated or certified
(subject to any corrections, amendments or additions to such
information furnished to the Agent or the Lenders, as the case may be,
prior to any reliance thereon thereby) except to the extent that any
inaccuracies therein are not in the aggregate Materially Adverse and
such information is not, or shall not be, as the case may be,
incomplete by omitting to state any material fact necessary to make
such information not misleading, save and except in such respects as
are not, in the aggregate, Materially Adverse.
(q) Year 2000 - The Borrower represents that it is aware of the Year
2000 Issue and has developed and is further developing a plan which it
in good faith believes to be realistic and achievable to identify its
critical date dependent processes involving computer hardware,
software, middleware and systems that may be impacted by the date
change at the year 2000 and to replace or remediate such hardware,
software, middleware and systems so that the effects of the Year 2000
Issue would not reasonably be expected to be Materially Adverse. The
Borrower further represents that it reasonably expects that the Year
2000 Issue will not be Materially Adverse.
ARTICLE VIII
COVENANTS
VIII.1 Covenants - The Borrower covenants and agrees with the Agent and the
Lenders that, unless the Lenders otherwise consent in writing, so long as any
amount payable hereunder is outstanding:
(a) Punctual Payment - The Borrower shall duly and punctually pay
the principal amount of all Loans, all interest thereon, all fees and
all other amounts required to be paid by the Borrower hereunder or
pursuant to agreements with the Agent or Lenders respecting Letters of
Credit or Bankers' Acceptances and other documents related to the
Facility at the times and places and in the manner provided for herein
or therein;
(b) Conduct of Business - Save and except where the failure to do so
would not, in the aggregate, be Materially Adverse, each of the
Borrower and the Restricted Subsidiaries shall
<PAGE> 54
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do all things necessary to maintain its legal existence in good
standing under the laws of the jurisdiction of its incorporation and to
maintain its qualification to carry on business in each jurisdiction in
which the location of its respective property or assets or the conduct
of its business requires such license or qualification and to maintain
all franchises, licenses, rights, approvals, permits, consents, rights
and privileges necessary for the conduct of its business and to perform
its obligations under this Agreement;
(c) Compliance with Laws - Each of the Borrower and the Restricted
Subsidiaries shall comply with all Applicable Laws and all applicable
statutory obligations, judgments, decrees, licences, orders, statutes,
rules, permits and regulations, the non-compliance with which would be
Materially Adverse;
(d) Financial Statements and Other Information - The Borrower shall
deliver to the Agent and the Lenders:
(i) as soon as practicable and in any event within 120 days
after the end of each of its fiscal years, the unaudited
unconsolidated annual financial statements of the Restricted
Group and the audited consolidated annual financial statements
of Gulf consisting of balance sheets, statements of profit and
loss and surplus, and statements of changes in financial
position for such year, together with the notes thereto, and
setting forth in comparative form the corresponding figures for
the preceding year, all prepared in accordance with generally
accepted accounting principles consistently applied throughout
the period and prior periods, together with a report of the
Auditors thereon;
(ii) as soon as practicable and in any event within 60 days
after the end of each of the first three Fiscal Quarters of each
year, unaudited consolidated financial statements of Gulf
similar to those required pursuant to paragraph 8.1(d)(i) as of
the end of such period and for such period then ended and for
the period from the beginning of the current fiscal year to the
end of such period, setting forth, in the case of the
consolidated financial statements, in comparative form, the
corresponding figures for the comparable period in the preceding
fiscal year, prepared in accordance with generally accepted
accounting principles consistently applied and certified by the
controller, treasurer or other duly authorized financial officer
of the Borrower subject only to changes resulting from audit and
normal year-end adjustments;
(iii) as soon as practicable and in any event within 60 days
after the end of each of the first three Fiscal Quarters in each
fiscal year and within 90 days after the end of each fiscal
year, a Compliance Certificate and a Notice of Unrestricted
Subsidiaries;
(iv) as soon as practicable after any Extension Request, a
report prepared by qualified engineers (which, for greater
certainty need not be independent and may be
<PAGE> 55
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employed by Gulf) reasonably estimating the proved and
probable reserves attributable to the petroleum and natural
gas interests of Gulf (excluding Unrestricted Subsidiaries) as
of a date not earlier than the last day of the last financial
year of the Borrower preceding the date of the Extension
Request;
(v) promptly, notice of any event or occurrence (including,
without limitation, any event or occurrence which constitutes
a breach of any Environmental Laws or Environmental Approvals)
which may be Materially Adverse;
(vi) from time to time, such additional available information
regarding the financial position or business of Gulf as the
Agent or the Lenders acting through the Agent may reasonably
request; and
(vii) promptly after the occurrence of any change in
Unrestricted Subsidiaries, a Notice of Amendment of
Unrestricted Subsidiaries;
(e) Notice of Litigation - The Borrower shall give notice to the
Agent of the occurrence of any litigation, action, suit, investigation,
claim, complaint or other proceeding, if the result thereof, or in
respect of such matters as in the aggregate, might be Materially
Adverse or if any thereof in any manner draws into question the
validity or enforceability of this Agreement, and from time to time
shall provide the Agent with all reasonable non-privileged information
requested by the Agent or any of the Lenders concerning the status of
any such litigation, action, suit, investigation, claim, complaint or
other proceeding. Such notice shall be given within 15 days of senior
management becoming aware of such litigation, proceeding or dispute and
shall be in form and detail satisfactory to the Agent, acting
reasonably;
(f) Notice of any Event of Default - The Borrower shall forthwith
give notice to the Agent of any fact which, to the best of the
Borrower's knowledge, would reasonably be construed as constituting an
Event of Default or of any event which, to the best of the Borrower's
knowledge, with the giving of notice, lapse of time or otherwise would
constitute an Event of Default;
(g) Books and Records - The books and records relating to the
financial affairs of Gulf shall at all times be maintained in
accordance with good and customary business practice, all financial
statements provided for herein shall be prepared in accordance with
GAAP (excepting, in the case of unconsolidated statements, GAAP with
respect to the consolidation thereof) and present fairly the financial
information set forth therein and at any reasonable time and from time
to time upon reasonable prior notice, the Borrower shall permit the
Agent or the Agent at the request of the Lenders, at the reasonable
expense of the Borrower, access to examine such books and records;
(h) Use of Proceeds - The Borrower shall use the proceeds of all
Drawdowns for the purposes contemplated in Section 2.2;
<PAGE> 56
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(i) Pari Passu Ranking - The Borrower shall ensure that Loans under
the Facility rank pari passu with all other present and future senior
unsecured indebtedness of the Borrower;
(j) Environmental Compliance - The Borrower shall and shall cause
each Restricted Subsidiary to comply with all, and shall advise the
Lenders if it or any Subsidiary becomes aware that it is not in
compliance with, any applicable Environmental Laws and Environmental
Approvals, except to the extent that failure to comply would not, in
the aggregate, be Materially Adverse. At the request of the Lenders, in
their sole discretion, the Borrower shall undertake to have an
environmental audit (by an independent environmental auditor to be
chosen by the Agent with the prior consent of the Borrower, acting
reasonably) of part or all of its operations conducted for the benefit
of the Lenders at the cost of the Borrower, such cost to the Borrower
not to exceed U.S. $100,000 for each audit requested. If such
environmental audit establishes environmental liability to the
Restricted Group in excess of: (A) U.S. $25,000,000 in the 5 years next
following the date of such audit or during the remaining term of the
Facility, whichever is shorter; and (B) provisions in the annual or
quarterly financial statements of the Borrower last preceding the date
of such environmental audit, provision for such amount shall be made in
the next quarterly or annual financial statements of the Borrower or
the amount of such liability during the remaining term of the Facility
shall be added to Total Senior Debt for purposes of subsection 8.1(l)
until such time as provision for such amount is made in the financial
statements of the Borrower or the Majority Lenders are satisfied, in
their sole discretion, acting reasonably, that the liability is no
longer Materially Adverse. The Lenders may not request an environmental
audit, at the cost of the Borrower, more than once every two financial
years of Gulf provided that, at the request of the Lenders in their
sole discretion, the Borrower shall undertake to have an environmental
audit as aforesaid, at the cost of the Lenders at any time provided
that the Lenders may not request an environmental audit, whether at the
cost to the Borrower or at the cost to the Lenders, more than once
every financial year of Gulf;
(k) Negative Pledge - The Borrower shall not, and shall not permit
any Restricted Subsidiary to, create, issue, incur, assume or permit to
exist any security interest on its properties or assets in priority to
the Lenders' rights in respect of the Facility, other than Permitted
Encumbrances;
(l) Financial Covenants -
(i) At the end of each Fiscal Quarter the Tangible Net Worth
of Gulf on a consolidated basis shall equal or exceed the
Minimum Tangible Net Worth;
(ii) At the end of each Fiscal Quarter during each of the
following periods:
(A) September 30, 1998 - June 30, 1999
<PAGE> 57
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Total Senior Debt
------------------------------------------------- [less than] 4.0
( Cumulative )
( Acquisition Disposition )
( Restricted + - )
( EBITDA EBITDA )
( EBITDA )
Total Senior Debt
------------------------------------------------- [less than] 3.5
( Cumulative )
( Acquisition Disposition )
( Restricted + - )
( EBITDA EBITDA )
( EBITDA )
(B) September 30, 1999 -- June 30, 2001
(C) September 30, 2001 and thereafter
Total Senior Debt
------------------------------------------------- [less than] 3.5
( Cumulative )
( Acquisition Disposition )
( Restricted + - )
( EBITDA EBITDA )
( EBITDA )
where:
"CUMULATIVE RESTRICTED EBITDA" means the aggregate EBITDA of
the Restricted Group for the Previous Four Fiscal Quarters;
"ACQUISITION EBITDA" means EBITDA properly attributable to
assets acquired by the Restricted Group within the Previous
Four Fiscal Quarters which was generated in the Previous Four
Fiscal Quarters when such assets were not owned by the
Restricted Group and thus not included in the Cumulative
Restricted EBITDA provided, however, that Acquisition EBITDA
shall not include the EBITDA properly attributable to any such
<PAGE> 58
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asset acquisition having a Transaction Price less than
U.S. $5,000,000 as long as the aggregate of the
Transaction Prices for assets acquired in the Previous
Four Fiscal Quarters by the Restricted Group does not
exceed U.S. $50,000,000 in which case the aggregate
EBITDA relating to all such acquisitions shall be
included; and
"DISPOSITION EBITDA" means EBITDA properly attributable
to assets disposed of by the Restricted Group within the
Previous Four Fiscal Quarters which was generated in the
Previous Four Fiscal Quarters when such assets were owned
by the Restricted Group and thus included in the
Cumulative Restricted EBITDA provided, however, that
Disposition EBITDA shall not include the EBITDA properly
attributable to any such asset disposition having a
Transaction Price less than U.S. $5,000,000 as long as
the aggregate of the Transaction Prices for assets
disposed of in the Previous Four Fiscal Quarters by the
Restricted Group does not exceed U.S. $50,000,000 in
which case the aggregate EBITDA relating to all such
dispositions shall be included;
(m) Negative Covenants -- The Borrower shall not, and shall not
permit any Restricted Subsidiaries to, without the prior written
consent of the Majority Lenders:
(i) provide Financial Guarantees, excluding Designated
Project Guarantees, in an aggregate amount in excess of 5% of
the Equity of Gulf unless such Financial Guarantees or the
Funded Debt guaranteed thereby is included in Total Senior Debt;
(ii) sell, assign, transfer or otherwise dispose of properties
or assets (excluding (A) the sale of accounts receivable under
the Receivables Purchase and Sale Agreement dated November 29,
1994, as amended, among the Borrower, Corporate Receivables
Trust and Toronto Dominion Securities Inc., or any replacement
of such arrangement; (B) the surrender, exchange, lease,
sublease or farmout of any property or assets in the ordinary
course of business; (C) the sale of production of hydrocarbons
or by-products in the ordinary course of business; and (D) sales
or other dispositions of assets or property from one member of
the Restricted Group to another member of the Restricted Group)
in any four consecutive Fiscal Quarters pursuant to which the
Restricted Group receives Net Proceeds in an amount which
exceeds 5% of the Equity of Gulf (which Equity shall be
calculated as of the first day of such four Fiscal Quarters)
(the last day of any four Fiscal Quarters in which such excess
occurs hereinafter referred to as the "Excess Date") unless an
amount equal to such excess proceeds from the sale or other
disposition of such properties or assets are utilized for either
investments in the normal course of Gulf's business or the
repayment of Senior Debt (including the Loans), and any such
proceeds not so utilized are repaid to the Lenders (except to
the extent such Restricted Subsidiaries do not make such
payments to the Borrower because they are precluded from doing
<PAGE> 59
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so pursuant to the terms of their Funded Debt), on the next
applicable Interest Payment Date following the end of the
fourth Fiscal Quarter after the Excess Date. Any such
repayment of the Facility shall be applied to scheduled
repayments in inverse order of maturity;
(iii) merge, amalgamate, consolidate, reorganize or enter
into a plan of arrangement with any other Person or become a
party to any other transaction whereby all or substantially
all of the property or assets of the Restricted Group may
become the property or assets of another Person, including, in
the case of an amalgamation, of the continuing company
resulting therefrom, unless such merger, amalgamation,
consolidation, reorganization, plan of arrangement,
partnership or other transaction: (A) involves at least one
member of the Restricted Group; and (B) does not constitute an
Event of Default and would not constitute with the giving of
notice, the passing of time, or both, an Event of Default and,
in the case of the Borrower, complies with subsection 8.4(a);
(iv) make any material change in the nature of the
Restricted Group's business, being the exploration and
production of oil and gas, oil and gas pipelines, gas
processing, oil refining, and any other ancillary industry
related to the exploration and production of oil and gas, and
not make any investments outside the normal course of such
business, which are in the aggregate in excess of 5% of the
book value of the assets of the Restricted Group at the end of
the last completed Fiscal Quarter of the Borrower; or
(v) continue the Borrower's existence under the laws of any
jurisdiction other than the laws of Canada or any province
thereof without the prior consent of the Majority Lenders in
their sole discretion, acting reasonably;
(n) Insurance -- The Borrower will and will cause each of its
Restricted Subsidiaries to maintain, with financially sound and
reputable insurers, insurance with respect to its properties and
business and against such casualties and contingencies and in such
types and such amounts as shall be in accordance with sound business
practices for corporations of the size and type of business and
operations as Gulf;
(o) Defend Title -- The Borrower shall and shall cause each of the
Restricted Subsidiaries to diligently maintain, protect and defend its
right, title, estate and interest in, to and in respect of the property
and assets (including proceeds thereof) of the Borrower and Restricted
Subsidiaries against any claim or demand whatsoever and take all such
acts and steps as are necessary or advisable at any time and from time
to time to maintain ownership of and keep in good standing all of the
Borrower's and Restricted Subsidiaries' property and assets, all in
accordance with good oil and gas industry practice, except where the
failure to so maintain, protect or defend would not, in the aggregate,
be Materially Adverse;
<PAGE> 60
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(p) Taxes -- The Borrower will and will cause each of its Restricted
Subsidiaries (excluding Non-Material Restricted Subsidiaries) to duly
and timely file all returns in respect of all federal and provincial
and other Taxes or other assessments or governmental charges or levies
applicable thereto and to pay, or make provision for payment of, all
such Taxes, assessments, charges or levies imposed upon it or upon its
income or profits or upon property or assets belonging to it, unless,
in any such case, the same is being contested in good faith by
appropriate proceedings and an adequate reserve therefor has been
established and is maintained in accordance with GAAP and except where
the failure to so file a return or pay, or provide for, such taxes,
assessments, charges or levies would not, in the aggregate, relate to a
liability to the Restricted Group in excess of U.S. $500,000;
(q) Obligation to Notify of a Credit Rating Change -- At any time
that a rating assigned by Standard and Poor's or Moody's changes as it
relates to the Borrower, the Borrower shall, upon receiving notice of
the public dissemination of notice of such change, immediately, and in
any event within 10 Business Days following receipt thereof, notify the
Agent of such new rating and the date of such change;
(r) Maintain Property -- The Borrower shall and shall cause each of
the Restricted Subsidiaries to maintain all of its property and assets
in good condition and repair in accordance with good oil and gas
industry practice, except where the failure to do so would not, in the
aggregate, be Materially Adverse;
(s) Ownership of Assets -- At least 50% of the total assets of the
Restricted Group, determined in accordance with GAAP, shall at all
times be owned by the Borrower or by its Restricted Subsidiaries which
do not have Funded Debt in excess of Cdn. $10,000,000, in the aggregate
(other than Funded Debt owing to other Restricted Subsidiaries having
Funded Debt not exceeding Cdn. $10,000,000 in the aggregate); and
(t) Year 2000 Failure -- The Borrower will, and will cause each of
its Controlled Subsidiaries to, use reasonable commercial efforts to
ensure that all critical hardware, software, middleware and all systems
(and those of its Controlled Subsidiaries) are able to effectively
process data, and otherwise effectively and reliably operate before, on
and after January 1, 2000, without experiencing any Year 2000 Failure
that would reasonably be expected to be Materially Adverse. At the
request of the Agent, the Borrower will provide the Agent with evidence
acceptable to the Agent, acting reasonably, as to the capability of the
Borrower and its Controlled Subsidiaries to conduct its and their
businesses and operations before, on and after January 1, 2000 without
experiencing a Year 2000 Failure that would reasonably be expected to
be Materially Adverse.
VIII.2 Environmental Indemnity -- The Borrower hereby covenants and agrees to
be responsible for, and to indemnify each of the Agent, the Lenders and each of
their officers, directors, employees and agents (in this Section, collectively
referred to as the "Indemnified Parties") and hold each of them harmless from
and against all claims, demands, liabilities, losses, costs, damages and
<PAGE> 61
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expenses (including, without limitation, reasonable legal fees and all costs
incurred in the investigation, pursuing of any claim, proceeding with respect
to, defense and settlement of any item or matter hereinafter set out) that the
Indemnified Parties may incur or suffer, directly or indirectly, as a result of
or in connection with:
(i) the presence of any Hazardous Substance on, upon or
within Gulf's properties or assets, or the escape, seepage,
leakage, spillage, discharge, emission, release, disposal or
transportation away from Gulf's properties or assets of any
Hazardous Substance, whether or not there is compliance with
all applicable Environmental Laws and Environmental Approvals;
and
(ii) the imposition of any Remedial Order affecting the
Borrower's properties or assets, or any non-compliance with
Environmental Laws or Environmental Approvals pertaining to
Gulf's properties or assets by any Person, including Gulf, the
Agent, the Lenders or any Person acting on behalf of the Agent
or any of the Lenders;
in any way arising in connection with or related to such Indemnified Party's
participation in the Facility or this Agreement provided that any such claims,
demands, liabilities, losses, costs, damages and expenses are not as a result of
the act or omission of the Indemnified Party.
VIII.3 Restricted/Unrestricted Subsidiaries
(a) All Subsidiaries are Restricted Subsidiaries unless they are
Unrestricted Subsidiaries. The Borrower covenants and agrees that the
Subsidiaries listed in Schedule L (as Schedule L may be amended by the
Borrower pursuant to this Agreement from time to time after the
Effective Date) as "Unrestricted Subsidiaries" shall be all of the
Unrestricted Subsidiaries of the Borrower (excepting only Subsidiaries
of Unrestricted Subsidiaries).
(b) If an entity is purchased by the Borrower or any Restricted
Subsidiary and such entity would not otherwise qualify as a Restricted
Subsidiary and the Funded Debt (other than Inter-Restricted Group
Funded Debt) of the entity remains non-recourse to the Borrower or any
Restricted Subsidiary, the Borrower shall be permitted 12 months from
the date of purchase to: (A) retire the Funded Debt of such entity with
the proceeds of Funded Debt of the Borrower ranking no higher than pari
passu with the Facility, or other funds to the extent necessary to
qualify as a Restricted Subsidiary; or (B) assume the Funded Debt of
such entity provided it ranks no higher than pari passu with the
Facility; provided in either case that the additional Funded Debt of
the Borrower does not result in subsection 8.1(l) being contravened.
During the 12 months from the date of purchase and prior to such
retirement, or assumption of the Funded Debt of such entity, the entity
may be designated as a Restricted Subsidiary or Unrestricted
Subsidiary, at the Borrower's option. If the entity does not qualify as
a Restricted Subsidiary within the 12 month period, the entity (unless
it would not
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otherwise be an Unrestricted Subsidiary as defined herein) shall be
designated as an Unrestricted Subsidiary.
(c) Neither the Borrower nor any Restricted Subsidiary may:
(i) sell, assign, transfer or otherwise dispose of any
properties or assets (other than the disposition of securities
of Unrestricted Subsidiaries held thereby) to any one or more
Unrestricted Subsidiaries unless: (x) it shall be for
consideration not less than the Fair Market Value thereof at the
date of such disposition; and (y) after taking into account the
overall effect of any transaction giving rise to the change
(including for certainty, accounting for any concurrent
repayment of Senior Debt) subsection 8.1(l) would not have been
contravened by the Borrower if such disposition had occurred
prior to the end of the last Fiscal Quarter preceding the date
of such disposition; or
(ii) purchase or otherwise acquire any properties or assets
from any one or more of the Unrestricted Subsidiaries unless:
(x) it shall be for consideration not greater than the Fair
Market Value of such properties or assets at the date of such
acquisition; and (y) after taking into account the overall
effect of any transaction giving rise to the change (including
for certainty, accounting for any concurrent repayment of Senior
Debt) subsection 8.1(l) would not have been contravened by the
Borrower if such acquisition had occurred prior to the end of
the last Fiscal Quarter preceding the date of such disposition.
(d) The Borrower may from time to time deliver a Notice of Amendment
of Unrestricted Subsidiaries to the Agent which, in respect of any
change to Schedule L, shall be effective as of the date of the giving
of such notice provided that, after taking into account the overall
effect of any transaction giving rise to the change (including for
certainty, accounting for any concurrent repayment of Senior Debt)
subsection 8.1(l) would not have been contravened and no Event of
Default shall occur as a result of such designation by the Borrower if
such change had occurred prior to the end of the last Fiscal Quarter
preceding the date of such change.
(e) If, at the end of any Fiscal Quarter, any Subsidiary, which was
qualified as a Restricted Subsidiary at the end of the immediately
preceding Fiscal Quarter pursuant to the exceptions set forth in
subparagraphs (ii)(C) and (D) of the definition of "Unrestricted
Subsidiaries", no longer qualifies as a Restricted Subsidiary because
of a reduction in the ratings assigned to the Senior Debt of the
Borrower, then such Subsidiary shall continue to be treated as a
Restricted Subsidiary unless it fails to qualify as a Restricted
Subsidiary pursuant to the exceptions set forth in subparagraphs
(ii)(C) and (D) of the definition of Unrestricted Subsidiaries at the
end of the next Fiscal Quarter and shall thereafter cease to be treated
as a Restricted Subsidiary.
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VIII.4 Certain Requirements in Respect of Mergers, etc.
(a) The Borrower shall not merge, amalgamate, consolidate,
reorganize or enter into a plan of arrangement with any other Person or
become a party to any other transaction whereby all or substantially
all of the property or assets of the Restricted Group may become the
property or assets of another Person, including, in the case of an
amalgamation, of the continuing company resulting therefrom, or whereby
the obligation of the Borrower to pay any amount hereunder would become
subject to novation or assumed or undertaken by any other such Person
or continuing company, unless but may do so if:
(i) no Event of Default, and no event which with the giving
of notice, the passage of time or both would constitute an Event
of Default, exists, and no such event would arise as a result of
such merger, amalgamation, consolidation, reorganization, plan
of arrangement or transaction;
(ii) such other Person or continuing company (herein referred
to as a "Successor") is an incorporated company with limited
liability and incorporated in Canada or a province thereof or an
Eligible Partnership;
(iii) the Successor shall execute, prior to or
contemporaneously with the consummation of such transaction, an
agreement supplemental hereto and such other instruments, if
any, as are satisfactory to the Majority Lenders, acting
reasonably, and in the opinion of counsel to the Borrower
approved by the Agent are necessary or advisable to evidence:
(A) the assumption by the Successor of liability for the due and
punctual payment of the principal of and interest and fees on
the Loans and all other amounts payable hereunder; (B) the
covenant of the Successor to pay the same; and (C) the agreement
of the Successor to observe and perform all the terms,
conditions, covenants and obligations of the Borrower under this
Agreement (subject to such changes, in the case of a Successor
that is an Eligible Partnership, as are necessary to reflect
that the Borrower is not a corporation); and
(iv) such transaction shall, to the satisfaction of the
Majority Lenders, acting reasonably, and in the opinion of
counsel to the Borrower approved by the Agent, be upon such
terms as substantially to preserve and not to impair any of the
rights and powers of the Agent or of the Lenders and not to
affect adversely the liability of the Lenders for any present or
future Taxes, or other governmental assessments, charges or
levies of whatsoever nature.
(b) Whenever the conditions of subsection (a) have been duly
observed and performed, the Agent shall execute and deliver the
supplemental agreement provided for in paragraph 8.4(a)(iii) on behalf
of each of the parties hereto (other than the Borrower) and thereupon:
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(i) the Successor shall possess and from time to time may
exercise each and every right and power of the Borrower under
this Agreement in the name of the Borrower or otherwise and any
act or proceeding by any provision of this Agreement required to
be done and performed with like force and effect by the like
directors or officers of the Successor; and
(ii) at the request of the Borrower (except, if applicable, as
a partner of an Eligible Partnership), the Borrower shall be
released from its liability and obligations under this Agreement
and the Agent, at the request and at the expense of the
Borrower, shall execute and deliver to the Borrower such
instruments as shall be requisite to evidence such release.
ARTICLE IX
EVENTS OF DEFAULT
IX.1 Events of Default - The occurrence of any one or more of the following
events (each such event being herein referred to as an "Event of Default") shall
constitute a default under this Agreement:
(a) if the Borrower shall fail to pay any principal of, or interest
or fees on, the Loans when the same shall become due and payable
hereunder for a period of two Business Days after notice from the Agent
that such amount is due and payable;
(b) if the Borrower shall fail to perform or comply with any term,
condition, covenant or obligation contained in this Agreement (other
than those specified in subsection 9.1(a)) and, if capable of remedy,
such failure to perform or comply is not remedied within 30 days of
notice from the Agent so to remedy provided that, in the case of such a
failure to comply with subsection 8.1(o) or any applicable
Environmental Laws or Environmental Approvals which is capable of
remedy, there shall not be an Event of Default if the Borrower shall
have commenced the remedy thereof within 30 days of notice from the
Agent so to remedy and shall actively and diligently pursue such remedy
in good faith to completion;
(c) if any representation or warranty made by the Borrower in this
Agreement or in any certificate or other document at any time delivered
hereunder to the Agent shall prove to have been incorrect in any
material respect on and as of the date thereof and, if capable of
remedy, such matter is not remedied within 30 days of notice from the
Agent so to remedy;
(d) if the Borrower shall cease to carry on business;
(e) if proceedings are commenced for the dissolution, liquidation or
winding up of the Borrower or any Restricted Subsidiary (other than a
Non-Material Restricted Subsidiary and
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other than any dissolution, liquidation or winding up of a Restricted
Subsidiary where substantially all of the assets of such Subsidiary are
transferred to another Restricted Subsidiary in connection therewith),
or for the suspension of the business or operations of the Borrower or
any such Restricted Subsidiary (other than a Non-Material Restricted
Subsidiary), unless such proceedings are actively and diligently
contested in good faith on a timely basis;
(f) if the Borrower or any Restricted Subsidiary (other than a
Non-Material Restricted Subsidiary) makes any assignment in bankruptcy
or makes any other assignment for the benefit of creditors, makes any
proposal under the Bankruptcy and Insolvency Act (Canada) or any
comparable law, files a petition or proposal to take advantage of any
act of insolvency, consents to or acquiesces in the appointment of a
trustee, receiver, receiver and manager, interim receiver, custodian,
sequestrator, liquidator or other Person with similar powers of itself
or of all or any substantial portion of its property or assets, or
files a petition or otherwise commences any proceedings seeking any
reorganization, arrangement, composition or readjustment under any
applicable bankruptcy, insolvency, moratorium, reorganization or other
similar law affecting creditors' rights or consents to, or acquiesces
in, the filing of such a petition;
(g) if a trustee, receiver, receiver and manager, interim receiver,
custodian, sequestrator, liquidator or any other Person with similar
powers shall be appointed of the Borrower or any Restricted Subsidiary
(other than a Non-Material Restricted Subsidiary) or of all or any
substantial portion of any of its property or assets, other than a
portion of any of its property or assets where recourse is limited to
such property or assets, a judgment or an order is made by a tribunal
of competent jurisdiction restraining its ability to deal with all or
any substantial portion of its property and assets or a judgment or
order is made by a tribunal of competent jurisdiction approving any
reorganization, arrangement, composition or readjustment under any
applicable bankruptcy, insolvency, moratorium, reorganization or other
similar law affecting creditors' rights or the Borrower or any
Restricted Subsidiary is adjudged bankrupt and such appointment,
judgment or order is not vacated, stayed or set aside within 30 days of
the date thereof;
(h) if a writ of execution, distress, attachment or similar process
is issued or levied against all or a substantial portion of the
property or assets of the Borrower or any Restricted Subsidiary in
connection with any default by it in the payment of any amount in
excess of U.S. $25,000,000, or the Equivalent Amount thereof in another
currency as determined by the Agent, unless the writ is withdrawn,
released, vacated or stayed within 30 days, or a judgment or order
shall be rendered against the Borrower or any Restricted Subsidiary by
a court of competent jurisdiction with respect to such default and such
judgment or order shall not be satisfied (or adequate security provided
therefor) in accordance with its terms and continue unstayed and in
effect for 30 days;
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(i) if an event of default, under any indenture, agreement or
instrument under which the Borrower or any Restricted Subsidiary has at
the date of this Agreement or shall hereafter have Funded Debt
(excluding indebtedness in respect of which recourse to the Borrower
and Restricted Subsidiaries is limited to securities of an Unrestricted
Subsidiary or specified assets of the Borrower and Restricted
Subsidiaries held thereby) in excess of U.S. $25,000,000, or the
Equivalent Amount thereof in another currency as determined by the
Agent, shall occur and be continuing (and all grace periods have
expired) and as a result thereof any such indebtedness shall have been
lawfully accelerated or shall lawfully be or become due and payable
prior to the date on which the same would otherwise have become due and
payable;
(j) any order by a Government Authority is issued, or a judgment or
order rendered, against the Borrower or Restricted Subsidiary alleging
or in respect of a violation of any Environmental Law or Environmental
Approval for an amount in excess of U.S.$25,000,000, or the Equivalent
Amount thereof in another currency as determined by the Agent, and such
order or judgment shall not be satisfied (or adequate security provided
therefor) in accordance with its terms and continue unstayed and in
effect for 30 days;
(k) if all or a substantial part of the property or assets of the
Restricted Group shall be expropriated, whether for full or partial
consideration; or
(l) if a Change of Control occurs.
IX.2 Termination and Acceleration -- Upon the occurrence of an Event of
Default, the Agent shall at the request, or may with the consent, of the
Majority Lenders, by one or more notices to the Borrower do any or all of the
following:
(a) terminate the obligations of the Lenders including, without
limitation, the obligation of the Lenders to advance or allow any
further Drawdowns hereunder;
(b) declare all or any part of the principal amount of the Loans,
all interest accrued thereon and all fees and other amounts required to
be paid by the Borrower hereunder, to be immediately due and payable
without the necessity of presentment for payment, protest, notice of
non-payment or notice of protest (all of which are hereby expressly
waived);
(c) require the Borrower to pay to the Lenders an amount equal to
the aggregate face amount of all outstanding Bankers' Acceptances,
which amount shall be held by the Lenders as cash collateral in an
interest-bearing account, with interest at the Agent's prevailing rate
for similar deposits, until such Bankers' Acceptances mature and shall
be applied by the Lenders to satisfy such maturing Bankers'
Acceptances;
(d) require the Borrower to pay to the Agent an amount equal to the
maximum amount payable by the Lenders under all outstanding Letters of
Credit which amount shall be held
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by the Agent as cash collateral in an account bearing interest at the
Agent's prevailing rate for similar deposits, to be applied by the
Agent to satisfy any payments which the Lenders may have to make under
Letters of Credit; and
(e) proceed to exercise any and all rights hereunder or under any
other document or instrument executed pursuant to this Agreement.
IX.3 Remedies Cumulative and Waivers -- For greater certainty, it is
expressly understood and agreed that the respective rights and remedies of the
Lenders hereunder or under any other document or instrument executed pursuant to
this Agreement are cumulative and are in addition to and not in substitution for
any rights or remedies provided by law or by equity; and any single or partial
exercise by the Lenders of any right of remedy for a default or breach of any
term, covenant, condition or agreement contained in this Agreement or other
document or instrument executed pursuant to this Agreement shall not be deemed
to be a waiver of or to alter, affect or prejudice any other right or remedy or
other rights or remedies to which the Lenders may be lawfully entitled for such
default or breach. Any waiver by the Lenders of the strict observance,
performance or compliance with any term, covenant, condition or agreement herein
contained and any indulgence granted either expressly or by course of conduct,
by the Lenders shall be effective only in the specific instance and for the
purpose for which it was given and shall be deemed not to be a waiver of any
rights and remedies of the Lenders under this Agreement or other document or
instrument executed pursuant to this Agreement as a result of any other default
or breach hereunder or thereunder.
IX.4 Setoff -- Any deposits or other sums credited by or due from the
Lenders to the Borrower and any securities or other property of the Borrower in
the possession of the Lenders or Agent may be, unless otherwise agreed, applied
to or set off against the payment of the obligations of the Borrower hereunder
and any or all other Liabilities, direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, of the Borrower to the
Lenders or Agent at any time after the occurrence and during the continuance of
any Event of Default, in each case for the benefit of each of the Lenders
rateably in accordance with the portion of the Loans outstanding to such Lender.
ARTICLE X
THE AGENT AND THE LENDERS
X.1 The Agent -- Each Lender hereby irrevocably appoints the Agent to act
as its agent in connection with this Agreement and any matter contemplated
hereunder, and irrevocably authorizes the Agent to exercise such rights, powers
and discretions as are delegated to the Agent pursuant to this Agreement
together with all such rights, powers and discretions as are incidental hereto
or thereto. The Agent shall have only those duties and responsibilities which
are expressly specified in this Agreement, and it may perform such duties by or
through its agents or employees.
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This Agreement shall not place the Agent under any fiduciary duties in respect
of any Lender. As to any matters not expressly provided for by this Agreement,
the Agent shall not be required by the Lenders to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected with respect to the Lenders in so acting or refraining
from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
liability or which is contrary to this Agreement or Applicable Law.
X.2 The Agent's Responsibility --
(a) The Agent may assume that:
(i) any representation, warranty or statement made by the
Borrower in or in connection with any of this Agreement
(including, without limitation, in any Drawdown Notice) is true
and correct;
(ii) no Event of Default has occurred;
(iii) the Borrower is not in breach of or in default under, its
obligations under this Agreement; and
(iv) there has been no assignment or transfer by any means by
any of the Lenders of their rights hereunder unless and until
the Agent receives a Bank Transfer Agreement substantially in
the form set forth in Schedule G whereby the assignee is bound
hereby as it would have been if it had been an original Lender
party hereto;
and the Agent may also:
(b) unless it has actual knowledge or actual notice to the contrary,
assume that each Lender's address is that identified with its signature
in Schedule A until the Agent has received from such Lender a notice
designating some other office of such Lender as its address and act
upon any such notice until the same is superseded by a further such
notice;
(c) engage and pay for the advice or services of any legal counsel,
independent public accountants or other experts whose advice or
services may to it seem necessary, expedient or desirable and rely upon
any advice so obtained and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice
of such counsel, accountants or experts;
(d) unless it has actual knowledge or actual notice to the contrary,
rely as to matters of fact which might reasonably be expected to be
within the knowledge of any Person upon a statement signed by or on
behalf of the such Person;
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(e) unless it has actual knowledge or actual notice to the contrary,
rely upon any communication or document believed by it to be genuine;
(f) refrain from exercising any right, power or discretion vested in
it under this Agreement unless and until instructed by the Majority
Lenders (or Lenders if instruction of the Lenders is specifically
required by the terms of this Agreement) as to whether or not such
right, power or discretion is to be exercised and, if it is to be
exercised, as to the manner in which it should be exercised;
(g) refrain from exercising any right, power or discretion vested in
it which would or might in its opinion be contrary to any law of any
jurisdiction or any directive or otherwise render it liable to any
Person, and may do anything which is in its opinion necessary to comply
with any such law or directive;
(h) retain for its own benefit, and without liability to account
for, any fee or other sum receivable by it for its own account;
(i) accept deposits from, lend money to, provide any advisory or
other services to or engage in any kind of banking or other business
with any Party (including any Subsidiary thereof); and
(j) refrain from acting in accordance with any instructions of the
Majority Lenders to begin any legal action or proceeding arising out of
or in connection with any of this Agreement or any Bankers' Acceptance
or Letter of Credit, until it shall have received such security as it
may require (whether by way of payment in advance or otherwise) against
all costs, claims, expenses (including legal fees), obligations,
losses, damages, penalties, actions, judgments, suits, disbursements
and liabilities of any kind or nature whatsoever which it will or may
expend or incur in complying with such instruction.
X.3 The Agent's Duties -- The Agent shall:
(a) promptly upon receipt thereof, inform each Lender of the
contents of any notice, document, request or other information received
by it in its capacity as Agent hereunder from the Borrower excepting
therefrom information and notices relating solely to the role of Agent
hereunder;
(b) promptly notify each Lender of the occurrence of any Event of
Default of which the Agent has written notice from the Borrower;
(c) each time the Borrower requests the prior written consent of the
Lenders or Majority Lenders, use its best efforts to obtain and
communicate to the Borrower the response of the Lenders or Majority
Lenders, as the case may be, in a reasonable and timely manner having
due regard to the nature and circumstances of the request;
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(d) subject to the foregoing provisions of this Section and
compliance with this Agreement, act in accordance with any instructions
given to it by the Lenders or, where permitted, the Majority Lenders;
and
(e) if so instructed by the Lenders, or the Majority Lenders, as
applicable, refrain from exercising any right, power or discretion
vested in it under this Agreement or any document incidental hereto.
X.4 Protection of Agent -- Notwithstanding anything to the contrary
expressed or implied herein, the Agent shall not:
(a) be bound to enquire as to:
(i) whether any representation, warranty or statement made by
the Borrower in or in connection with this Agreement or any
document incidental hereto is true or correct;
(ii) the occurrence or otherwise of any Event of Default;
(iii) the performance or observance by the Borrower of its
obligations under this Agreement or any document incidental
hereto or to inspect the property or assets (including the books
and records) of the Borrower or any of its Subsidiaries;
(iv) any breach of or default by the Borrower of or under its
obligations under this Agreement; or
(v) the use or application by the Borrower of any of the
proceeds of the Facility;
(b) be bound to account to any Lender for any sum or the profit
element of any sum received by it for its own account;
(c) be bound to disclose to any Person any information relating to
the Borrower if such disclosure would or might in its opinion
constitute a breach of any law or regulation or be otherwise actionable
at the suit of any Person; or
(d) accept any responsibility for the accuracy and/or completeness
of any information supplied by others in connection herewith or for the
legality, validity, effectiveness, adequacy or enforceability of this
Agreement, any Bankers' Acceptance, any Letter of Credit or any
document incidental hereto or thereto and the Agent shall not be under
any liability or responsibility as Agent to any Lender as a result of
taking or omitting to take any action in relation to the Agreement, any
Bankers' Acceptance, any Letter of Credit or any document incidental
hereto or thereto save in the case of gross negligence or wilful
misconduct, and each of the Lenders and the Borrower agree that it will
not assert or seek to assert against any
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director, officer, employee or agent of the Agent any claim it might
have against any of them in respect of the matters referred to in this
Section.
X.5 Indemnification of Agent -- Each of the Lenders agrees to indemnify the
Agent (to the extent not reimbursed by the Borrower), ratably according to their
respective Commitment Amounts, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement, or any of the transactions contemplated hereby, provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's own negligence or wilful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by such Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement or any of
the transactions contemplated hereby to the extent that the Agent is not
reimbursed for the expenses by the Borrower.
X.6 Termination or Resignation of an Agent
(a) Notwithstanding the irrevocable appointment of the Agent, the
Majority Lenders may (with the consent of the Borrower, not to be
unreasonably withheld), upon giving the Agent 90 days' prior written
notice to such effect, terminate the Agent's appointment hereunder
provided that a successor Agent has been appointed at or prior to the
expiry of such notice.
(b) The Agent may resign its appointment hereunder at any time
without assigning any reason therefor upon giving 15 Business Day's
prior written notice to such effect to each of the other parties
hereto. Such resignation shall not be effective until a successor Agent
has been appointed.
(c) In the event of any such termination or resignation, the
Majority Lenders shall appoint a successor Agent who shall be a Lender
(who consents to such appointment) acceptable to the Borrower, acting
reasonably. The retiring Agent shall deliver copies of the accounts to
such successor and the retiring Agent shall be discharged from any
further obligation hereunder accruing thereafter but shall remain
entitled to the benefit of the provisions of this Section and the
Agent's successor and each of the other parties hereto shall have the
same rights and obligations among themselves as they would have had if
such successor originally had been a Party hereto as Agent.
(d) If no successor Agent has been appointed pursuant to the
subsections above by the expiry of the required period of prior notice
after the date such notice of resignation was given by the resigning
Agent, the resigning Agent's resignation shall become effective and
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such of the Lenders as is designated by (and consents to such
designation) the Borrower shall thereafter perform all the duties of
the resigning Agent hereunder until such time, if any, as the Majority
Lenders appoint a successor Agent as provided above.
X.7 Rights of the Agent as Lender -- With respect to its Commitment, the
Advances made by it, any Bankers' Acceptances accepted and purchased by it and
any Letters of Credit issued by it, the Agent shall have the same rights, powers
and obligations under this Agreement as any other Lender and may exercise the
same as though it were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include any Person serving as an Agent in
its individual capacity. Any Person serving as an Agent and its affiliates may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, the Borrower and any Person who
may do business with or own securities of the Borrower, all as if such Person
serving as the Agent were not the Agent and without any duty to account therefor
to the Lenders.
X.8 Financial Information Concerning Gulf -- Subject to subsection 10.3(a),
the Agent shall not have any duty or responsibility either initially or on a
continuing basis to provide any Lender with any credit or other information with
respect to the financial condition and affairs of Gulf.
X.9 Knowledge of Financial Situation of the Borrower -- Each Lender has
itself been, and will continue to be, solely responsible for making its own
independent appraisal of and investigations into the financial condition,
creditworthiness, condition, affairs, status and nature of the Borrower.
Accordingly, each Lender confirms with the Agent that it has not relied, and
will not hereafter rely, on the Agent (i) to check or enquire on its behalf into
the adequacy, accuracy or completeness of any information provided by the
Borrower or any other Person under or in connection with this Agreement or the
transactions hereby contemplated (whether or not such information has been or is
hereafter distributed to such Lender by the Agent), or (ii) to assess to keep
under review on its behalf the financial condition, creditworthiness, condition,
affairs, status or nature of the Borrower. The Agent shall not be responsible to
any Lender for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectability, priority or sufficiency of this
Agreement or the financial condition of the Borrower or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, or the financial condition of the
Borrower or the existence or possible existence of any Event of Default or event
of which would constitute an Event of Default with the giving of notice, the
passing of time, or both. Each Lender acknowledges that a copy of this Agreement
has been made available to it for review and each Lender acknowledges that it is
satisfied with the form and substance of this Agreement. Each Lender hereby
covenants and agrees that it will not make any arrangements with the Borrower
for the satisfaction by the Borrower of any Advances without the consent of all
the other Lenders.
X.10 Legal Proceedings
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(a) Each of the Lenders hereby acknowledges that, to the extent
permitted by Applicable Law, the remedies provided hereunder to the
Lenders are for the benefit of the Lenders collectively and acting
together and not severally and further acknowledges that its rights
hereunder are to be exercised not severally, but collectively by the
Agent upon the decision of the Majority Lenders. Notwithstanding any of
the provisions contained herein, each of the Lenders hereby covenants
and agrees that it shall not be entitled to take any legal proceedings
with respect to this Agreement, any Bankers' Acceptance or any Letter
of Credit, but that any such legal proceeding shall be taken only by
the Agent with the prior written agreement of the Majority Lenders
provided that notwithstanding the foregoing, in the absence of
instructions from the Lenders and where in the sole opinion of the
Agent the exigencies of the situation warrant such action, the Agent
may without notice to or consent of the Lenders take such action on
behalf of the Lenders as it deems appropriate or desirable in the
interests of the Lenders and provided that the Agent shall not be
obligated to take any legal proceedings against the Borrower or any
other Person for the recovery of any amount due under this Agreement or
under any of the Bankers' Acceptances or Letters of Credit. Upon any
such written consent being given by the Majority Lenders, each Lender
shall cooperate fully with the Agent to the extent requested by the
Agent in the collective realization. Each Lender shall do all acts and
things to make, execute and deliver all agreements and other
instrument, including, without limitation, any instruments necessary to
effect any registrations, so as to fully carry out the intent and
purpose of this Section.
(b) Each of the Lenders shall not seek, take, accept or receive any
security for any of the obligations and liabilities of the Borrower
hereunder or under any other document, instrument, writing or agreement
ancillary hereto other than such security as is provided hereunder or
thereunder and shall not enter into any agreement with any of the
parties hereto or thereto relating in any manner whatsoever to this
Agreement (including, without limitation, any Bankers' Acceptances
issued and purchased hereunder or any Letters of Credit issued
hereunder), unless all of the Lenders shall at the same time obtain the
benefit of any such security or agreement.
X.11 Capacity as Agent -- In performing its functions and duties under this
Agreement, the Agent shall act solely as the agent of the Lenders and shall not
assume, and shall not be deemed to have assumed, any obligation as agent or
trustee for the Borrower or any other Person. The Agent shall not be under any
liability or responsibility of any kind to the Borrower, the Lenders or to any
other Person arising out of or in relation to any failure or delay in
performance or breach by any other Lender or Lenders or, as the case may be, the
Borrower or any other Person pursuant to or in any way in connection with this
Agreement.
ARTICLE XI
PAYMENT
<PAGE> 74
- 69 -
XI.1 Payments to Agent
(a) All payments in Canadian Dollars to be made by the Borrower in
connection with this Agreement or with a Bankers' Acceptance shall be
made by the Borrower in funds having same day value to the Agent, for
its own account or for the account of the Lenders, at its Toronto Main
Branch, 1269 - 332, in the name of International Loan Operations
(Central, Toronto) - the Gulf Agency Account, or at any other office or
account in Toronto designated by the Agent. Any such payment shall be
made on the date upon which such payment is due, in accordance with the
terms hereof, no later than 11:00 a.m. (Calgary time). Any such payment
shall be a good discharge, to the Borrower, for such payment and, if
any such payment is for the account of the Lenders, the Agent shall
hold the amount so paid "in trust" for the Lenders until distributed to
them in accordance with this Agreement.
(b) All payments in U.S. Dollars to be made by the Borrower in
connection with this Agreement shall be made by the Borrower in
immediately available funds to the Agent, for its own account or for
the account of the Lenders, at the branch referred to in subsection
11.1(a), for Transit 2 Account No. 4637-654 in the name of
International Loan Operations (Central, Toronto) - the Gulf Agency
Account, or at any other office or account in Toronto designated by the
Agent. Any such payment shall be made on the date upon which such
payment is due, in accordance with the terms hereof, no later than
10:00 a.m. (Calgary time). Any such payment shall be a good discharge,
to the Borrower for such payment and, if such payment is for the
account of the Lenders, the Agent shall hold the amount so paid "in
trust" for the Lenders until distributed to them in accordance with
this Agreement.
XI.2 Payments by Lenders to Agent
(a) All payments in Canadian Dollars to be made by any Lender to the
Agent in connection with Advances of the Borrower shall be made in
immediately available funds to the Agent, for the Borrower's account
(unless otherwise specified), at the branch, office or account
mentioned in or designated under subsection 11.1(a) and no later than
the time designated therein (unless another time is specified therefor
elsewhere in this Agreement).
(b) All payments in U.S. Dollars to be made by any Lender to the
Agent in connection with Advances of the Borrower shall be made in
immediately available funds to the Agent, for the Borrower's account
(unless otherwise specified), at the branch, office or account
mentioned in or designated under subsection 11.1(b) and no later than
the time designated therein (unless another time is specified therefor
elsewhere in this Agreement).
XI.3 Payments by Agent to Borrower -- Any payment received by the Agent for
the account of the Borrower shall be paid in funds having same value to the
Borrower by the Agent on the date of receipt, or if such date is not a Business
Day, on the next Business Day, to such account(s) as the Borrower may designate.
<PAGE> 75
- 70 -
XI.4 No Set-Off or Counterclaim by Borrower -- All payments by the Borrower
shall be made free and clear of and without any deduction for or on account of
any set-off or counterclaim.
XI.5 Non-Receipt by Agent -- Subject to Section 2.7, where a sum is to be
paid hereunder to the Agent for the account of another Party hereto, the Agent
shall not be obliged to make the same available to that other Party hereto until
it has been able to establish that it has actually received such sum, but if it
does pay out a sum and it proves to be the case that it had not actually
received the sum it paid out, then the Party hereto to whom such sum was so made
available shall, on request, ensure that the amount is refunded to the Agent and
shall, on demand, indemnify the Agent against any cost or loss it may have
suffered or incurred by reason of its having paid out such sum prior to its
having received such sum.
XI.6 When Due Date Not Specified -- Whenever this Agreement does not provide
a date when any amount payable hereunder shall be due and payable, such amount
shall be due and payable on the third Business Day following written notice or
demand for payment thereof by the Agent or any Lender, save that nothing
hereinbefore provided shall in any way affect or alter the rights and remedies
available to the Agent and any Lender under Article IX.
XI.7 Agent's Authority to Debit -- In respect of all amounts payable by the
Borrower under this Agreement as interest, the Borrower hereby authorizes and
instructs the Agent (provided that the Agent shall provide not less than 4 hours
(occurring between 7:30 a.m. and 4:30 p.m. (Calgary time) on a Business Day)
prior notice to the Borrower of the amount thereof) to debit, from time to time
when such amounts are due and payable, the account or accounts designated
pursuant to Section 11.1 or Section 11.3, as applicable, for the purpose of
satisfying payment thereof.
ARTICLE XII
GENERAL
XII.1 Costs and Expenses -- The Borrower shall pay promptly all reasonable
costs and expenses incurred by the Agent on its own behalf or on behalf of the
Lenders in connection with preparation, printing, execution and delivery of each
of this Agreement and the other documents to be delivered hereunder, whether or
not any Drawdown has been made hereunder, including, without limitation, the
fees and out-of-pocket expenses of Agent's counsel with respect thereto and with
respect to advising each of the Agent on its own behalf or on behalf of the
Lenders as to the rights and responsibilities hereunder and the other documents
delivered hereunder. The Borrower further agrees to pay all costs and expenses
incurred by the Agent on its own behalf or on behalf of the Lenders (including
fees and expenses of counsel, accountants and other experts), in connection with
any waiver or consent under, or amendment to, this Agreement, or the
preservation or enforcement of rights of the Agent and the Lenders under this
Agreement and other documents delivered hereunder including, without limitation,
all reasonable costs and expenses sustained by each of the
<PAGE> 76
- 71 -
Agent and the Lenders as a result of any failure by the Borrower to perform or
observe its obligations contained in any of such documents.
XII.2 Indemnifications by the Borrower --
(a) Failure to Complete Drawdown -- In addition to any liability of
the Borrower to the Agent or the Lenders under any other provision of
this Agreement, the Borrower shall indemnify each of the Agent and the
Lenders and hold each of them harmless against any reasonable loss
(excluding loss of profit) or expense incurred thereby as a result of
any failure by the Borrower to fulfil any of its obligations hereunder
including, without limitation, any cost or expense incurred by reason
of the liquidation or re-employment in whole or in part of deposits or
other funds required by the Agent to fund any Drawdown as a result of:
(i) the Borrower's failure to complete a Drawdown or to make
any payment, repayment or prepayment on the date required
hereunder or specified by it in any notice given hereunder;
(ii) the Borrower's failure to pay any other amount, including
without limitation any interest or fee, due hereunder on its due
date; or
(iii) the Borrower's failure to give any notice required to be
given by it to the Agent or a Lender hereunder.
(b) General Indemnity -- In addition to any liability of the
Borrower to the Agent or the Lenders under any other provisions of this
Agreement, the Borrower shall, to the fullest extent permitted by
Applicable Law, indemnify each of the Agent and the Lenders, and their
respective officers, directors, employees, representatives,
shareholders, agents and affiliates (as used in this Section each an
"Indemnified Party") from, hold each of them harmless against and
promptly upon written demand therefor pay or reimburse each of them
for, any and all actions, suits, proceedings (including any
investigations, litigation or inquiries), claims, demands, causes of
action, costs, losses (excluding loss of profit), liabilities, damages
or expense of any kind or nature whatsoever but excluding those based
on gross negligence or wilful misconduct of such Indemnified Party (the
"Indemnity Matters") which may be incurred by or asserted against or
involve any of them (whether or not any of them is designated a party
thereto) as a result of: (i) any actual or proposed use by the Borrower
of the proceeds of any Advance; (ii) any transaction in which any
proceeds of all or any part of a Drawdown is applied; or (iii) any
Event of Default, including, without limitation, the reasonable fees
and disbursements of counsel and all other expenses incurred in
connection with investigating, defending or preparing to defend any
such action, suit, proceeding (including any investigations, litigation
or inquiries), claim, demand or cause of action; provided, that prior
to the occurrence of an Event of Default, the Borrower shall only be
obligated to pay the reasonable fees and disbursements of counsel
engaged by the Agent to
<PAGE> 77
- 72 -
represent all of the Agent and the Lenders. Subject to the proviso in
the preceding sentence, the Borrower shall be obligated to pay or
reimburse each Indemnified Party for all out-of-pocket costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by such Indemnified Party in the defense of any
claims arising out of any Indemnity Matter at the time such costs and
expenses are incurred and such Indemnified Party has given the Borrower
written notice thereof.
(c) Contribution -- If and to the extent that the foregoing
indemnities may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction
of each of the indemnified liabilities described which is permissible
under Applicable Law.
(d) Survival of Indemnity -- The foregoing indemnities and the
indemnity set forth in Section 8.2 shall survive the termination of
this Agreement, the consummation of the transactions contemplated by
this Agreement, the repayment of the Facility, the invalidity or
unenforceability of any term or provision of this Agreement, or any
other document, any investigation made on behalf of the Agents or the
Lenders and the content or accuracy of any representation or warranty
made by the Borrower or any Subsidiary under this Agreement.
XII.3 Funds -- Each amount advanced, made available, disbursed or paid
hereunder shall be advanced, made available, disbursed or paid, as the case may
be, in immediately available funds or, after notice from the Agent, in such
other form of funds as may from time to time be customarily used in Toronto,
Canada in the settlement of banking transactions similar to the banking
transactions required to give effect to the provisions of this Agreement on the
day such advance, disbursement or payment is to be made.
<PAGE> 78
- 73 -
XII.4 Notice -- Any demand, notice or communication to be made or given
hereunder shall be in writing, except as otherwise expressly permitted or
required under this Agreement, and may be made or given by personal delivery or
by facsimile machine addressed to the respective Parties as follows:
to the Borrower:
Gulf Canada Resources Limited
400 - 3rd Avenue S.W., Suite 2000
Calgary, Alberta
T2P 5A6
Attention: Treasury and Law
Phone: (403) 205-8300
Fax: (403) 205-8414
with copy to:
Gulf Canada Resources Limited
One Norwest Center,
1700 Lincoln, Suite 5000
Denver, Colorado 80203-4525
Attention: Treasurer
Phone: (303) 813-3800
Fax: (303) 813-3919
to the Agent:
Bank of Montreal
Loan Agency Services
After Sales
22nd Floor
1 First Canadian Place
Toronto, Ontario
M5X 1A1
Attention: Manager, Loan Agency Services
Tel No. (416) 867-5612
Fax No. (416) 867-5718
<PAGE> 79
- 74 -
to the Lenders as set forth in Schedule A
or to such other delivery or facsimile machine address as any Party may from
time to time notify the others in accordance with this Section. Any demand,
notice or communication made or given by personal delivery shall be conclusively
deemed to have been given on the day of actual delivery thereof, or, if given by
facsimile transmission, on the first Business Day following the transmittal
thereof.
XII.5 Governing Law -- This Agreement shall be conclusively deemed to be a
contract made under, and shall for all purposes be governed by and construed in
accordance with, the laws of the Province of Alberta, Canada, without prejudice
to or limitation of any other rights or remedies available under the laws of any
jurisdiction where property or assets of the Borrower may be situate.
XII.6 Judgment Currency -- If for the purposes of obtaining judgment in any
court in any jurisdiction with respect to this Agreement it becomes necessary to
convert into the currency of such jurisdiction (herein called the "Judgment
Currency") any amount due hereunder in any currency other than the Judgment
Currency, then such conversion shall be made at the exchange rate (which shall,
in respect of any conversion of U.S. Dollars to Cdn. Dollars or vice versa, be
the Exchange Rate) prevailing on the Business Day before the day on which
judgment is given. In the event that there is a change in such exchange rate
prevailing between the Business Day before the day on which the judgment is
given and the date of payment of the amount due, the Borrower shall, on the date
of payment, pay such additional or lesser amounts (if any) as may be necessary
to ensure that the amount paid on such date is the amount in the Judgment
Currency which when converted at such exchange rate prevailing on the date of
payment is the amount then due under this Agreement in such other currency. Any
additional amount due from the Borrower under this Section shall be due as a
separate debt and shall not be affected by judgment being obtained for any other
sums due under or in respect of this Agreement.
XII.7 Amendments, Etc. -- No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Majority Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) increase the Commitments
or the Commitment Amounts of the Lenders or subject the Lenders to any
obligations in addition to those set out in this Agreement; (b) reduce the
principal of any outstanding Loans, or the rate of interest or fees on any of
the Loans or any fees or other amounts payable hereunder; (c) postpone any date
fixed for any payment of principal of, or interest or fees in respect of, any
Loans or any fees or other amounts payable hereunder; (d) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Loans
which shall be required for the Lenders to take any action under this Agreement
(including, without limitation, the definition of Majority Lenders); (e) change
any currency or mode of calculation or computation of any payment required
hereunder; (f) amend this Section 12.7 or subsection 8.1(l); or (g) amend,
release or waive or consent to any departure from any matter stated
<PAGE> 80
-75 -
to require approval or consent of all the Lenders. Except as otherwise
specifically provided herein, the Lenders shall use reasonable good faith
efforts to respond to any written request by the Borrower for permission to take
any action which is or may be prohibited under this Section within 20 Business
Days of receipt thereof.
XII.8 Severability -- Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
of this Agreement and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provisions in any
other jurisdiction.
XII.9 Whole Agreement -- This Agreement constitutes the whole and entire
agreement between the Parties relating to the subject matter of this Agreement,
and cancels and supersedes any prior agreements, undertakings, declarations,
commitments and representations, written or oral, in respect thereof.
XII.10 Binding Effect; Assignments
(a) Successors and Assigns -- This Agreement shall become effective
on the date hereof and thereafter shall be binding upon and inure to
the benefit of and be enforceable by the Borrower, the Agent and each
Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any
interest herein except to a Successor pursuant to Section 8.4. No
Lender may participate, assign or sell any of its rights or obligations
hereunder except as required by operation of law in connection with the
merger, consolidation or dissolution of any Lender or as provided in
this Section.
(b) Assignments -- Each Lender may, at its own cost, in accordance
with Applicable Law and with the consent of the Borrower and the Agent
(which consent shall not be unreasonably withheld by either of them)
assign to any Eligible Lender, all or any part of the Loans owing to
such Lender and any such Lender's continuing obligations with respect
to this Agreement (including any Bankers' Acceptances), and all or any
part of such Lender's Commitment (which assignment shall be of a
constant, and not of a varying, percentage of all of the assigning
Lender's Advances and Commitment) and to the extent of any such
assignment the assignee shall, to the fullest extent permitted by law,
have the same rights and benefits hereunder and the same continuing
obligations as it would have if it were such Lender hereunder;
provided, however that (i) the Agent and the Borrower shall be entitled
to continue to deal solely and directly with the assignor Lender in
connection with the interests so assigned unless and until such
assignee becomes a Lender pursuant to a Bank Transfer Agreement
substantially in the form set forth in Schedule G; (ii) any transfer of
less than all of any Lender's Advances and Commitment shall be in an
aggregate amount not less than U.S. $10,000,000, and (iii) immediately
after any transfer of less than all of a Lender's rights in respect of
the Loans owing to such Lender and all of its Commitment such assignor
Lender shall retain Loans and Commitment of not less than U.S.
$10,000,000 and provided further that no assignee or transferee shall
be entitled to receive pursuant to such assignment
<PAGE> 81
- 76 -
or transfer more than the amounts which would otherwise have been
payable by the Borrower to such Lender, had such assignment or transfer
not been made, in respect of the rights, benefits and/or obligations so
assigned or transferred. For greater certainty, the Borrower shall not
be obligated to pay to any such assignee or transferee any amount(s)
pursuant to this Agreement which is (are) greater than the amount(s),
if any, which the Borrower would otherwise have been obligated to pay
to the Lender (whose rights, benefits and/or obligations have been so
assigned to such assignee or transferee) had such assignment or
transfer not have been made. Upon (1) such execution of such Bank
Transfer Agreement, (2) delivery of an executed copy thereof to each of
the Borrower and the Agent, (3) payment of a recording fee in the
amount of U.S. $2,500 by such transferor Lender or assignee Lender to
the Agent, and (4) payment by such assignee Lender to such transferor
Lender of an amount equal to the purchase price agreed between such
transferor Lender and such assignee Lender to the Agent, such
transferor Lender shall be released from any further obligations
hereunder accruing thereafter to the extent of such assignment and such
assignee Lender shall for all purposes be a Lender party to this
Agreement and shall have all the rights and obligations of a Lender
under this Agreement to the same extent as if it were an original Party
hereto, and no further consent or action by the Borrower, the Lenders
or the Agent shall be required. Such Bank Transfer Agreement shall be
deemed to amend this Agreement and the Agent shall amend Schedule A
hereto, to the extent, and only to the extent, necessary to reflect the
addition of such assignee Lender as a Lender and the resulting
adjustment of the Commitments arising from the purchase by such
assignee Lender of all or a portion of the Advances and Commitment of
such transferor Lender.
(c) No Lender may make any such assignment or transfer, or take any
action or steps to attempt to do so, until 90 days after the Effective
Date.
XII.11 Participation -- With the approval of the Borrower, not to be
unreasonably withheld, any Lender may at any time sell to one or more financial
institutions (each, a "Participant") participating interests in any of the
Loans, Commitments, or other interests of such Lender hereunder; provided,
however, that:
(a) no participation contemplated in this Section 12.11 shall
relieve such Lender from its Commitments or its other obligations
hereunder or under any other agreement or document contemplated herein;
(b) such Lender shall remain solely responsible for the performance
of its Commitments and such other obligations;
(c) the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents;
<PAGE> 82
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(d) each Participant shall, for the purposes of Sections 9.4, 10.10,
12.1 and 12.2 hereof, be deemed to be a Lender hereunder and entitled
to the benefit of the provisions of such Sections to the same extent as
the relevant Lender;
(e) no Participant shall be entitled to direct the voting of the
relevant Lender in respect of any matter requiring the consent, waiver
or approval of the Majority Lenders, but shall be entitled to vote in
respect of any matter requiring the consent, waiver or approval of all
Lenders;
(f) such Participant is an Eligible Lender; and
(g) no participating interest shall be in an aggregate amount of less
than U.S. $10,000,000.
XII.12 Further Assurances -- Each of the Borrower, the Agent and the Lenders
shall promptly cure any default or defect by it in the execution and delivery of
this Agreement. The Borrower, at its expense, shall promptly execute and deliver
to the Agent, upon request by the Agent, all such other and further documents,
agreements, opinions, certificates and other instruments in compliance with, or
accomplishment of its covenants and agreements hereunder or to more fully state
its obligations as set out herein or to make any recording, filing or notice or
obtain any consent, all as may be reasonably necessary or appropriate in
connection therewith.
<PAGE> 83
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XII.13 Counterparts -- This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same instrument, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the
date first written above.
GULF CANADA RESOURCES LIMITED
By:
---------------------------------------
Name: Dennis Feuchuk
Title: Vice President and Controller
By:
---------------------------------------
Name: Thomas G. Hinton
Title: Treasurer
BANK OF MONTREAL, AS AGENT
By:
---------------------------------------
Richard Miller
Director
<PAGE> 84
SCHEDULE A
LENDERS
<TABLE>
<CAPTION>
NAME AND LENDING OFFICE OF
LENDER COMMITMENT AMOUNT EXECUTION
----------------- ---------
<S> <C> <C>
Bank of Montreal U.S. $117,500,000 Bank of Montreal
First Canadian Centre
350 - 7th Avenue S.W. By: _______________________
24th Floor Name:
Calgary, Alberta Title:
T2P 3N9
By: ______________________
Name:
Title:
ABN AMRO Bank Canada U.S. $55,000,000 ABN Amro Bank Canada
2500-650 West Georgia
Vancouver, B.C. By: ______________________
V6B 4N8 Name:
Title:
By: ______________________
Name:
Title:
Bank of America Canada U.S. $100,000,000 Bank of America Canada
855-2nd Street S.W., Suite 1900
Calgary, Alberta By: _____________________
T2P 4J7 Name:
Title:
By: _____________________
Name:
Title:
Credit Lyonnais Canada U.S. $30,000,000 Credit Lyonnais Canada
300-5th Avenue S.W.
Suite 2050 By: _____________________
Calgary, Alberta Name:
T2P 3C4 Title:
By: _____________________
Name:
Title:
Deutsche Bank Canada U.S. $40,000,000 Deutsche Bank Canada
Toronto-Dominion Tower
222 Bay Street, Suite 1200 By: _____________________
Toronto, Ontario Name:
M5X 1E3 Title:
By: _____________________
Name:
Title:
</TABLE>
<PAGE> 85
- 2 -
<TABLE>
<S> <C> <C>
Hongkong Bank of Canada U.S. $17,500,000 Hongkong Bank of Canada
777-8th Avenue S.W.
Calgary, Alberta By: _____________________
T2P 3R5 Name:
Title:
By: _____________________
Name:
Title:
Royal Bank of Canada U.S. $40,000,000 Royal Bank of Canada
Multinational Banking
23rd Floor, 335-8th Avenue S.W. By: _____________________
Calgary, Alberta Name:
T2P 1C9 Title:
By: _____________________
Name:
Title:
The Toronto-Dominion Bank U.S. $100,000,000 The Toronto-Dominion Bank
800, 324-8th Avenue S.W.
Calgary, Alberta By: _____________________
T2P 2Z2 Name:
Title:
By: _____________________
Name:
Title:
</TABLE>
<PAGE> 86
SCHEDULE B
COMPLIANCE CERTIFICATE
TO: [LIST LENDERS] and Bank of Montreal, as Agent
_______________________________________________________________________________
This Certificate of Compliance is given pursuant to the terms of the loan
agreement (the "Loan Agreement") dated September 18, 1998 between the Lenders
named therein, the Agent and Gulf Canada Resources Limited with respect to the
Fiscal Quarter ended ____________________. Unless otherwise defined herein or
the context otherwise requires, all terms used in this Certificate of Compliance
shall have the same meaning herein as in the Loan Agreement.
The undersigned hereby certifies, on behalf of the Borrower, that:
1. the representations and warranties of the undersigned contained
in subsections 7.1(a), (c), (d), (e), (g), (p) and (q) of the Loan
Agreement are true and correct on and as of the date hereof as though
made on and as of the date hereof;
2. all of the covenants of the undersigned contained in the Loan
Agreement together with all of the conditions precedent to a Drawdown
(if applicable) and all other terms and conditions contained in the
Loan Agreement have been fully complied with;
3. no Event of Default has occurred and remains outstanding and to
the best of the knowledge, information and belief of the undersigned
(after due enquiry), no event has occurred and is continuing which with
the passing of time, the giving of notice or both, would constitute an
Event of Default;
4. as of [INSERT DATE OF END OF FISCAL QUARTER]:
(a) Equity of Gulf Cdn. $______________
(b) Tangible Net Worth of Gulf Cdn. $______________
(c) Minimum Tangible Net Worth Cdn. $______________
(d) Total Senior Debt Cdn. $______________
(e) Cumulative Restricted EBITDA Cdn. $______________
(f) Acquisition EBITDA Cdn. $______________
(g) Disposition EBITDA Cdn. $______________
<PAGE> 87
<TABLE>
<S> <C>
(h) Total Senior Debt = _______________
_______________________________________________
( Cumulative )
( Acquisition Disposition )
( Restricted + - )
( EBITDA EBITDA )
( EDITDA )
(i) The Senior Debt rating assigned by:
(i) Standard & Poor's ________________
(ii) Moody's ________________
</TABLE>
The undersigned hereby certifies, on behalf of the Borrower, that:
1. set forth in Exhibit I hereto are the names of all of the
Unrestricted Subsidiaries (excepting only Subsidiaries of Unrestricted
Subsidiaries) as of [INSERT DATE OF END OF FISCAL QUARTER] together
with, in parenthesis, the paragraph of the definition of "Unrestricted
Subsidiaries" set forth in the Loan Agreement pursuant to which such
Subsidiary constitutes an Unrestricted Subsidiary;
2. set forth in Exhibit II hereto are the names of all of the
Restricted Subsidiaries as of [INSERT DATE OF END OF FISCAL QUARTER];
3. the aggregate of the Transaction Prices for assets acquired from and
including the first day of the Previous Four Fiscal Quarters was
$_________;
4. the aggregate of the Transaction Prices for assets disposed of from
and including the first day of the Previous Four Fiscal Quarters was
$____________.
DATED the -- day of -- , 199--.
GULF CANADA RESOURCES LIMITED
By: __________________________________
Name:
Title:
<PAGE> 88
SCHEDULE C
DRAWDOWN NOTICE
TO: Bank of Montreal (the "Agent")
FROM: Gulf Canada Resources Limited (the "Borrower")
________________________________________________________________________________
This Drawdown Notice is given pursuant to the terms of the loan agreement (the
"Loan Agreement") dated September 18, 1998 between the Lenders named therein,
the Agent and the Borrower. Unless otherwise defined herein or the context
otherwise requires, all terms used in this Drawdown Notice shall have the same
meaning herein as in the Loan Agreement.
Notice is hereby given pursuant to the provisions of Section 2.4 of the Loan
Agreement that the Borrower requests a Drawdown or Drawdowns as follows:
Borrowing:
First Drawdown:
Date of Drawdown:
Currency: __________________
Amount: __________________
Drawdown Type: __________________
Libor Interest Period (in months): [IF APPLICABLE]
Bankers' Acceptance Term (in days): [IF APPLICABLE]
Bankers' Acceptance Maturity Date: [IF APPLICABLE]
Conversion:
Pursuant to subsection 2.11 ([DESIGNATE SUBSECTION]) to convert on [INSERT DATE
OF CONVERSION] the amount of $ [SPECIFY CURRENCY] [SPECIFY AMOUNT] of a [SPECIFY
TYPE]
Drawdown into: __________________
Drawdown Type: __________________
Libor Interest Period (in months): [IF APPLICABLE]
Bankers' Acceptance Term (in days): [IF APPLICABLE]
Bankers' Acceptance Maturity Date: [IF APPLICABLE]
<PAGE> 89
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Rollover:
Pursuant to Section 2.12, to rollover on [INSERT DATE OF ROLLOVER] the [LIBOR
DRAWDOWN/BANKERS' ACCEPTANCE] as follows:
Amount: __________________
Currency (if Bankers' Acceptance): __________________
Libor Interest Period (in months): [IF APPLICABLE]
Bankers' Acceptance Term (in days): [IF APPLICABLE]
Bankers' Acceptance Maturity Date: [IF APPLICABLE]
into a [LIBOR DRAWDOWN/BANKERS' ACCEPTANCE] as follows:
Amount: __________________
Currency (if Bankers' Acceptance): __________________
Libor Interest Period (in months): [IF APPLICABLE]
Bankers' Acceptance Term (in days): [IF APPLICABLE]
Bankers' Acceptance Maturity Date: [IF APPLICABLE]
[ADDITIONAL DRAWDOWNS IN SAME FORM AS REQUIRED]
The undersigned hereby certifies, on behalf of the Borrower, that:
1. the representations and warranties of the Borrower contained in subsections
7.1 (a), (c), (d), (e), (g), (p) and (q) of the Loan Agreement are true and
correct on and as of the date of this Drawdown Notice as though made on and as
of the date of this Drawdown Notice;
2. all of the covenants of the Borrower contained in the Loan Agreement together
with all of the conditions precedent to a Drawdown and all other terms and
conditions contained in the Loan Agreement have been fully complied with [EXCEPT
AS SET FORTH IN EXHIBIT I]; and
<PAGE> 90
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3. no Event of Default has occurred and remains outstanding and (other than in
the case of a Conversion or Rollover, provided, that in the case of a Conversion
or Rollover into a Bankers' Acceptance Drawdown or Libor Drawdown, the maturity
date or period shall not extend beyond the earliest date upon which it would
constitute an Event of Default) to the best of the knowledge, information and
belief of the undersigned (after due enquiry), no event has occurred and is
continuing which with the giving of notice, the passing of time or both, would
constitute an Event of Default.
DATED the -- day of -- , 199--.
GULF CANADA RESOURCES LIMITED
By: ________________________________________
Name:
Title:
<PAGE> 91
SCHEDULE D
BANKERS' ACCEPTANCE UNDERTAKING
To: [LIST LENDERS]
(individually a "Lender" and collectively, the "Lenders")
________________________________________________________________________________
Dear Sirs:
In consideration of ten dollars ($10) now paid by each Party to the other (the
receipt and sufficiency of which are hereby acknowledged) and in consideration
of the Lender delivering from time to time to the undersigned (the "Borrower")
bankers' acceptance forms in blank or discount note forms in blank (collectively
the "bankers' acceptance forms") to be signed by the Borrower and subsequently
returned to the Lender to be completed by such Lender for such amounts as the
Borrower may from time to time request pursuant to the terms of the loan
agreement dated as of September 18, 1998 between the Borrower, the Lenders as
named therein and Bank of Montreal, as the Agent, as amended from time to time
(the "Loan Agreement"), the parties hereto hereby agree as follows:
1. The Borrower shall hold and use prudently the bankers' acceptance forms
delivered to it in blank from time to time and shall return them from time to
time to the Lender, properly pre-signed and pre-endorsed and in sufficient
quantities to be dealt with by each Lender in conformity with the Loan Agreement
and this Agreement. The Lender shall provide to the Borrower written
acknowledgment of the receipt of such pre-signed and pre-endorsed bankers'
acceptance forms.
2. The Lender shall deal prudently with any bankers' acceptance forms pre-signed
and pre-endorsed by the Borrower and delivered from time to time by the Borrower
and shall use them only in accordance with the instructions of the Borrower
given to the Agent and in turn by the Agent to the Lender, in conformity with
the Loan Agreement.
3. In accordance with the instructions given from time to time by the Borrower,
the Lender is hereby authorized to complete the aforementioned bankers'
acceptance forms and, in the case of any such bankers' acceptance form which,
upon purchase by a Bank, constitutes a Bankers Acceptance, to provide its
acceptance thereon, the whole as provided in and subject to the Loan Agreement.
4. Except as provided in paragraph 5 below, the Borrower shall pay on demand to
the Agent for the account of each Lender at the Payment Office the face amount
of any bankers' acceptance form subsequently presented to such Lender for
payment and paid by such Lender or held by such Lender at maturity, that has
been unlawfully issued or used or put into circulation fraudulently or without
authority, and shall indemnify such Lender against any loss, cost, damage,
expense or claim regardless of by whomsoever made, that such Lender may suffer
or incur by reason of any fraudulent, unauthorized or unlawful issue or use of
any such bankers' acceptance form.
5. The provisions of paragraph 4 shall not apply in respect of any fraudulent,
unauthorized or unlawful issue or use of any such bankers' acceptance form which
is caused by the negligence or
<PAGE> 92
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wilful act or omission of the Agent or a Lender or any of their respective
officers, employees, agents or representatives or which occurs as a result of
the Agent or a Lender or any of their respective officers, employees, agents or
representatives failing to use the same standard of care in the custody of such
bankers' acceptance form as it uses in the custody of its own property of a
similar nature.
6. Neither the Agent nor any Lender shall be responsible or liable for any
failure to make credit available by way of Bankers' Acceptances under the terms
of the Loan Agreement if such failure is due to the failure of the Borrower to
return duly pre-signed and (in the case of bankers' acceptances) pre-endorsed
bankers' acceptance forms to the Lender on a timely basis following a request by
the Lender.
7. On request by the Agent on behalf of the Lenders, the Borrower shall return
to the Lenders all bankers' acceptance forms then held by the Borrower, provided
that all such bankers' acceptance forms which have been pre-signed or
pre-endorsed by the Borrower may be cancelled prior to their return.
8. On request by the Borrower made to the Agent, a Lender shall return all
pre-signed or pre-endorsed bankers' acceptance forms held by such Lender and not
yet issued in accordance with the Borrower's instructions.
<PAGE> 93
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Unless otherwise defined herein or the context otherwise requires, all terms
used herein shall have the same meaning herein as in the Loan Agreement. This
Agreement shall benefit not only the parties hereto but also all other Persons
which may, from time to time, become Lenders in accordance with the provisions
of the Loan Agreement and, as such, are to receive bankers' acceptance forms.
Dated at Calgary, Alberta as of the -- day of -- , -- .
GULF CANADA RESOURCES LIMITED
By: ______________________________________________
Name:
Title:
c/s
By: ______________________________________________
Name:
Title:
Accepted at Calgary, Alberta as of the -- day of -- , -- .
BANK OF MONTREAL
By: ______________________________________________
Name:
Title:
(other signature pages depend on Lenders)
<PAGE> 94
SCHEDULE E
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT (the "Agreement"), dated as of -- , 199--, is among
GULF CANADA RESOURCES LIMITED (the "Borrower"); each of the banks party to the
hereinafter referenced Loan Agreement who have executed this Agreement below
(the "Lenders"); and BANK OF MONTREAL, as agent (in such capacity, together with
its successors and assigns in such capacity, the "Agent").
RECITALS:
A. The Borrower, the Agent and the Lenders have entered into that certain loan
agreement dated September 18, 1998 (as such may be amended, supplemented,
restated or otherwise modified from time to time, the "Loan Agreement"). Unless
otherwise defined herein or the context otherwise requires, all terms used
herein shall have the same meaning herein as in the Loan Agreement);
B. The current Term Out Date in respect of the Lenders is __________________
(the "Current Term Out Date"). Pursuant to Section 2.1 of the Loan Agreement,
the Borrower has requested that the Lenders extend the Term Out Date until that
certain date which is __________________ [INSERT DATE OR NUMBER OF DAYS, IN
EITHER CASE, NOT IN EXCESS OF 364 DAYS FROM THE]; and [CURRENT TERM OUT
DATE/DATE OF CONFIRMATION];
C. Subject to the conditions set forth herein, the undersigned Lenders have
agreed to such extension;
NOW, THEREFORE, in consideration of the premises herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Borrower hereby represents and warrants that the representations and
warranties contained in subsections 7.1(a), (c), (d), (e), (g), (p) and (q) of
the Loan Agreement are true and correct on and as of the date hereof as though
made on and as of the date hereof and no Event of Default has occurred and
remains outstanding and to the best of the knowledge, information and belief of
the undersigned (after due enquiry) on behalf of the Borrower, no event has
occurred and is continuing which, with the giving of notice, the passing of time
or both, would constitute an Event of Default.
2. Subject to the conditions that the representations and warranties set forth
in Section 1 above are true and correct on the date hereof, the Term Out Date is
hereby extended pursuant to Section 2.1 of the Loan Agreement with respect to
the Commitments of the Lenders to the [INSERT DATE OR NUMBER OF DAYS, IN EITHER
CASE, NOT IN EXCESS OF 364 DAYS FOLLOWING THE CURRENT TERM OUT DATE/DATE OF
CONFIRMATION];
<PAGE> 95
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3. This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original and all of which together shall constitute but one
and the same agreement.
EXECUTED as of the date first written above.
BORROWER:
GULF CANADA RESOURCES LIMITED
By: ____________________________________________
Name:
Title:
By: ____________________________________________
Name:
Title:
AGENT AND LENDERS:
BANK OF MONTREAL, individually as a Lender and
as Agent
By: ____________________________________________
Name:
Title:
By: ____________________________________________
Name:
Title:
[LENDERS EXECUTIONS TO BE ADDED]
<PAGE> 96
SCHEDULE F
EXTENSION REQUEST
TO: [LIST LENDERS] and Bank of Montreal, as Agent
This Extension Request is given pursuant to the terms of the loan agreement (the
"Loan Agreement") dated September 18, 1998 between the Lenders named therein,
the Agent and Gulf Canada Resources Limited. Unless otherwise defined herein or
the context otherwise requires, all terms used in this Extension Request shall
have the same meaning herein as in the Loan Agreement.
The current Term Out Date in respect of the Lenders listed below is -- , 199--
(the "Current Term Out Date"). Pursuant to Section 2.1 of the Loan Agreement,
the Borrower hereby requests that such Lenders (the "Revolving Lenders") extend
the Term Out Date until that certain date which is ____________ [INSERT DATE OR
NUMBER OF DAYS, IN EITHER CASE, NOT IN EXCESS OF 364 DAYS FROM THE CURRENT TERM
OUT DATE/DATE OF CONFIRMATION; IN RESPECT OF THIS EXTENSION REQUEST].
Attached hereto are three copies of an Extension Agreement relating to the
subject matter hereof duly completed and executed by the Borrower and a report
prepared by [DESIGNATE QUALIFIED ENGINEERS PROVIDING REPORT] with respect to the
proved and probable reserves attributable to the petroleum and natural gas
interests of Gulf (excluding Unrestricted Subsidiaries) as of [DATE TO BE NOT
EARLIER THAN THE END OF THE LAST FINANCIAL YEAR OF THE BORROWER PRECEDING THE
DATE HEREOF].
The undersigned hereby certifies, on behalf of the Borrower, that:
(a) the representations and warranties contained in subsections
7.1(a), (c), (d), (e), (g), (p) and (q) of the Loan Agreement are true
and correct on and as of the date hereof as though made on and as of
the date hereof;
(b) all of the covenants of the undersigned contained in the Loan
Agreement and all other terms and conditions contained in the Loan
Agreement have been fully complied with, [EXCEPT AS SET FORTH IN
EXHIBIT I]; and
<PAGE> 97
- 2 -
(c) no Event of Default has occurred and remains outstanding and to
the best of the knowledge, information and belief of the undersigned,
no event has occurred and is continuing which with the passing of
time, the giving of notice or both, would constitute an Event of
Default.
DATED the -- day of -- , 199-- .
GULF CANADA RESOURCES LIMITED
By: ____________________________________________
Name:
Title:
<PAGE> 98
SCHEDULE G
BANK TRANSFER AGREEMENT
To: Gulf Canada Resources Limited
To: Bank of Montreal, as the Agent
________________________________________________________________________________
This Agreement is entered into pursuant to Section 12.10 of the loan agreement
dated as of September 18, 1998 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "Loan
Agreement") among Gulf Canada Resources Limited (the "Borrower"); the various
financial institutions (the "Lenders") as are, or shall from time to time
become, parties thereto and Bank of Montreal, as agent, (the "Agent"). Unless
otherwise defined herein or the context otherwise requires, and terms used
herein have the same meaning herein as in the Loan Agreement.
This Agreement constitutes notice to each of you of the assignment and
delegation to -- (the "Assignee") of --% of the Advances and Commitment of --
(the "Assignor") outstanding under the Loan Agreement on the date hereof. After
giving effect to the foregoing assignment and delegation, the Assignor's and the
other Lenders' Commitment Amounts for the purposes of the Loan Agreement are as
set forth opposite such Person's name on the signature pages hereof.
[ADD PARAGRAPH DEALING WITH ACCRUED INTEREST AND FEES WITH RESPECT TO
ADVANCES ASSIGNED.]
The Assignee hereby acknowledges and confirms that it has received a copy of the
Loan Agreement, together with copies of the documents which were required to be
delivered under the Loan Agreement as a condition to the making of the Advances
thereunder. The Assignee further confirms and agrees that in becoming a Lender
and in making its Commitment and Advances under the Loan Agreement, such actions
have and will be made without recourse to, or representation or warranty by
Agent.
Except as otherwise provided in the Loan Agreement, effective as of the date of
acceptance hereof by the Agent:
(a) the Assignee
(i) shall be deemed automatically to have become a party to
the Loan Agreement, have all the rights and obligations of a
"Lender" under the Loan Agreement as if it were an original
signatory thereto to the extent specified in the second
paragraph hereof; and
(ii) agrees to be bound by the terms and conditions set forth
in the Loan Agreement as if it were an original signatory
thereto; and
<PAGE> 99
(b) the Assignor shall be released from any further obligations under
the Loan Agreement accruing thereafter to the extent specified in the
second paragraph hereof.
The Assignee hereby advises each of you of the following administrative details
with respect to the assigned Advances and Commitment and requests the Borrower,
by its signature below, to acknowledge its consent to the assignment and
transfer set forth herein and further requests the Agent and the Borrower to
acknowledge receipt of this document:
(a) Address for Notices:
Institution Name:
Attention:
Lending Office:
Telephone:
Facsimile:
(b) Payment Instructions:
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
Adjusted Commitment Amount [ASSIGNOR]
Unused Commitment $ _____________
Advances $ _____________
Commitment Amount $ _____________
By: ____________________________________________
Title:
Commitment Amount [ASSIGNEE]
Unused Commitment $ _____________
Advances $ _____________
Commitment Amount $ _____________
By: ____________________________________________
Title:
<PAGE> 100
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Accepted and acknowledged this -- day of -- , 199-- .
BANK OF MONTREAL
as Agent
By: ____________________________________________
Title:
GULF CANADA RESOURCES LIMITED
By: ____________________________________________
Title:
By: ____________________________________________
Title:
<PAGE> 101
SCHEDULE H
BORROWER'S COUNSEL'S OPINION
[LETTERHEAD OF BENNETT JONES VERCHERE]
<PAGE> 102
P. D. BACKMAN
Direct Line: (403) 298-3366
Our File No.: 22307-158
September 18, 1998
Bank of Montreal Osler, Hoskin & Harcourt
Corporate and Institutional Suite 1900
Financial Services Toronto Dominion Square
350 - 7th Ave. S.W., 24th Floor 333 - 7th Avenue S.W.
Calgary, Alberta Calgary, Alberta
T2P 3N9 T2P 2Z1
And to the Lenders listed in Schedule A of the Loan Agreement
Dear Sirs/Mesdames:
Re: Loan Agreement made as of September 18, 1998 between Gulf Canada
Resources Limited, the Lenders named therein and Bank of Montreal, as
Agent for the Lenders
We have acted as counsel to Gulf Canada Resources Limited (the "Borrower") in
connection with a loan agreement made as of September 18, 1998 (the "Loan
Agreement") between the Borrower, the Lenders listed in Schedule A thereto (the
"Lenders") and Bank of Montreal, as agent for the Lenders (the "Agent") which
provides a credit facility to the Borrower.
All capitalized terms used in this opinion letter shall, unless otherwise
defined in this opinion letter, have the meanings ascribed to them in the Loan
Agreement.
In connection with the opinions expressed in this letter we have considered such
questions of law and examined such public and corporate records, certificates
and other documents and conducted such other examinations as we have considered
necessary. In such examinations we have assumed the legal capacity of all
individuals, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed, photostatic
or facsimile copies.
The law covered by the opinions expressed in this letter is limited to the laws
of the Province of Alberta and the laws of Canada applicable therein.
On the basis of the foregoing, and subject to the qualifications herein
expressed, we are of the opinion that:
1. The Borrower is a body corporate incorporated under the Canada Business
Corporations Act.
<PAGE> 103
Page 2
2. The Borrower has all necessary corporate power and capacity to enter into
the Loan Agreement and to perform its obligations thereunder.
3. The execution and delivery of the Loan Agreement and the consummation of the
transactions contemplated therein have been duly authorized by all necessary
corporate action on the part of the Borrower.
4. The Loan Agreement has been duly executed and delivered by the Borrower and
is a legal, valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms.
5. The Borrower is not a party to, bound or affected by or subject to any
provision in its articles or by-laws, or any statutory law or regulation,
which is violated, contravened or breached by, or under which any default
occurs, as a result of the execution, delivery and performance by it of the
Loan Agreement.
6. The indebtedness of the Borrower to the Lenders under the Loan Agreement
constitutes Senior Indebtedness as defined in the Indenture dated as of
January 27, 1994 made between the Borrower and The Bank of New York, as
Trustee, and the Indenture dated as of July 5, 1995 made between the
Borrower and The Bank of New York, as Trustee, (collectively, the
"Subordinated Indentures") relating to the issuance of subordinated
debentures, provided that such indebtedness of the Borrower to the Lender is
not incurred in violation of the provisions of the Subordinated Indentures.
If indebtedness of the Borrower to the Lenders in the amount of
US$500,000,000 were incurred under the Loan Agreement on the date hereof,
such indebtedness would not, to our knowledge, violate the provisions of the
Subordinated Indentures.
7. If indebtedness of the Borrower to the Lenders in the amount of
US$500,000,000 were incurred under the Loan Agreement on the date hereof,
such indebtedness would not, to our knowledge, violate the provisions of the
indenture dated as of July 1, 1989 between the Borrower and The Bank of New
York, as successor trustee to The Chase Manhattan Bank (National
Association) or the indentures dated as of August 7, 1996 and March 21, 1997
respectively between the Borrower and The Bank of New York, as trustee
(collectively, the "Senior Indentures").
The foregoing opinions are subject to the qualifications set out below:
a. Certificates of Compliance. In expressing the opinion set forth in
paragraph 1 we have relied upon a certificate of compliance dated
September 14, 1998 issued by Industry Canada, a copy of which has been
delivered to you.
b. Enforceability. The opinion set forth in paragraph 4 is based on the
assumption that the Loan Agreement has been duly authorized, executed
and delivered by, and is enforceable in accordance with its terms
against the Agent and the Lenders and is subject to the following
qualifications:
i. Bankruptcy -- enforceability may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium, arrangement
or winding up laws or other similar laws affecting the
enforcement of creditors' rights generally;
ii. Equitable Principles -- enforceability may be limited by
equitable principles, including the principle that equitable
remedies, such as specific performance and injunction, may only
be granted in the discretion of a court of competent
jurisdiction;
<PAGE> 104
Page 3
iii. Severability -- the validity and enforceability of provisions
inserted in any agreement or instrument which purport to sever
from the agreement or instrument any provision which is prohibited
or unenforceable under applicable law without affecting the
enforceability or validity of the remainder of the agreement or
instrument would be determined only in the discretion of the
court;
iv. Reasonableness -- notwithstanding any term or condition contained
in the Loan Agreement, a court of competent jurisdiction may
retain the discretion to determine when the actions of the Lenders
or their agents have been conducted in a "commercially reasonable"
manner, and determinations or demands made by a person in the
exercise of a discretion purported to be given to it may be
unenforceable if made in an unreasonable or arbitrary fashion;
v. Indemnity and Contribution -- a court may decline to enforce
rights of indemnity and contribution under the Loan Agreement
which are found to be contrary to public policy;
vi. Limitations -- enforceability may be limited by restrictions which
may be imposed by law on:
(1) the right of a creditor to receive immediate payment of
amounts stated to be payable on demand or which have been
accelerated;
(2) the right of a party to the Loan Agreement to enforce its
rights under the Loan Agreement on the basis of a default of
a minor or non-substantive nature, such as the failure to
produce a document in a timely manner;
(3) the effectiveness of provisions of the Loan Agreement which
provide that delay or failure by a party to exercise any
right, remedy or option will not operate as a waiver thereof
may not be enforceable; and
vii. Waivers of Rights -- provisions of the Loan Agreement which
provide for the waiver of certain legal or equitable rights or
which absolve or purport to absolve a party from responsibility
for its acts may not be enforceable.
c. Reliance on Officer's Certificate. In expressing the opinions set forth
in the last sentence of paragraph 6 and in paragraph 7, we have relied
on a certificate of an officer of the Borrower, a copy of which is
attached as Schedule A hereto. In expressing the opinions set forth in
paragraphs 6 and 7, we have also assumed the laws of the State of New
York (which govern the Subordinated Indentures and the Senior
Indentures) are the same as the laws of the Province of Alberta. No
opinion is expressed as to compliance with the provisions of the
Subordinated Indentures and the Senior Indentures at any future date.
d. Conclusive, Final or Binding. A court is not required to treat as
conclusive, final or binding those certificates and determinations
which the Loan Agreement states are to be so treated.
e. Currency Qualification. Pursuant to the Currency Act (Canada), a
judgment by a court in any province in Canada may be awarded in
Canadian currency only and such
<PAGE> 105
Page 4
judgment may be based on a rate of exchange in existence on a day other
than the day of payment of such judgment.
f. Interest after Judgment. Under the Judgment Interest Act (Alberta)
interest after judgment may be limited to less than the rate provided
for contractually.
g. Default Interest. We express no opinion as to the enforceability of any
provision which purports to render any person liable for a higher rate
of interest after default than before.
This opinion is given solely for the benefit of the addressees of this opinion
and may not be relied upon in whole or in part by any other person.
Yours very truly,
<PAGE> 106
SCHEDULE "A"
CERTIFICATE
TO: Bennett Jones Verchere
Bank of Montreal, as Agent
Osler, Hoskin & Harcourt
This certificate is given in connection with an opinion dated September 18,
1998, delivered by Bennett Jones Verchere to the Bank of Montreal, as Agent for
the Lenders (the "Agent"), and to Osler, Hoskin & Harcourt in connection with
the loan agreement dated September 18, 1998 (the "Loan Agreement") between Gulf
Canada Resources Limited (the "Borrower"), the Agent and the Lenders named in
Schedule A thereto. Unless otherwise defined herein, capitalized terms shall
have the meaning ascribed to them in the Loan Agreement.
The undersigned hereby certifies, on behalf of the Borrower, as follows:
1. If indebtedness of the Borrower to the Lenders under the Loan Agreement
were incurred on the date hereof in the amount of US$500,000,000, such
indebtedness would constitute Senior Indebtedness as defined in the
Indenture dated as of January 27, 1994 (the "1994 Indenture") made
between the Borrower and The Bank of New York, as trustee, and the
Indenture dated as of July 5, 1995 (the "1995 Indenture") made between
the Borrower and The Bank of New York, as trustee, (collectively the
"Subordinated Indentures"). Such indebtedness would not violate any of
the provisions of the Subordinated Indentures including, without
limitation, Section 1008 of the 1994 Indenture or Section 1009 of the
1995 Indenture. No Default or Event of Default exists under and as
defined in the Subordinated Indentures.
2. If indebtedness of the Borrower to the Lenders under the Loan Agreement
were incurred on the date hereof in the amount of US$500,000,000, such
indebtedness would not violate any of the provisions of the Indenture
dated as of July 1, 1989 made between the Borrower and The Bank of New
York, as successor trustee to The Chase Manhattan Bank (National
Association) or the Indentures dated as of August 7, 1996 and March 21,
1997 respectively between the Borrower and The Bank of New York, as
trustee (collectively, the "Senior Indentures"). No Default or Event of
Default exists under and as defined in the Senior Indentures.
3. The Subordinated Indentures and the Senior Indentures are the only
material agreements relating to borrowed monies to which the Borrower is
a party other than the Loan Agreement and the Existing Loan Facility.
DATED as of September 18, 1998.
GULF CANADA
RESOURCES LIMITED
By: __________________________
Thomas G. Hinton
Treasurer
<PAGE> 107
SCHEDULE I
LENDERS' COUNSEL'S OPINION
[LETTERHEAD OF OSLER, HOSKIN & HARCOURT]
September 18, 1998
Bank of Montreal Bank of Montreal
Global Distribution - Sales First Canadian Centre
24th Floor 350 - 7th Avenue S.W.
1 First Canadian Place 24th Floor
Toronto, Ontario Calgary, Alberta
M5X 1A1 T2P 3N9
And to the Lenders Listed in Schedule A of Loan Agreement
Dear Sirs/Mesdames
RE: LOAN AGREEMENT MADE AS OF SEPTEMBER 18, 1998 BETWEEN GULF CANADA
RESOURCES LIMITED, THE LENDERS NAMED THEREIN AND BANK OF MONTREAL, AS
AGENT FOR THE LENDERS
We have acted as counsel to Bank of Montreal (the "Agent") in connection with a
loan agreement made as of September 18, 1998 (the "Loan Agreement") between Gulf
Canada Resources Limited (the "Borrower"), the Lenders listed in Schedule A
thereto (the "Lenders") and the Agent, as agent for the Lenders, which provides
a credit facility to the Borrower.
All capitalized terms used in this opinion letter shall, unless otherwise
defined in this opinion letter, have the meanings ascribed to them in the Loan
Agreement.
In connection with the opinions expressed in this letter we have considered such
questions of law and examined such public and corporate records, certificates
and other documents and conducted such other examinations as we have considered
necessary. In such examinations we have assumed the legal capacity of all
individuals, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed, photostatic
or facsimile copies.
The law covered by the opinions expressed in this letter is limited to the laws
of the Province of Alberta and the laws of Canada applicable therein.
<PAGE> 108
Page 2
On the basis of the foregoing and subject to the qualifications herein
expressed, we are of the opinion that:
1. The Borrower is a body corporate incorporated under the Canada Business
Corporations Act.
2. The Borrower has all necessary corporate power and capacity to enter
into the Loan Agreement and to perform its obligations thereunder.
3. The execution and delivery of the Loan Agreement and the consummation
of the transactions contemplated therein have been duly authorized by
all necessary corporate action on the part of the Borrower.
4. The Loan Agreement has been duly executed and delivered by the Borrower
and is a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms.
5. The Borrower is not a party to, bound or affected by or subject to any
provision in its articles or by-laws, or any statutory law or
regulation, which is violated, contravened or breached by, or under
which any default occurs, as a result of the execution, delivery and
performance by it of the Loan Agreement.
6. The indebtedness of the Borrower to the Lenders under the Loan
Agreement constitutes Senior Indebtedness as defined in the Indenture
dated as of January 27, 1994 made between the Borrower and The Bank of
New York, as Trustee, and the Indenture dated as of July 5, 1995 made
between the Borrower and The Bank of New York, as Trustee,
(collectively, the "Subordinated Indentures") relating to the issuance
of subordinated debentures, provided that such indebtedness of the
Borrower to the Lenders is not incurred in violation of the provisions
of the Subordinated Indentures. If indebtedness of the Borrower to the
Lenders in the amount of US$500,000,000 were incurred under the Loan
Agreement on the date hereof, such indebtedness would not, to our
knowledge, violate the provisions of the Subordinated Indentures.
7. If indebtedness of the Borrower to the Lenders in the amount of
US$500,000,000 were incurred under the Loan Agreement on the date
hereof, such indebtedness would not, to our knowledge, violate the
provisions of the indenture dated as of July 1, 1989 between the
Borrower and The Bank of New York, as successor trustee to The Chase
Manhattan Bank (National Association) or the indentures dated as of
August 7, 1996 and March 21, 1997 respectively between the Borrower and
The Bank of New York, as trustee (collectively, the "Senior
Indentures").
<PAGE> 109
Page 3
The foregoing opinions are subject to the qualifications set out below:
(a) RELIANCE. In expressing the opinions set forth in paragraphs 2, 3,
4 (in respect of due execution and delivery), 5, 6 and 7, we have
relied upon the opinions of Bennett Jones Verchere, counsel to the
Borrower, dated the same date as this opinion and delivered to you.
Such opinions are in form and scope satisfactory to us and we are of
the opinion that we and you are justified in relying thereon.
(b) CERTIFICATES OF COMPLIANCE. In expressing the opinion set forth in
paragraph 1 we have relied upon a certificate of compliance dated
September --, 1998 issued by Industry Canada, a copy of which has been
delivered to you.
(c) ENFORCEABILITY. The opinion set forth in paragraph 4 is based
on the assumption that the Loan Agreement has been duly
authorized, executed and delivered by, and is enforceable in
accordance with its terms against the Agent and the Lenders
and is subject to the following qualifications:
(i) BANKRUPTCY - enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership,
moratorium, arrangement or winding up laws or other
similar laws affecting the enforcement of creditors'
rights generally;
(ii) EQUITABLE PRINCIPLES - enforceability may be limited
by equitable principles, including the principle that
equitable remedies, such as specific performance and
injunction, may only be granted in the discretion of
a court of competent jurisdiction;
(iii) SEVERABILITY - the validity and enforceability of
provisions inserted in any agreement or instrument
which purport to sever from the agreement or
instrument any provision which is prohibited or
unenforceable under applicable law without affecting
the enforceability or validity of the remainder of
the agreement or instrument would be determined only
in the discretion of the court;
(iv) REASONABLENESS - notwithstanding any term or
condition contained in the Loan Agreement, a court of
competent jurisdiction may retain the discretion to
determine when the actions of the Lenders or their
agents have been conducted in a "commercially
reasonable" manner, and determinations or demands
made by a person in the exercise of a discretion
purported to be given to it may be unenforceable if
made in an unreasonable or arbitrary fashion;
<PAGE> 110
Page 4
(v) INDEMNITY AND CONTRIBUTION - a court may decline to
enforce rights of indemnity and contribution under
the Loan Agreement which are found to be contrary to
public policy;
(vi) LIMITATIONS - enforceability may be limited by
restrictions which may be imposed by law on:
(A) the right of a creditor to receive immediate
payment of amounts stated to be payable on
demand or which have been accelerated;
(B) the right of a party to the Loan Agreement
to enforce its rights under the Loan
Agreement on the basis of a default of a
minor or non-substantive nature, such as the
failure to produce a document in a timely
manner;
(C) the effectiveness of provisions of the Loan
Agreement which provide that delay or
failure by a party to exercise any right,
remedy or option will not operate as a
waiver thereof may not be enforceable; and
(vii) WAIVERS OF RIGHTS - provisions of the Loan Agreement
which provide for the waiver of certain legal or
equitable rights or which absolve or purport to
absolve a party from responsibility for its acts may
not be enforceable.
(d) RELIANCE ON OFFICER'S CERTIFICATE. In expressing the opinions set
forth in the last sentence of paragraph 6 and in paragraph 7, we have
relied on a certificate of an officer of the Borrower, a copy of which
is attached as Schedule A hereto. In expressing the opinions set forth
in paragraphs 6 and 7, we have also assumed the laws of the State of
New York (which govern the Subordinated Indentures and the Senior
Indentures) are the same as the laws of the Province of Alberta. No
opinion is expressed as to compliance with the provisions of the
Subordinated Indentures and the Senior Indentures at any future date.
(e) CONCLUSIVE, FINAL OR BINDING. A court is not required to treat as
conclusive, final or binding those certificates and determinations
which the Loan Agreement states are to be so treated.
(f) CURRENCY QUALIFICATION. Pursuant to the Currency Act (Canada), a
judgment by a court in any province in Canada may be awarded in
Canadian currency only and such judgment may be based on a rate of
exchange in existence on a day other than the day of payment of such
judgment.
<PAGE> 111
Page 5
(g) INTEREST AFTER JUDGMENT. Under the Judgment Interest Act (Alberta)
interest after judgment may be limited to less than the rate provided
for contractually.
(h) DEFAULT INTEREST. We express no opinion as to the enforceability of
any provision which purports to render any person liable for a higher
rate of interest after default than before.
This opinion is given solely for the benefit of the addressees of this opinion
and may not be relied upon in whole or in part by any other person.
Yours very truly,
EMO:yn
<PAGE> 112
SCHEDULE J
NOTICE OF AMENDMENT OF UNRESTRICTED SUBSIDIARIES
To: [LIST LENDERS] and Bank of Montreal, as Agent
________________________________________________________________________________
This Notice of Amendment of Unrestricted Subsidiaries is given pursuant to the
terms of the loan agreement (the "Loan Agreement") dated September 18, 1998
between the Lenders named therein, the Agent and Gulf Canada Resources Limited.
Unless otherwise defined herein or the context otherwise requires, all terms
used in this Notice of Unrestricted Subsidiaries shall have the same meaning
herein as in the Loan Agreement.
Schedule L is hereby amended as follows:
(A) To delete as Unrestricted Subsidiaries: --
(B) To add as Unrestricted Subsidiaries: --
The undersigned hereby certifies that subsection 8.1(l) of the Loan Agreement
would not have been contravened by the Borrower if the changes made above had
occurred prior to the end of the last Fiscal Quarter preceding the date hereof.
DATED the -- day of -- , 199-- .
GULF CANADA RESOURCES LIMITED
By: ____________________________________________
Name:
Title:
By: ____________________________________________
Name:
Title:
<PAGE> 113
SCHEDULE K
LETTER OF CREDIT DOCUMENTATION
TO: BANK OF MONTREAL, as Agent, and [LIST LENDERS] (the "Lenders")
________________________________________________________________________________
In consideration of the issuance by the Lenders of a Letter of Credit
substantially according to any Drawdown Notice, the Borrower agrees as follows:
1. The Agent and the Lenders assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any
document(s) required pursuant to the Letter of Credit, or for the general and/or
particular conditions stipulated in the document(s) or superimposed thereon; nor
do they assume any liability or responsibility for the description, quality,
delivery, value or existence of the services represented by any document(s), or
for the good faith or acts and/or omissions, solvency, performance or standing
of the beneficiary or any other Person whomsoever; and the Borrower hereby
assumes and undertakes all such risk, including acts of the users of the Letter
of Credit and the Borrower further agrees that the Agent may hold the delivery
of documents conforming to the Letter of Credit as sufficient evidence of the
good faith of the beneficiary and of the services described therein, without
assuming any responsibility in regard to the services.
2. This Agreement is irrevocable with respect to the Letter of Credit and is to
continue in force and to be applicable to all transactions relating to the
Letter of Credit notwithstanding any change in the composition of the Borrower,
the parties to or parties contemplated in this Agreement including, without
limitation, any change arising from the accession of one or more new partners,
or from the death or succession of any partner or partners or amalgamation of
one or more corporations, and it shall cover any and all amounts that the
Lenders may ultimately be required to pay under the Letter of Credit by reason
of having issued same. The Borrower acknowledges that the Lender's obligations
to pay and/or fulfil any other obligation under the Letter of Credit is not
subject to claims or defence by the Borrower resulting from its relationship
with other parties.
3. The Borrower hereby indemnifies and agrees to hold the Agent and the Lenders
harmless from and against all losses, consequences or damages arising out of any
transmission, including delay and/or loss in transit of any message(s),
letter(s) or document(s) or for delay, mutilation or from insufficient or
incorrect particulars being transmitted or other error(s) arising in the
transmission or delivery of any telecommunication, including transmission by
cable, telegraph, telecopier, wireless or otherwise except to the extent such
losses, consequences or damages arise as a result of gross negligence or wilful
misconduct of the Agent or Lender as the case may be. The Agent and the Lenders
assume no liability or responsibility for errors in translation and/or
<PAGE> 114
Page 2
interpretation of technical terms, and reserve the right to transmit Letter of
Credit terms without translating them.
4. In case the expiry date of the Letter of Credit is extended and/or the amount
thereof is increased, and/or any of the terms and conditions are altered at the
Borrower's request or with the Borrower's consent, all the terms of this
Agreement shall remain in full force and effect, without releasing any party
thereto.
5. The rights and powers conferred hereby are in addition to and without
prejudice to any other rights which the Agent or the Lenders may now have or
hereafter acquire from the Borrower or others.
6. This Agreement will be governed and construed in accordance with the laws of
the Province of Alberta and the laws of Canada applicable herein. Should any
provision of this Agreement be illegal or not enforceable under such law, it
shall be considered severable and the Agreement and its conditions shall remain
in full force and effect as if the said provision had never been included.
7. This Agreement shall enure to the benefit of the Agent and each of the
Lenders and their respective successors and assigns, and shall be binding upon
the Borrower and the Borrower's executors, liquidators, administrators,
successors and assigns.
8. Except as otherwise expressly stated, each Letter of Credit is subject to the
current Uniform Customs & Practice for Documentary Credits of the International
Chamber of Commerce, as amended from time to time (the "UCP Rules") or in the
case of a Demand Guarantee, the Letter of Credit is subject to the terms and
conditions of the current "Uniform Rules for Demand Guarantees" of the ICC. If
the provisions of this Agreement conflict with the UCP Rules, the provisions of
this Agreement shall prevail. This Agreement shall not be construed as limiting
any rights of the Agent or the Lenders which may be set out in separate
documentation, between the Agent or the Lenders and the Borrower, including any
credit facility.
<PAGE> 115
SCHEDULE L
LIST OF UNRESTRICTED SUBSIDIARIES
156911 Canada Inc.
2276496 Canada Limited
534404 Alberta Ltd.
566643 Alberta Ltd.
594170 Alberta Ltd.
668089 Alberta Ltd.
Alter Energy Inc.
Asamera (Cyprus) Limited
Asamera Hurghada Inc.
Asamera Oil (U.S.) Inc.
Australian Hydrocarbons Inc.
Beaufinco Equipment Holdings Limited
CP (E&P) BV
Canadian Oil Debco Inc.
Clyde Exploratie Maatschappij BV
Crenshaw Pty Ltd.
Crusader Inc.
Crusader (Jild) Pty Ltd.
Crusaser (Phillippines) Pty Ltd.
Gulf Australia Pty Ltd.
Gulf Indonesia Resources Limited
Morgan Energy Development Inc.
Pursuit Exploration Pty Ltd.
TS Inc.
Tidal Energy Marketing Inc.
Trilogy France Corporation
Trilogy France Resource SNC
Trilogy Italia Corporation
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the incorporation in this Annual Report (Form 10-K) of Gulf Canada
Resources Limited (the "Company") of our report dated February 18, 1999, with
respect to the consolidated financial statements of the Company for the year
ended December 31, 1998.
We further consent to the reference to our firm under the caption "Experts", in
the Registration Statement (Form S-8 No. 333-7644) and related prospectus
pertaining to the 1994 Incentive Stock Option Plan of the Company, and to the
incorporation by reference of our report dated February 18, 1999 with respect to
the consolidated financial statements of the Company for the year ended December
31, 1998 included in this Annual Report (Form 10-K) in the prospectus.
Calgary, Canada [signature of Ernst & Young LLP]
March 26, 1999 Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED STATEMENT OF
EARNINGS AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 0.6742<F1>
<CASH> 23
<SECURITIES> 326
<RECEIVABLES> 268
<ALLOWANCES> 2
<INVENTORY> 21
<CURRENT-ASSETS> 750
<PP&E> 7,136
<DEPRECIATION> 2,529
<TOTAL-ASSETS> 4,607
<CURRENT-LIABILITIES> 789
<BONDS> 2,331
0
577
<COMMON> 1,719
<OTHER-SE> (308)
<TOTAL-LIABILITY-AND-EQUITY> 5,682
<SALES> 1,072
<TOTAL-REVENUES> 1,197
<CGS> 0
<TOTAL-COSTS> 1,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 382
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> (737)
<INCOME-TAX> (151)
<INCOME-CONTINUING> (586)
<DISCONTINUED> 24
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562)
<EPS-PRIMARY> (1.70)
<EPS-DILUTED> (1.70)
<FN>
<F1>SEE "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- FOREIGN CURRENCY
TRANSLATION" YEAR END RATE $0.6521 AVERAGE EXCHANGE RATE DURING THE YEAR $0.6742
</FN>
</TABLE>
