<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 1-8094
SEAGULL ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 74-1764876
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
1001 FANNIN, SUITE 1700
HOUSTON, TEXAS 77002-6714
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 951-4700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------ ------------------------------------------
<S> <C>
Common Stock, par value $.10 per share New York Stock Exchange
</TABLE>
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. [ ]
As of March 11, 1994, the aggregate market value of the outstanding shares
of Common Stock of the Company held by non-affiliates (based on the closing
price of these shares on the New York Stock Exchange) was approximately
$876,067,940.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING
AT MARCH
CLASS 11, 1994
----------------------------------------------------------------- ---------
<S> <C>
Common Stock, par value $.10 per share 36,064,649
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART OF FORM 10-K
- ------------------------------------------------------------------ -----------------
<S> <C>
(1) Annual Report to Shareholders for year ended PARTS I and II
December 31, 1993
(2) Proxy Statement for Annual Meeting of PART III
Shareholders to be held on June 1, 1994
</TABLE>
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<PAGE> 2
PART I
ITEM 1. BUSINESS
Seagull Energy Corporation (the "Company" or "Seagull") is an
independent energy company primarily engaged in natural gas exploration,
development and production. The Company's operations are focused offshore
Texas and Louisiana in the Gulf of Mexico and onshore in three principal
geographic regions: (i) in the Mid-Continent Region located in western
Oklahoma and the Texas Panhandle; (ii) in the Mid-South Region, primarily in
the Arklatex area in eastern Texas and northern Louisiana and the Arkoma Basin
in eastern Oklahoma and western Arkansas; and (iii) in western Canada.
Seagull's two other business segments are also natural gas related: (i)
pipeline and marketing, which include natural gas supply, marketing and
transportation, principally in the southwestern United States; pipeline
transportation of hydrocarbon products and petrochemicals in Texas and
Louisiana; pipeline engineering, design, construction and operation; and
natural gas processing in Texas; and (ii) natural gas transmission and
distribution in Alaska. The Company was incorporated in Texas in 1973 as a
wholly owned subsidiary of Houston Oil & Minerals Corporation ("HO&M"). In
March 1981, the Company became an independent entity as a result of the
spin-off of its shares to the stockholders of HO&M. The "Company" or "Seagull"
refers to Seagull and its consolidated subsidiaries, unless otherwise indicated
or the context otherwise suggests.
For financial information relating to industry segments, see Note 15
of Notes to Consolidated Financial Statements of Seagull Energy Corporation and
Subsidiaries. The Consolidated Financial Statements of Seagull Energy
Corporation and Subsidiaries and the Notes related thereto (the "Consolidated
Financial Statements") are included in the Company's 1993 Annual Report to
Shareholders and as part of Exhibit 99.1 attached hereto. During 1993, the
Company derived no revenues and had no material assets outside the United
States. See discussions below regarding the Seagull Canada Acquisition and
interests in production licenses acquired in United Kingdom waters.
EXPLORATION AND PRODUCTION
Seagull's exploration and production ("E&P") segment is the Company's
primary growth area and is comprised of the following material direct and
indirect wholly owned subsidiaries of the Company: Seagull Energy E&P Inc.;
HO&M; Wacker Oil Inc; Seagull Midcon Inc.; Seagull Mid-South Inc., formerly
Arkla Exploration Company; and Seagull Energy Canada Ltd., formerly Novalta
Resources Inc.
On January 4, 1994, an indirect wholly owned subsidiary of Seagull
acquired all of the outstanding shares of stock of Novalta Resources Inc.
("Novalta") from Novacor Petrochemicals Ltd. (the "Seagull Canada
Acquisition"). Effective as of the January 4, 1994 Closing Date, Novalta was
amalgamated with Seagull Energy Canada Ltd., the indirect subsidiary of Seagull
that acquired Novalta. The resulting amalgamated company was named Seagull
Energy Canada Ltd. ("Seagull Canada").
Seagull Canada's assets (the "Seagull Canada Properties") consist
primarily of natural gas and oil reserves and developed and undeveloped lease
acreage concentrated principally in a small number of fields located in
<PAGE> 3
Alberta, Canada. According to reserve estimates prepared as of December 31,
1993 by the independent petroleum engineering firm, DeGolyer and MacNaughton,
the Seagull Canada Properties had proved reserves totaling 257.4 billion cubic
feet ("Bcf") of natural gas and 2.8 million barrels ("Bbl") of oil, condensate
and natural gas liquids. Approximately 80% of these reserves and 75% of
Seagull Canada's total producing wells are concentrated in 16 of 95 total
fields.
In 1993, a four-company exploration group including Seagull was
awarded four production licenses in United Kingdom waters. The awards gave
Seagull a 10% interest in three licenses in the Irish Sea totaling 398,319
acres and a 20% interest in a fourth license in the North Sea which totals
60,785 acres. Seismic studies and other evaluation activities on the licensed
blocks have been ongoing since mid-1993. The first two of eight planned
exploratory wells are scheduled during the latter part of 1994. During the
first quarter of 1994, Seagull increased its interests in these licenses to 20%
and 30%, respectively. Seagull anticipates that its share of
exploration-related costs will approximate $13 million over the next five years
as the program is currently structured.
Seagull also has an active ongoing exploration program that has
resulted in numerous natural gas discoveries since 1988 in the Gulf of Mexico,
primarily in shallow waters off the central Texas Gulf Coast. The Company has
in the past financed its gas and oil exploration and development activities
through internally generated funds, bank borrowings and participation by
industry partners on a prospect-by-prospect basis. The Company believes that
its gas and oil exploration and development activities in the foreseeable
future will be financed by internally generated funds. In 1994, the Company
expects E&P capital expenditures to total approximately $160 million. Of this
amount, about $50 million will be devoted to exploration, primarily in the
Seagull Trend and elsewhere in the Gulf of Mexico, $100 million to development
and $10 million to leasehold acquisition. Of the expected development capital
expenditures, about $34 million is targeted for the Mid-South Region, $31
million for the Gulf of Mexico, $20 million for the Mid-Continent Region and
$15 million for Western Canada. By comparison, 1993 capital expenditures for
E&P activities totaled $98 million.
Revenues from the sale of gas and liquids accounted for 60%, 38% and
32% of the Company's consolidated revenues for 1993, 1992 and 1991,
respectively. As used in this Annual Report on Form 10-K, liquids means oil,
condensate and natural gas liquids, unless otherwise indicated or the context
otherwise suggests. Gas production in 1993 increased primarily as a result of
contributions attributable to properties in the Mid-South Region acquired in
December 1992. Production of gas and liquids for 1993 averaged 279.5 million
cubic feet ("MMcf") per day ("MMcf/d") and 4,641 Bbl per day ("Bbl/d"),
respectively, compared to 104.2 MMcf/d and 3,494 Bbl/d, respectively, in
1992.
2
<PAGE> 4
Seagull's principal gas and oil properties include the following:
<TABLE>
<CAPTION>
Average Net Daily Production
for the Year Ended
At December 31, 1993 December 31, 1993
--------------------------- ------------------------------
Proved
Number of Reserves Natural Gas Liquids
Field/Province State Gross Wells (Bcfe) (1) (MMcf) (Bbl)
-------------- ----- ----------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
UNITED STATES
Mid-South Region:
Arklatex Area:
Carthage . . . . . . . . . Texas 242 194 27.4 631
Waskom . . . . . . . . . . Texas 77 66 17.6 129
Ruston . . . . . . . . . . Louisiana 48 47 10.0 109
Sligo . . . . . . . . . . . Louisiana 73 16 4.4 32
Arkoma Basin:
Cecil . . . . . . . . . . . Arkansas 223 73 26.6 -
Aetna . . . . . . . . . . . Arkansas 151 35 12.4 -
Wilburton . . . . . . . . . Oklahoma 69 25 11.4 -
Other . . . . . . . . . . . . . . . . . . . 332 145 49.0 962
Mid-Continent Region:
Panhandle West . . . . . . . Texas 61 59 12.7 2
Panhandle Gray . . . . . . . Texas 119 31 0.3 677
Watonga-Chickasha . . . . . . Oklahoma 221 40 11.4 73
Strong City . . . . . . . . . Oklahoma 96 35 11.4 99
Other . . . . . . . . . . . . . . . . . . . 340 78 17.5 325
Offshore Texas . . . . . . . . . . . . . . . 46 92 55.9 197
Offshore Louisiana . . . . . . . . . . . . . 13 49 6.2 367
Gulf Coast Onshore . . . . . . . . . . . . . 29 19 5.3 1,038
----- ----- ----- -----
2,140 1,004 279.5 4,641
===== ===== ===== =====
CANADA (2)
Alberta . . . . . . . . . . . . . . . . . . . 648 272 49.9 797
Saskatchewan . . . . . . . . . . . . . . . . 10 2 - 334
----- ----- ----- -----
658 274 49.9 1,131
===== ===== ===== =====
</TABLE>
(1) The equivalent of one billion cubic feet ("Bcfe") of natural gas.
Liquids are converted to gas at a ratio of one barrel of liquids per
six Mcf ("Mcf" represents one thousand cubic feet) of gas, based on
relative energy content.
(2) The Seagull Canada Properties were acquired on January 4, 1994 in
connection with the Seagull Canada Acquisition. Average net daily
production amounts assume the Seagull Canada Acquisition occurred on
December 31, 1992.
For additional information relating to the Company's gas and oil
reserves, based substantially upon reports of Netherland, Sewell & Associates,
Inc. (for the years ended December 31, 1993 and 1992), DeGolyer and MacNaughton
(for the years ended December 31, 1993, 1992 and 1991), Ryder Scott Company
(for the years ended December 31, 1993, 1992 and 1991), and K&A Energy
Consultants, Inc. and R. A. Lenser & Associates, Inc. (for the year ended
December 31, 1991), independent petroleum engineers (collectively the
"Engineers"), see Note 4 of the Consolidated Financial Statements included in
the Company's 1993 Annual Report to Shareholders and as part of Exhibit 99.1
attached hereto. The Engineers provided the estimates of "proved developed and
undeveloped reserves" and "proved developed reserves" at the beginning and end
of each of the three years included in Note 4. Under "Standardized Measure of
Discounted Future Net Cash Flows" in Note 4, the Engineers provided all
information except "discounted income taxes" and "standardized
3
<PAGE> 5
measure of discounted future net cash flows". All information in Note 4 not
provided by the Engineers was supplied by the Company. As required, Seagull
also files estimates of gas and oil reserve data with various governmental
regulatory authorities and agencies. The basis for reporting reserves to these
authorities and agencies, in some cases, may not be comparable. However, the
difference in estimates does not exceed five %.
The future results of this segment will be affected by the market
prices of natural gas and liquids. The availability of a ready market for gas
and liquids products in the future will depend on numerous factors beyond the
control of the Company, including weather, production of other domestic natural
gas and liquids products, imports, marketing of competitive fuels, proximity
and capacity of gas and liquids pipelines and other transportation facilities,
any oversupply of gas and liquids products, the regulatory environment and
other domestic and political events, none of which can be predicted with
certainty. As in the past, the Company would expect to curtail gas production
during times of inferior prices. However, due to the sustained improvements in
natural gas prices and demand throughout 1993 and various field operating
considerations, Seagull does not anticipate curtailing gas sales in the coming
year to the significant extent of curtailments in years prior to 1993.
GAS AND OIL DRILLING ACTIVITIES
Seagull's gas and oil exploratory and developmental drilling
activities are as follows for the periods indicated. Totals shown in each
category include wells completed as productive wells and wells abandoned as dry
holes. A well is considered productive for purposes of the following table if
it justifies the installation of permanent equipment for the production of gas
or oil. A well is deemed to be a dry hole if it is determined to be incapable
of commercial production. The term "gross wells" means the total number of
wells in which Seagull owns an interest, while the term "net wells" means the
sum of the fractional working interests Seagull owns in gross wells.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1993 1992 1991
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Drilling:
Productive Wells . . . . 8 5.19 3 1.28 8 2.86
Dry Holes . . . . . . . . 19 9.20 12 5.51 10 6.38
Development Drilling:
Productive Wells . . . . 100 54.62 24 16.11 24 16.23
Dry Holes . . . . . . . . 22 13.71 2 0.73 6 3.87
</TABLE>
From January 1, 1994 to February 28, 1994, the Company has drilled 1
gross (0.66 net) successful exploratory well and 1 gross (1.0 net) dry
exploratory well. In addition, the Company has drilled 12 gross (7.70 net)
successful development wells. The Company is currently drilling 1 gross (0.50
net) exploratory well and 21 gross (15.46 net) development wells. As of the
beginning of 1994, the Company had an inventory of approximately 90 exploratory
prospects, including at least 20 in Canada.
4
<PAGE> 6
PRODUCTION
The following table summarizes the Company's production, average sales
prices and lifting costs for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net Production:
Gas (MMcf) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,025 38,137 32,906
Oil and condensate (Mbbl)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,412 1,014 1,111
Natural gas liquids (Mbbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 265 225
Combined (MMcfe) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,188 45,809 40,922
Average sales price (2):
Gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.99 $ 1.85 $ 1.69
Oil and condensate (per Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . $16.72 $18.60 $20.30
Natural gas liquids (per Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.10 $10.20 $11.17
Combined (per Mcfe) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.03 $ 2.01 $ 1.97
Average lifting costs of gas and liquids (per Mcfe) (4) . . . . . . . . . . . . . . . $ 0.47 $ 0.57 $ 0.59
</TABLE>
(1) Thousands of Bbl ("Mbbl").
(2) Before deduction of production, severance, and other taxes.
(3) The equivalent of one thousand cubic feet ("Mcfe") of natural gas.
(4) Lifting costs represent costs incurred to operate and maintain wells
and related equipment and facilities. These costs include, among
other things, repairs and maintenance, workover expenses, labor,
materials, supplies, property taxes, insurance, severance taxes and
transportation costs.
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1993. Productive wells are either producing wells or wells capable of
commercial production although currently shut in. One or more completions in
the same borehole are counted as one well.
<TABLE>
<CAPTION>
Gross (2) Net (2)
--------- -------
<S> <C> <C>
Gas (1) 1,840 896.31
Oil 305 159.52
----- --------
Total 2,145 1,055.83
===== ========
</TABLE>
(1) Includes 314 gross (152.36 net) gas wells with multiple completions.
(2) Excludes 643 gross (346.10 net) gas wells and 15 gross (10.40 net) oil
wells acquired January 4, 1994 in connection with the Seagull
Canada Acquisition.
For additional information relating to gas and oil producing
activities, see Note 4 of the Consolidated Financial Statements included in the
Company's 1993 Annual Report to Shareholders and as part of Exhibit
99.1 attached hereto.
5
<PAGE> 7
PRODUCTIVE AND UNDEVELOPED GAS AND OIL ACREAGE
As of December 31, 1993, the Company owned working interests in the
following developed and undeveloped gas and oil acreage in the United States:
<TABLE>
<CAPTION>
Developed (1) Undeveloped (1)
------------------------------ ------------------------------
Gross Net (2) Gross Net (2)
----- ------- ----- -------
<S> <C> <C> <C> <C>
Onshore:
Oklahoma . . . . . . . . . . . . . . . 393,005 127,711 119,645 49,169
Arkansas . . . . . . . . . . . . . . . 348,363 96,946 86,011 57,793
Texas . . . . . . . . . . . . . . . . . 183,988 82,981 36,008 13,724
Louisiana . . . . . . . . . . . . . . . 53,717 25,672 9,986 8,364
Mississippi . . . . . . . . . . . . . . 24,355 11,139 28,582 13,518
Other . . . . . . . . . . . . . . . . . 8,779 6,450 9,837 7,477
Bays and State Waters . . . . . . . . . . 1,045 792 8,398 6,970
Federal Offshore:
Texas . . . . . . . . . . . . . . . . . 133,624 57,624 119,685 73,956
Louisiana . . . . . . . . . . . . . . . 39,658 15,758 84,259 54,821
--------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . 1,186,534 425,073 502,411 285,792
========= ======= ======= =======
</TABLE>
(1) Excludes 396,800 gross (195,985 net) developed acres and 451,510 gross
(244,010 net) undeveloped acres acquired January 4, 1994 in connection
with the Seagull Canada Acquisition.
(2) When describing acreage on drilling locations, the term "net" refers to
the total acres on drilling locations in which the Company has a working
interest, multiplied by the percentage working interest owned by the
Company.
Additionally, as of December 31, 1993, the Company owned mineral
and/or royalty interests in 375,488 gross (45,547 net) developed and 158,447
gross (28,040 net) undeveloped gas and oil acreage.
The Company also currently owns interests in production licenses
covering 459,104 gross (97,899 net) undeveloped acres in United Kingdom waters
(see discussion above regarding interests in production licenses acquired in
United Kingdom waters).
COMPETITION
The Company's competitors in gas and oil exploration, development,
production and marketing include major oil companies, as well as numerous
independent oil and gas companies, individuals and drilling programs. Some of
these competitors have financial and personnel resources substantially in
excess of those available to the Company and, therefore, the Company may be
placed at a competitive disadvantage. The Company's success in discovering
reserves will depend on its ability to select suitable prospects for future
exploration in today's competitive environment.
MARKETS
The Company believes there currently exists a very delicate balance
between supply and demand in the marketplace. Extreme fluctuations in weather
conditions may cause a real or perceived imbalance at any given time,
6
<PAGE> 8
in any given area of the United States or Canada. Although markets project
their usage well in advance of actual purchases based on historical data and
weather forecasting, the projections may be adjusted for unexpected weather
conditions, creating a temporary increase or decrease in demand. These
unexpected demand fluctuations, combined with conservation and competition from
alternative fuels, continue to cause radical swings in gas prices. Monthly
pricing indices often do not follow the trends of prior years and, with each
passing month, average price projections continue to be adjusted and revised.
REGULATION
UNITED STATES
Aspects of the production, sale and transportation of natural gas and
crude oil in federal Outer Continental Shelf waters are regulated pursuant to
various federal statutes, including the Outer Continental Shelf Lands Act
("OCSLA"). The interstate transportation of natural gas is regulated under the
Natural Gas Act ("NGA") or the Natural Gas Policy Act of 1978 ("NGPA"). Until
January 1, 1993, certain first sales (generally, wellhead or producing field
sales) of natural gas remained price regulated under the NGPA. Effective
January 1, 1993, all price-regulation of first sales of natural gas was
eliminated by the Natural Gas Wellhead Decontrol Act of 1989.
Operations conducted by the Company on federal gas and oil leases must
comply with numerous statutory and regulatory restrictions. Additionally,
certain operations must be conducted pursuant to appropriate permits issued by
government agencies, such as the Bureau of Land Management and the Minerals
Management Service of the Department of Interior and, in regard to certain
federal leases, prior approval of drill site locations must be obtained from
the Environmental Protection Agency.
In all states in which the Company engages in gas and oil exploration
and production, its activities are subject to regulation. These regulations
generally require permits for the drilling and spacing of wells, the prevention
of waste of gas and oil reserves, the prevention and cleanup of pollution and
other matters. Government agencies in various states regulate, among other
things, the amount and rate of gas and oil production. The states of Texas and
Oklahoma have recently revised their regulations regarding proration of
production. These kinds of regulations by state agencies may affect
determinations of deliverability under certain of the Company's gas purchase
contracts and thereby affect the purchasers' volumetric purchase obligations.
In addition to the proration changes, Oklahoma has promulgated regulations
pursuant to Senate Bill 168, which governs sharing of gas markets among working
interest owners and disbursement of royalty proceeds.
Over the past several years, the Federal Energy Regulatory Commission
(the "FERC") has issued certain orders that have brought sweeping changes to
the fundamental regulatory structure governing interstate sales and
transportation of natural gas. Collectively, these orders have changed the gas
pricing structure and altered the traditional relationship among producers,
pipelines and end-use markets. Most pipelines are in the process of
transforming themselves from their strictly-merchant role to a combination of
merchant and open-access transporter. Producers frequently contract directly
with end-users or other gas buyers and, if the transporting pipeline
7
<PAGE> 9
is open-access, transportation services can be arranged by either the buyer,
the seller or a broker on a first-come, first-serve basis. These FERC orders
therefore provide the Company with greater marketing options.
CANADA
Seagull Canada has exploration and development operations in Alberta
and Saskatchewan. The oil and natural gas industry is subject to extensive
controls and regulations imposed by various levels of government in Canada.
Natural Gas Pricing
Prior to deregulation of natural gas markets, prices in Canada were
legislated by the government having jurisdiction. In the current deregulated
environment, the price of natural gas is determined by negotiation between
buyers and sellers. Exports of natural gas require approvals similar to those
required for exports of oil, as described below.
Crude Oil Pricing
Since June 1, 1985, producers of oil have been entitled to negotiate
sales contracts directly with oil purchasers. Oil exporters are entitled to
export oil pursuant to contracts, the terms of which do not exceed one year in
the case of light crude and two years in the case of heavy crude, provided that
an order approving the export has been obtained from the Natural Energy Board
("NEB"). Any export to be made pursuant to a contract of a longer duration
requires the exporter to obtain a license from the NEB, and the issuance of
such a license requires the approval of the Governor General in
Council.
Provincial Royalties and Incentives
The royalty regime is a significant factor in the profitability of oil
and gas production. Royalties payable on production from lands other than
Crown lands are determined by negotiations between the mineral owner and the
lessee. Crown royalties are determined by government regulation and are
generally calculated as a percentage of the value of the gross production; the
rate of royalties payable depends in part on well productivity and field
discovery date. From time to time the governments of Canada, Alberta and
Saskatchewan have established incentive programs which have included royalty
rate reductions, royalty holidays and tax credits for the purpose of
encouraging oil and gas exploration.
In November 1991, the Government of Alberta announced temporary
royalty incentives for oil exploration and development. The relief program
provides for: (i) a two year royalty holiday for oil exploration wells drilled
between November 1, 1991 and March 31, 1992 and a one year royalty holiday for
exploratory wells drilled between April 1, 1992 and March 31, 1993 and an extra
one year royalty holiday for exploratory wells drilled in the foothills and
northern regions of the Province, with a cap of $1 million per well; (ii) a one
year royalty holiday on development oil wells drilled between November 1, 1991
and March 31, 1993 with a cap of $400,000 per well; (iii) a five year royalty
holiday for reactivated oil wells which obtained a well license prior to July
30, 1993 and which have been continuously inactive since August 31, 1990, with
a 25,000 barrel cap which was raised to
8
<PAGE> 10
50,000 barrels pursuant to the October 13, 1992 announcement; and (iv) new oil
royalty rates for reactivated wells.
On October 13, 1992, the Government of Alberta announced major changes
to its royalty structure and permanent incentives for exploring and developing
oil and gas reserves. The regulations incorporating these changes were adopted
on January 20, 1993. The significant changes announced include the following:
(i) new oil discovered after September 30, 1992 will have a permanent one year
oil royalty holiday, subject to a maximum of $1 million and a reduced royalty
rate thereafter; (ii) reduction of royalties on existing production of oil and
gas; (iii) incentives by way of royalty holidays and reduced royalties on
reactivated and horizontal wells; (iv) introduction of separate par pricing for
light, medium and heavy oil; and (v) modification of the royalty formula
structure to provide for sensitivity to price fluctuations.
The Government of Alberta recently announced a plan to simplify the
natural gas royalty scheme. The regulations are not yet available and it is
anticipated the new scheme will take effect some time in 1994.
A price and productivity sensitive royalty structure for crude oil and
natural gas in the Province of Saskatchewan has been in effect since 1987. The
royalty structure provides for royalty holidays for certain categories of wells
drilled in the Province of Saskatchewan and royalties which vary with the price
of a particular commodity.
For a description of regulation of environmental matters affecting
Seagull Canada, see Environmental Matters below.
PIPELINE AND MARKETING
Seagull is involved in the pipeline transportation of natural gas,
hydrocarbon products and petrochemicals in Texas, Louisiana and Mississippi.
In addition, the Company is engaged in pipeline engineering, design,
construction and operation, natural gas processing, third-party natural gas
marketing and the marketing of Seagull's natural gas and liquids production.
Revenue from the pipeline and marketing segment accounted for 11%, 16% and 15%
of the Company's consolidated revenues for 1993, 1992 and 1991,
respectively.
GAS PIPELINES
The Company owns and operates short and medium length gathering
pipelines that carry gas from producing fields to other pipelines which are
owned by utility companies, large gas transmission companies, or others, and to
industrial customers (referred to herein collectively as "Gas Purchasers").
The Company owns and operates 22 onshore and offshore natural gas gathering
systems having an aggregate length of approximately 431 miles. Seagull's gas
pipelines, which do not form an interconnected system, are principally located
in Texas, Louisiana and offshore along the Texas coast. In addition, the
Company owns partial interests in and operates two other offshore gas
pipelines.
9
<PAGE> 11
Seagull transports gas under arrangements where customers are charged
a fee for gas carried through Seagull's pipelines. Seagull also delivers gas
through its pipelines pursuant to contracts whereby it purchases and resells
gas. In the case of purchase and sales contracts, the margin between Seagull's
cost of gas and its resale revenues constitutes, in effect, a transportation
fee.
Natural gas producers prefer flexibility in commitment of gas reserves
both as to term and pricing. Some of the wells connected to the Company's
pipelines are not dedicated to those pipelines. It is probable that most gas
wells currently connected to the Seagull gas gathering systems will remain
connected from year to year with deliverability of reserves declining until
depleted. It is no longer practical for a major pipeline company to consider
gas reserves to be firmly committed to its facilities. Several systems are
located in good prospective gas development areas where some new gas wells have
been drilled, and more development may occur. In areas of active drilling, it
is likely that new wells and additional gas volumes can be added to the
systems.
The following table shows the volumes of gas transported for
the periods shown:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Volume (MMcf):
Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . 1,419 2,290 3,734
Transportation Fee Arrangements . . . . . . . . . . . . . . . . 112,081 69,660 66,602
------- ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,500 71,950 70,336
======= ====== ======
</TABLE>
HYDROCARBON PRODUCTS AND PETROCHEMICAL PIPELINES
The Company owns and/or operates pipelines for the transportation of
liquid hydrocarbon products and petrochemicals. Seagull operates seven such
pipelines, four of which it owns and all of which are located in
Texas and Louisiana.
GAS MARKETING
The Company actively provides marketing services geared toward
matching gas supplies available in the major producing areas with attractive
markets available in the Midwest, Northeast, Mid-Atlantic, Appalachian and
Texas/Louisiana Gulf Coast areas. The matching process includes arranging
transportation on a network of open-access pipelines on a firm or interruptible
basis.
Marketing profit margins are often small due to competition, and
results can vary significantly from month to month. Large amounts of working
capital are involved for relatively small net margins, which makes working
capital management critical. The Company has policies and procedures in place
that are designed to minimize any potential risk of loss from these
transactions. These policies and procedures are reviewed and updated
periodically by the Company's management.
10
<PAGE> 12
PIPELINE OPERATIONS AND CONSTRUCTION
Seagull operates certain pipelines owned by other companies. In some
cases the operating agreements provide for reimbursement of expenses incurred
in connection with operation plus a profit margin. In other cases the Company
receives a negotiated annual fee.
The Company also builds pipelines for other companies for which it
receives construction fees that are fixed, cost plus or a combination of both.
The Company recognized operating profit in 1993 on an 8.7 mile, 16-inch gas
pipeline that Seagull constructed for an international exploration company from
a platform to a gathering pipeline offshore Louisiana. The project was
completed in early 1994.
Historically, the Company has not been engaged in pipeline
construction projects on a regularly recurring basis. Seagull had no other new
construction projects in 1993 and none are currently pending; however, Seagull
is currently conducting marketing efforts in order to generate new
projects.
GAS PROCESSING
The Company owns interests in a number of gas processing plants. The
largest of the plants is located in Matagorda County, Texas (the "Matagorda
Plant"), and has been in operation since March 1981. Seagull owns a 65%
undivided interest in and operates the Matagorda Plant, and the other 35%
interest is owned by a subsidiary of Enron Corp.
The Matagorda Plant processes natural gas, producing a full-range
demethanized raw mix products stream. The actual throughput at the Matagorda
Plant varies depending upon gas sales demand and production-related mechanical
factors. For the year ended December 31, 1993, throughput averaged
approximately 244 MMcf/d, which is close to the maximum design capacity of 250
MMcf/d but is slightly lower than the prior year. Throughput volumes are
expected to remain at the same level for the foreseeable future. Profitability
will depend largely on the relative prices of products and natural gas.
COMPETITION
The Company actively competes with numerous other companies for the
construction and operation of short and medium length pipelines. The Company's
competitors include oil companies, other pipeline companies, natural gas
gatherers and petrochemical transporters, many of which have financial
resources, staffs and facilities substantially larger than those of the
Company. In addition, many of the Company's Gas Purchasers are also
competitors or potential competitors in the sense that they have extensive
pipeline building capabilities and experience and generally operate large
pipeline systems of their own. Seagull believes that its ability to compete
will depend primarily on its ability to complete pipeline projects quickly and
cost effectively, and to operate pipelines efficiently.
The Company's gas marketing activities are in competition with
numerous other companies offering the same services. Some of these competitors
are affiliates of companies with extensive pipeline systems that are used for
transportation from producers to end-users. The Company believes its ability
11
<PAGE> 13
to compete depends upon building strong relationships with producers and
end-users by consistently purchasing and supplying gas at competitive prices.
REGULATION
Government regulation has a significant effect on various segments of
the Company's pipeline operations. Its pipeline systems are regulated by state
regulatory commissions with respect to safety, location and other
matters.
The FERC has jurisdiction over, among other things, the construction
and operation of pipelines and related facilities used in the transportation,
storage and sale of natural gas in interstate commerce. The FERC also has
jurisdiction over the rates and charges levied by companies subject to the NGA
for the transportation of natural gas in interstate commerce and for the sale
of natural gas for resale in interstate commerce. At the Company's request,
FERC has decertified the Company's former interstate facility and it is no
longer subject to NGA jurisdiction.
Sales of natural gas by the Company's marketing subsidiary were
generally not regulated by the FERC prior to January 1, 1993, and will not be
subject to any FERC regulation on or after that date. Transportation and sales
for resale of gas in interstate commerce by the Company's intrastate pipelines
are regulated by the FERC pursuant to Section 311 of the NGPA. Section 311
permits intrastate pipelines to engage in certain transactions with interstate
pipelines and their customers without being regulated as interstate pipelines
under the NGA, thus allowing more flexibility in operations between intrastate
and interstate gas pipeline companies. The FERC has revised its Section 311
regulations to allow intrastate pipelines to transport gas destined for
interstate commerce under new self-implementing blanket certificates. The
Company currently offers these services on several of its intrastate pipelines.
In April 1992, the FERC issued its Order No. 636 (and related orders),
which basically requires interstate pipelines to "unbundle" or separate their
transportation services from their merchant sales of gas. This permits
end-users of gas to contract directly with producers to purchase gas and to
contract separately with pipelines for transportation services. As the
interstate pipelines began operating under Order No. 636 during 1993, new
opportunities were created throughout the industry. While it remains difficult
to predict the ultimate impact Order No. 636 will have on the Company, new
opportunities to market and transport natural gas are being explored by the
Company. The extensive regulatory proceedings required under this order have
not directly affected the Company's pipelines significantly to date.
With regard to pipeline design, construction, operation and
maintenance, state regulatory commissions generally have the authority to take
all steps necessary to ensure compliance by intrastate pipeline and gathering
companies with applicable safety regulations. The FERC also regulates certain
aspects of intrastate pipeline construction related to Section 311
transportation or storage services. The Company is also subject to safety
regulations imposed by the Office of Pipeline Safety of the Department of
Transportation (the "DOT"), promulgated pursuant to the Natural Gas Pipeline
Safety Act of 1968 and enforced by the Railroad Commission.
12
<PAGE> 14
Pursuant to regulations regarding drug abuse enacted by the DOT and
adopted by the Railroad Commission, the Company has implemented a drug abuse
program that strives for a safe and drug-free workplace for its employees.
ALASKA TRANSMISSION AND DISTRIBUTION
The Company operates in Alaska through its ENSTAR Natural Gas Company
division ("ENG") and Alaska Pipeline Company ("APC"), an Alaska corporation and
a wholly owned subsidiary. APC and ENG are regulated by the Alaska Public
Utilities Commission (the "APUC") as a single operating unit, ENSTAR Alaska
("ENSTAR Alaska"). APC engages in the intrastate transmission of natural gas
in South-Central Alaska. ENG engages in the distribution of natural gas in
Anchorage and other nearby communities in Alaska and is APC's only customer.
Revenues from the natural gas transmission and distribution segment accounted
for 29%, 46% and 52% of the Company's consolidated revenues for 1993, 1992 and
1991, respectively.
ENSTAR Alaska's predecessor was formed and began serving the Anchorage
area with natural gas in 1961. Five years later, in 1966, the predecessor
became one of the original entities that formed Alaska Interstate Company, a
newly organized public company the shares of which were traded on the New York
Stock Exchange. Alaska Interstate Company changed its name to ENSTAR
Corporation in 1982.
In 1985, the Company purchased ENSTAR Alaska for $55 million in cash
plus $10 million in the form of a seven-year unsecured, 10% subordinated note.
At the time of the acquisition, APC had outstanding debt of approximately $65
million. The transaction received the final approval of the APUC in June 1985.
GAS TRANSMISSION SYSTEM
APC owns and operates the only natural gas transmission lines in its
service area that are operated for utility purposes. The pipeline transmission
system is composed of approximately 277 miles of 12- to 20-inch diameter
pipeline and approximately 71 miles of smaller diameter pipeline. The system's
present design delivery capacity is approximately 410 MMcf/d.
GAS DISTRIBUTION SYSTEM
ENG distributes natural gas through approximately 1,916 miles of gas
mains to approximately 88,200 residential, commercial, industrial and electric
power generation customers within the cities and environs of Anchorage, Eagle
River, Palmer, Wasilla, Soldotna, Kenai and the Nikiski area of the Kenai
Peninsula, Alaska. During the year ended December 31, 1993, ENG added
approximately 55 miles of new gas distribution mains, installed 1,791 new
service lines and added approximately 1,800 net customers. ENG anticipates
relatively modest growth in its residential customer base and will install
additional main and service lines to accommodate this growth.
ENG distributes gas to its customers under tariffs which provide for
varying delivery priorities. ENG's business is seasonal with approximately 65%
of its sales made in the first and fourth quarters of each year.
13
<PAGE> 15
In 1993, purchase/resale volumes represented 72% of ENG's throughput.
The remaining volumes are transported for power and industrial customers for a
transportation fee. Purchase/resale volumes accounted for 91% of ENG's
operating margin in 1993.
ENG's five largest customers are Municipal Light and Power ("ML&P"),
an electric utility; the U. S. Air Force; the U. S. Army; the Anchorage School
District; and Unocal Corporation. Together, they account for about $6.8
million in annual operating margin and about 14 Bcf per year in volumes, which
represent about 14% and 35%, respectively, of ENG totals.
GAS SUPPLY
In May 1988, the Company entered into a contract (the "Marathon
Contract") with Marathon Oil Company ("Marathon") providing for the delivery of
approximately 450 Bcf of gas. The Marathon Contract is a "requirements"
contract with no specified daily deliverability or annual take-or-pay
quantities. APC has agreed to purchase and Marathon has agreed to deliver all
of APC's gas requirements in excess of those provided for in other presently
existing gas supply contracts, subject to certain exceptions, until the
commitment has been exhausted and without limit as to time; however, Marathon's
delivery obligations are subject to certain specified annual limitations after
2001. The contract has a base price of $1.55 per Mcf plus reimbursements for
any severance taxes and other charges. The base price is subject to annual
adjustment based on changes in the price of certain traded oil futures
contracts. During 1993, the cost of gas purchased under the Marathon Contract
averaged $2.00 per Mcf, including reimbursements for severance taxes. The
Marathon Contract, as amended, has been approved by the APUC.
Effective January 1, 1992, APC amended a gas purchase contract with
Shell Oil Company and ARCO Alaska, Inc. (the "Shell Contract") to extend the
term of the contract through the year 2009, modify the price, delivery and the
deliverability provisions and provide procedures for reducing take-or-pay
volumes for the effect of APC sales volumes that are displaced by gas sales
made by others. The Shell Contract provides for the delivery of up to
approximately 220 Bcf of gas. The amendments revised the price to a base price
of $1.971 per Mcf plus reimbursements for any severance taxes and an annual
adjustment based on changes in the price of certain traded oil futures
contracts from the relevant base price. Certain portions of the gas purchased
under the amendments may be priced under a pricing term similar to the Marathon
Contract. The 1993 price under the Shell Contract, after application of
contractual adjustments, was approximately $2.03 per Mcf, including
reimbursements for severance taxes. The amendments provide for varying
deliverability, before displaced gas sales adjustments, up to a maximum of 110
MMcf/d through 1995, and take-or-pay quantities, before displaced gas sales
adjustments, up to a maximum of 15.4 Bcf per year through 1994. The Shell
Contract, as amended, has been approved by the APUC.
Combined, the Marathon and Shell Contracts will supply all of ENSTAR
Alaska's gas supply requirements through the year 2001, after which time the
annual limitations contained in the Marathon Contract begin to take effect.
Based on gas purchases during the twelve months ended December 31,
1993, which are not necessarily indicative of the volume of future purchases,
APC's
14
<PAGE> 16
gas reserves committed under the Marathon and Shell Contracts would have a
current reserve life index of approximately 14 years.
ENSTAR Alaska's average cost of gas sold in 1993, 1992 and 1991 was
$2.07, $1.94 and $2.32 per Mcf, respectively. The average price of gas sold by
ENSTAR Alaska in 1993, 1992 and 1991 was $3.56, $3.41 and $3.64 per
Mcf, respectively.
As stated above, ENSTAR Alaska purchases all of its natural gas under
contracts in which the price is indexed to crude oil futures contracts.
However, because ENSTAR Alaska's sales prices are adjusted to include the
projected cost of its gas, there has been and is expected to be little or no
impact on margins derived from ENSTAR Alaska's gas sales as a result of
fluctuations in fuel oil prices due to world-wide political events and changing
market conditions.
ENSTAR Alaska has no material take-or-pay obligations and does not
anticipate any such obligations in the foreseeable future.
COMPETITION
ENSTAR Alaska competes primarily with municipal and cooperative
electric power distributors and with various suppliers of fuel oil and propane
for the available energy market. There are also extensive coal reserves
proximate to ENSTAR Alaska's operating area; however, such reserves are not
presently being produced.
A 90-megawatt hydroelectric facility at Bradley Lake, completed in
September 1991, reduced ENSTAR Alaska's lower-margin power volumes by
approximately 1.0 to 1.5 Bcf per year. ENSTAR Alaska's margin on gas sales was
reduced by approximately $500,000 to $750,000 per year as a result of this
facility.
During the last five years, ENSTAR Alaska's natural gas volumes
delivered on a purchase/resale basis have declined primarily due to two of its
major customers electing to purchase gas directly from gas producers. During
the fourth quarter of 1991, ML&P the larger of the two customers, began
purchasing gas directly from three gas producers, which displaced gas sales of
approximately 8.0 Bcf per year. However, the APUC has approved a tariff
allowing ENSTAR Alaska to transport these volumes from ML&P's purchase points
to the ML&P electric generation facilities for a transportation fee that
approximates the margin that would have been earned had ML&P remained a sales
customer rather than becoming a transportation customer. Deliveries of gas to
ML&P during 1993, 1992 and 1991 amounted to approximately 18%, 19% and 19%,
respectively, of the total deliveries of gas by ENSTAR Alaska.
During 1988, Chugach Electric Association, the smaller of the two
customers, entered into a contract to purchase gas directly from a producer.
The contract became effective on April 1, 1989, displacing gas sales of
approximately 1.3 Bcf per year. However, ENSTAR Alaska continues to transport
these volumes, although at a lower fee than the margin earned on sales volumes.
The net result of this loss of business was approximately $800,000 in operating
margin per year.
If any other existing large customer of ENSTAR Alaska chooses to
purchase gas directly from producers, ENSTAR Alaska would expect to collect
15
<PAGE> 17
a fee for transporting that gas equivalent to the margin earned on sales
volumes for those customers because the large distance of remaining user
facilities from producing fields would preclude pipeline by-pass.
ENSTAR Alaska supplies natural gas to its customers at prices that at
the present time economically preclude substitution of alternative fuels.
Since the Shell Contract and the Marathon Contract include prices that
fluctuate based on oil indices, a competitive margin favoring natural gas over
oil-based energy sources is expected to continue. However, there is no
assurance that the competitive advantage over other alternative fuels will not
be reduced or eliminated by the development of new energy technology or by
changes in the price of oil or refined products.
REGULATION
Because ENSTAR Alaska's operations are wholly intrastate, ENSTAR
Alaska is not subject to or affected by Order 636 or any other economic
regulation by the FERC. The rates, services and operations of ENSTAR Alaska
are subject to regulation by the APUC.
In May 1986, the APUC granted ENSTAR Alaska a rate increase of 3.26%
and authorized a rate of return on common equity of 15.65%. ENSTAR Alaska has
no significant regulatory issues pending before the APUC. Since its inception
in 1961, ENSTAR Alaska has participated in only three formal rate
proceedings.
The Company is a "public utility company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act"). In
March 1991, the Company filed in good faith with the Securities and Exchange
Commission (the "SEC") an application pursuant to Section 2(a)(8) of the 1935
Act, seeking a determination that Seagull was not subject to regulation as a
"subsidiary company" of FMR Corp. (the "FMR Application"), which was then the
owner of 2,805,624 shares (approximately 12.5% at such time) (shares adjusted
for a 2-for-1 stock split of all the issued shares of the Company's common
stock (the "Common Stock"), effected June 4, 1993) of the outstanding Common
Stock. Under the 1935 Act, a company is a "subsidiary company" of a "holding
company" if the "holding company" owns 10% or more of the total voting power of
the "subsidiary company", unless the SEC determines otherwise. Based upon the
most recent information furnished to the Company by FMR Corp., FMR Corp. was
the beneficial owner (albeit within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) of 2,891,574 shares, which is approximately 8%
of the Common Stock as of February 28, 1994. However, although FMR Corp.'s
ownership and control, within the meaning of the 1935 Act, has fallen below 10%
of the outstanding voting stock of the Company, the Company does not currently
intend to withdraw the FMR Application.
In December 1993, Seagull filed in good faith with the SEC an
additional application pursuant to Section 2(a)(8) of the 1935 Act, seeking a
determination that the Company was not subject to regulation as a "subsidiary
company" of AXA Assurances I. A. R. D. Mutuelle, AXA Assurances Vie Mutuelle,
Alpha Assurances I. A. R. D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni
Europe Assurance Mutuelle and AXA (collectively, the "Mutuelles AXA") and The
Equitable Companies Incorporated ("Equitable") and their respective affiliates
(collectively, the "Equitable Entities"), (the "Equitable Application"). At
such time, the Equitable Entities beneficially owned 4,495,600 shares
(approximately 12.5%) of Common Stock. Based upon the most
16
<PAGE> 18
recent information furnished to the Company by the Equitable Entities, the
Equitable Entities were the beneficial owners (albeit within the meaning of
Section 13(d) of the Securities Exchange Act of 1934) of 3,399,600 shares,
which represents approximately 9.4% of the Common Stock as of February 28,
1994. However, although the Equitable Entities' ownership and control has
fallen below 10% of the outstanding voting stock of the Company, the Company
does not currently intend to withdraw the Equitable Application.
Even if FMR Corp. or the Equitable Entities held greater than 10% of
the outstanding voting stock of the Company, as a result of its good faith
filing of the two applications, the Company currently would not be subject to
any obligation, duty or liability imposed by the 1935 Act, unless and until the
SEC enters an order denying or otherwise adversely disposing of the
applications. To date, no such order has been issued. The Company believes
that the FMR Application and the Equitable Application ultimately should
be granted.
ENVIRONMENTAL MATTERS
Seagull, as an owner and operator of oil and gas properties, is
subject to various federal, state, local and foreign country laws and
regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas and impose restrictions on the injection of liquids into subsurface
aquifers that may contaminate groundwater. For a discussion of the Gulf Coast
Vacuum Site matter, see Legal Proceedings below.
Seagull Canada's oil and gas operations are largely regulated by the
Energy Resources Conservation Board ("ERCB") for the province of Alberta and
the Energy and Mines Board for the province of Saskatchewan ("SEM"). These
bodies enforce legislation which regulates all aspects of exploration,
development and production, including the licensing of wells, pipelines and
facilities. Environmental legislation provides for restrictions and
prohibitions on releases or emissions of various substances produced in
association with certain oil and gas industry operations. In addition,
legislation requires that well and facility sites must be abandoned and
reclaimed to the satisfaction of provincial authorities, typically to
pre-disturbance quality. A breach of such legislation may result in the
imposition of fines and penalties.
Environmental legislation in Alberta has recently undergone a major
revision to update and consolidate the various acts applicable into the
Environmental Protection and Enhancement Act, which was proclaimed on April 21,
1993 and took effect on September 1, 1993. The Act imposes stricter
environmental standards requiring more stringent compliance and significantly
increased penalties.
Seagull has made and will continue to make expenditures in its efforts
to comply with these requirements, which it believes are necessary business
costs in the oil and gas industry. Although environmental requirements do have
a substantial impact upon the energy industry, generally these
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<PAGE> 19
requirements do not appear to affect Seagull any differently or to any greater
or lesser extent than other companies in the industry.
Seagull maintains insurance coverages which it believes are customary
in the industry, although it is not fully insured against all environmental
risks. The Company is not aware of any environmental claims existing as of
December 31, 1993, which would have a material impact upon the Company's
financial position or results of operations. Seagull does not believe that
compliance with federal, state, local or foreign country provisions regulating
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, will have a material adverse effect upon the
capital expenditures, earnings or competitive position of the Company or its
subsidiaries, but there is no assurance that changes in or additions to laws or
regulations regarding the protection of the environment will not have such an
impact. Seagull has established policies that provide for continuing
compliance with environmental laws and regulations, as well as operational
procedures designed to limit the environmental impact on its field facilities.
EMPLOYEES
As of February 28, 1994, the Company had 742 full time employees. In
addition to the services of its full time employees, the Company employs, as
needed, the services of consulting geologists, engineers, regulatory
consultants and certain other temporary employees.
ENSTAR Alaska operates under collective bargaining agreements with
separate bargaining units for operating and clerical employees. These units
represent approximately 70% of ENSTAR Alaska's work force. Contracts effective
April 1, 1992 were negotiated that set wages and work relationships extending
to April 1, 1995 for the clerical bargaining unit and until April 1, 1996 for
the operating bargaining unit. The Company is not a party to any other
collective bargaining agreements. The Company has never had a work stoppage.
The Company considers its relations with its employees to
be satisfactory.
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<PAGE> 20
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each of whom has been elected
to serve until his or her successor is elected and qualified, are as follows:
<TABLE>
<CAPTION>
Years Served Years in
As Executive Current
Name Age Officer Position Positions
---- --- ------------ -------- ---------
<S> <C> <C> <C> <C>
Barry J. Galt 60 10 10 Chairman of the Board, President and Chief
Executive Officer
John W. Elias 53 1 1 Executive Vice President
Robert W. Shower 56 2 - Executive Vice President and Chief Financial
Officer
Richard F. Barnes 50 6 6 President of ENSTAR Natural Gas Company (a
division of the Company) and Alaska Pipeline
Company (a subsidiary of the Company)
John N. Goodpasture 45 12 1 President, Seagull Pipeline Company (a division
of the Company) and Senior Vice President,
Pipelines
T. P. McConn 60 5 1 President, Seagull Energy
E&P Inc. (a subsidiary of
the Company) and Senior
Vice President, Exploration and Production
Rodney W. Bridges 44 4 1 Vice President and Controller
Janice K. Hartrick 41 1 1 Chief Counsel and Vice President, Environmental
Affairs
Robert M. King 33 4 1 Vice President, Corporate Development and
Treasurer
</TABLE>
The business experience of each of the executive officers named above
who has held the position(s) set forth opposite his or her name for less than
five years, is as follows:
Mr. Elias joined the Company in his present position in April 1993.
For the previous 30 years, he served in a variety of positions for Amoco
Production Company and its parent, Amoco Corporation, most recently as Group
Vice President of Worldwide Natural Gas for Amoco Production Company.
Mr. Shower joined the Company as Senior Vice President and Chief
Financial Officer in March 1992 and was named Executive Vice President of the
Company in December 1993. He served as Senior Vice President, Corporate
Development for Albert Fisher, Inc. from 1991 to February 1992. From 1990 to
1991, he was Vice President and Chief Financial Officer with AmeriServ Food
Company. From 1986 to 1990, he served as a Managing Director, Corporate
Finance, for Lehman Brothers Inc., formerly Shearson Lehman Hutton Inc.
19
<PAGE> 21
Mr. Goodpasture joined the Company in May 1980 as General Manager of
Products and Petrochemicals. He has been an executive officer of the Company
since 1981, most recently, he was named President of Seagull Pipeline Company
in March 1990, and Senior Vice President, Pipelines, in December 1992.
Mr. McConn joined Seagull in 1988 as Vice President - Production
Operations of Seagull Energy E&P Inc., one of the Company's exploration and
production subsidiaries. He was named Vice President, Exploration and
Production of the Company in January 1990 and President of Seagull Energy E&P
Inc. in March 1991. In December 1992, he was named Senior Vice President,
Exploration and Production.
Mr. Bridges joined the Company as Corporate Controller in August 1990,
and was named Vice President and Controller in December 1992. From 1988 to
1990, he was Corporate Controller for TransAmerican Natural Gas Corporation
and, for the previous six years, he was with Damson Oil Corporation, most
recently as Chief Accounting Officer.
Ms. Hartrick joined Seagull as Staff Counsel in 1987 and became Chief
Counsel in 1989. She was named Chief Counsel and Vice President, Environmental
Affairs in December 1992.
Mr. King joined the Company as Treasurer in August 1990, and was named
Vice President, Corporate Development and Treasurer in December 1992. From
1986 to 1990, he was with Mellon Bank, where he served as Vice President in the
Energy Division.
ITEM 2. PROPERTIES
Incorporated herein by reference to Item 1 of this Annual Report on
Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Gulf Coast Vacuum Site. On March 19, 1993, Franks Petroleum, Inc.
("Franks") submitted a claim to Seagull Mid-South Inc., a subsidiary of the
Company ("Seagull Mid-South"), for a portion of Franks' costs incurred in
connection with the Gulf Coast Vacuum Services Superfund Site (the "GCV Site")
in Vermillion Parish, Louisiana. The United States Environmental Protection
Agency Region 6 (the "EPA") currently is seeking the cleanup of the GCV Site
under the authority of the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA").
Franks previously has been identified as a potentially responsible
party at the GCV Site as a result of Franks' arrangements with the former
operator of the GCV Site to transport wastes from various oil and gas leases
owned or operated by Franks in trucks owned by the GCV Site operator. Franks'
claim against Seagull Mid-South asserts that some of the wastes hauled by the
GCV Site operator on behalf of Franks came from a gas well owned by Seagull
Mid-South.
On February 9, 1993, the EPA also sent a notice to Houston Oil &
Minerals Corporation, a subsidiary of the Company ("HO&M"), indicating that
HO&M may be a potentially responsible party at the GCV Site. Based upon the
Company's investigation of this claim, the Company believes that the basis
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<PAGE> 22
for HO&M's alleged liability is a series of transactions between HO&M and the
operator of the GCV Site that occurred during 1979 and 1980, long before
Seagull acquired HO&M.
The EPA's cleanup cost estimate of the GCV Site is in the range of $17
million, although other unofficial estimates indicate the cost may be higher.
Under certain circumstances, liability under CERCLA is joint and several,
although parties whose liability is joint and several have contribution rights
against each other under CERCLA. Nevertheless, if Seagull Mid-South and/or
HO&M is found to be a responsible party at the GCV Site, the Company believes
that its liability is unlikely to be material to its financial condition or its
results of operations because of the large number of potentially responsible
parties at the GCV Site and the relative amount of contamination, if any, that
may have been caused at the GCV Site by the disposal of wastes arising from the
wells identified in the claims.
Other. The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
believes that the effect on its financial condition or results of operations,
if any, will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
A. The Company's Common Stock (the "Common Stock") is traded on
the New York Stock Exchange under the ticker symbol SGO. The
high and low sales prices for each quarterly period during the
last two fiscal years were as follows:
<TABLE>
<CAPTION>
High (*) Low (*)
-------- -------
<S> <C> <C> <C>
1992 First Quarter 12 3/4 10 7/8
Second Quarter 14 1/4 11 3/8
Third Quarter 16 11 7/8
Fourth Quarter 16 7/8 14 5/8
</TABLE>
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C> <C>
1993 First Quarter 24 1/2 14 7/8
Second Quarter 30 22 7/8
Third Quarter 32 7/8 24
Fourth Quarter 31 1/4 21
</TABLE>
(*) Prices have been adjusted to reflect a two-for-one
split of the Common Stock effected June 4, 1993.
B. As of March 10, 1994, there were approximately 2,910 holders of
record of Common Stock.
C. Seagull has not declared any cash dividends on its Common
Stock since it became a public entity in 1981. The decision
to pay Common Stock dividends in the future will depend upon
the Company's earnings and financial condition and such other
factors as the Company's Board of Directors deems relevant.
The Company's credit agreement (the "Credit Agreement")
restricts the Company's declaration or payment of dividends on
and repurchases of Common Stock unless each of the following
tests have been met and after making such dividend payment
such tests continue to be met: (i) the Tangible Net Worth is
not less than $350 million, (ii) the ratio of the Company's
earnings before interest expense, taxes, depreciation and
amortization to the Company's interest expense (including
operating lease rentals and capitalized interest) is not less
than 3.5:1.0, (iii) the Debt to Capitalization Ratio is less
than 60%, (iv) the aggregate amount of outstanding loans under
the Credit Agreement, together with all other senior
indebtedness of Seagull and its subsidiaries (excluding Alaska
Pipeline Company ("APC")) then outstanding, must not exceed
the Borrowing Base and (v) no Event of Default or unmatured
Event of Default shall have occurred and be continuing;
provided that in any event the aggregate dividend payments may
not exceed 33 1/3% of the
22
<PAGE> 24
consolidated cumulative net income of Seagull and its subsidiaries on
a cumulative annual basis from January 1, 1993. The foregoing
restrictions do not apply to dividends payable solely in the form of
additional shares of Common Stock or to dividends payable on up to
$100 million of preferred stock. The capitalized terms used herein to
describe the restrictions contained in the Credit Agreement have the
meanings assigned to them in the Credit Agreement. Under the most
restrictive of these tests, as of December 31, 1993, approximately
$9.1 million was available for payment of dividends on (other than the
stock dividends described above) or repurchase of Common Stock.
However, as of January 4, 1994, immediately following the Company's
acquisition of Novalta Resources Inc., the Company's consolidated Debt
to Capitalization Ratio increased to 60.2%. In the event the
Company's consolidated Debt to Capitalization Ratio is in excess of
60% as of March 31, 1994, the Company would not be able to pay any
cash dividends on or repurchase any Common Stock under these currently
existing provisions. In addition, certain debt instruments of APC
restrict the ability of APC to transfer funds to the Company in the
form of cash dividends, loans or advances. For a description of such
restrictions, reference is made to Note 6 of the Consolidated
Financial Statements included in the Company's 1993 Annual Report to
Shareholders and as part of Exhibit 99.1 attached hereto.
ITEM 6. SELECTED FINANCIAL DATA(1)(2)
<TABLE>
<CAPTION>
(Thousands of Dollars Except Per Share Amounts)
Year Ended December 31,
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . 377,165 238,829 248,537 219,908 178,401
Earnings applicable to common stock (3) . . . . . . . . 27,198 6,688 5,107 20,564 7,691
Earnings per share (3)(4) . . . . . . . . . . . . . . . 0.76 0.26 0.23 1.10 1.07
Net cash provided by operating activities
before changes in operating assets
and liabilities . . . . . . . . . . . . . . . . . . . 160,762 81,368 66,654 64,822 39,167
Net cash provided by operating activities . . . . . . . 119,761 72,187 69,773 87,321 53,264
Total assets . . . . . . . . . . . . . . . . . . . . . 1,118,251 1,102,964 618,552 389,619 332,152
Long-term portion of debt . . . . . . . . . . . . . . . 459,787 608,011 219,154 49,239 113,829
Shareholders' equity (5) . . . . . . . . . . . . . . . 439,379 243,673 235,797 192,516 101,025
Capital expenditures . . . . . . . . . . . . . . . . . 112,042 43,651 71,709 50,293 33,920
Acquisitions, net of cash acquired . . . . . . . . . . 29,470 401,888 201,767 54,320 6,988
</TABLE>
(1) Reference is made to the Consolidated Financial Statements included in
the Company's 1993 Annual Report to Shareholders and as part of
Exhibit 99.1 attached hereto.
(2) Includes Houston Oil Trust since December 31, 1989, Wacker Oil Inc.
since June 28, 1990, the Mid-Continent Assets since March 8, 1991, and
Seagull Mid-South Inc. since December 31, 1992.
(3) 1992 includes the cumulative effect of two changes in accounting
principles representing an increase in earnings of approximately $2.3
million, or $0.09 per share.
(4) Per share data have been restated to reflect a two-for-one split of
the Common Stock effected June 4, 1993.
(5) The Company has not declared any cash dividends on the Common Stock
since it became a public entity in 1981.
23
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1993 Annual Report to Shareholders and as part of Exhibit
99.1 attached hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference to the Consolidated Financial
Statements and Supplementary Data included in the Company's 1993 Annual Report
to Shareholders and as part of Exhibit 99.1 attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
24
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to "Proposal 1 - Election of
Directors" included in the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on June 1, 1994 (the "Proxy Statement"). See also
"Executive Officers of the Company" included in Part I of this Annual Report on
Form 10-K, which is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to "Proposal 1 - Election of
Directors --Executive Compensation--Summary Compensation Table",
"--Compensation Arrangements," "--Option Exercises and Fiscal Year-End Values,"
"--Option Grants," "--Executive Supplemental Retirement Plan," and "--ENSTAR
Natural Gas Company Retirement Plan"; and "Election of Directors-Compensation
of Directors" included in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference to "Principal Shareholders" and
"Proposal 1 - Election of Directors--Security Ownership of Directors and
Management" included in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to "Proposal 1 - Election of
Directors--Certain Transactions and Other Matters" included in the Proxy
Statement.
25
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
The following Consolidated Financial Statements and Independent
Auditors' Report thereon are included in the Company's 1993 Annual Report to
Shareholders and as part of Exhibit 99.1 attached hereto, and are incorporated
herein by reference:
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. SCHEDULES: PAGE
----
Independent Auditors' Report........................ 35
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters, and
Employees Other Than Related Parties........ 36
Schedule V - Property, Plant and Equipment.......... 37
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of Property,
Plant and Equipment......................... 38
Schedule X - Supplementary Income Statement
Information................................. 39
All other schedules have been omitted because the required information is
insignificant or not applicable.
3. EXHIBITS:
3.1 Articles of Incorporation of the Company, as
amended, including Articles of Amendment filed May
12, 1988, May 21, 1991, and May 21, 1993 with the
Secretary of State of the State of Texas, that
certain Statement of Relative Rights and
Preferences related to the designation and
issuance of the Company's $2.25 Convertible
Exchangeable Preferred Stock, Series A, filed
August 6, 1986 with the Secretary of State of the
State of Texas and that certain Statement of
Resolution Establishing Series of Shares of Series
B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the
Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
26
<PAGE> 28
3.2 Bylaws of the Company, as amended through January
30, 1990 (incorporated by reference to Exhibit 3.2
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4.1 Note Agreement dated June 17, 1985 by and among
APC and The Travelers Insurance Company, The
Travelers Life Insurance Company, and the
Equitable Life Assurance Society of the United
States (collectively, the "Insurance Companies")
(including forms of notes and other exhibits
thereto) and Inducement Agreement of even date
therewith by and among Seagull and the Insurance
Companies (including exhibits thereto)
(incorporated by reference to Exhibit 4.1 to
Annual Report on Form 10-K for the year ended
December 31, 1990).
4.2 Form of Consent and Agreement dated April 15, 1991
by and among APC and the Insurance Companies
(including exhibits thereto) (incorporated by
reference to Exhibit 4.2 to Annual Report on Form
10-K for the year ended December 31, 1992).
4.3 Rights Agreement dated as of March 17, 1989
between the Company and NCNB Texas National Bank,
as Rights Agent, which includes the form of
Statement of Resolution setting forth the terms of
the Series B Junior Participating Preferred Stock,
par value $1.00 per share, as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary
of Rights to Purchase Preferred Shares as Exhibit
C (incorporated by reference to Exhibit 4.8 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4.4 First Amendment to Rights Agreement by and between
the Company and NationsBank of Texas, N. A.
(formerly NCNB Texas National Bank) dated as of
June 18, 1992 (incorporated by reference to
Exhibit 3.4 to Registration Statement on Form
S-3 (File No. 33-55426)).
4.5 Amended and Restated Credit Agreement dated June
25, 1993 by and among Seagull, each of the banks
signatory thereto and Texas Commerce Bank National
Association, as agent (without exhibits and
schedules) (incorporated by reference to Exhibit
4.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
4.6 Form of Revolving Credit Loan Note executed in
connection with the Amended and Restated Credit
Agreement included as Exhibit 4.5 hereto
(incorporated by reference to Exhibit 4.2 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4.7 Senior Indenture dated as of July 15, 1993 by and
between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1
to Current Report on Form 8-K dated August 4,
1993).
4.8 Senior Subordinated Indenture dated as of July 15,
1993 by and between the Company and The Bank of
New York, as Trustee
27
<PAGE> 29
(incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K dated August 4, 1993).
4.9 Specimen of 7 7/8% Senior Note due 2003 and
resolutions adopted by the Chairman of the Board
of Directors (incorporated by reference to Exhibit
4.3 to Current Report on Form 8-K dated August 4,
1993).
4.10 Specimen of 8 5/8% Senior Subordinated Note due
2005 and resolutions adopted by the Chairman of
the Board of Directors (incorporated by reference
to Exhibit 4.4 to Current Report on Form 8-K dated
August 4, 1993).
4.11 Note Agreement dated May 14, 1992 by and among
Alaska Pipeline Company and each of the purchasers
thereto (including forms of notes and other
exhibits thereto) and Inducement Agreement of even
date therewith by and among Seagull and Aid
Association for Lutherans, The Equitable Life
Assurance Society of the United States, Equitable
Variable Life Insurance Company, Provident Life &
Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including
exhibits thereto) (incorporated by reference to
Exhibit 4.7 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992).
4.12 First Amendment to Amended and Restated Credit
Agreement by and among Seagull, each of the banks
signatory thereto, and Texas Commerce Bank
National Association, as agent, dated December 30,
1993 (without exhibits and schedules)
(incorporated by reference to Exhibit 2.3 to
Current Report on Form 8- K filed January 19,
1994).
4.13 Credit Agreement, U. S. $175 Million Reducing
Revolving Credit Facility, dated December 30, 1993
by and among Seagull Energy Canada Ltd., each of
the banks signatory thereto, and Chemical Bank of
Canada, The Bank of Nova Scotia and Canadian
Imperial Bank of Commerce, as co-agents (without
exhibits) (incorporated by reference to Exhibit
2.4 to Current Report on Form 8-K filed January
19, 1994).
4.14 Form of Revolving Credit Loan Note (U. S. Dollars)
executed in connection with the Credit Agreement
included as Exhibit 4.13 hereto (incorporated by
reference to Exhibit 2.5 to Current Report on Form
8-K filed January 19, 1994).
4.15 Form of Revolving Credit Loan Note (Canadian
Dollars) executed in connection with the Credit
Agreement included as Exhibit 4.13 hereto
(incorporated by reference to Exhibit 2.6 to
Current Report on Form 8-K filed January 19,
1994).
4.16 Intercreditor Agreement executed in connection
with the Credit Agreement included as Exhibit 4.13
hereto (incorporated by reference to Exhibit 2.7
to Current Report on Form 8-K filed January 19,
1994).
28
<PAGE> 30
4.17 Form of Bankers' Acceptance executed in connection
with the Credit Agreement included as Exhibit 4.13
hereto (incorporated by reference to Exhibit 2.8
to Current Report on Form 8-K filed January 19,
1994).
4.18 Guarantee executed in connection with the Credit
Agreement included as Exhibit 4.13 hereto
(incorporated by reference to Exhibit 2.9 to
Current Report on Form 8-K filed January 19,
1994).
# 10.1 Seagull Thrift Plan, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.46 to the Annual Report on
Form 10-K for the year ended December 31, 1990;
the First and Second Amendments thereto are
incorporated by reference to Exhibit 10.1 to
Annual Report on Form 10-K for the year ended
December 31, 1991; the Third Amendment thereto is
incorporated by reference to Exhibit 10.1 to
Annual Report on Form 10-K for the year ended
December 31, 1992).
# 10.2 Employment Agreement dated December 30, 1983 by
and between the Company and Barry J. Galt,
Chairman of the Board, President and Chief
Executive Officer of the Company (incorporated by
reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
# 10.3 Outside Directors Deferred Fee Plan of the
Company, as amended and restated (incorporated by
reference to Exhibit 10.3 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.4 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by
reference to Exhibit 10.4 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.5 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt
dated as of February 3, 1986, as amended
(incorporated by reference to Exhibit 10.5 to
Annual Report on Form 10-K for the year ended
December 31, 1991).
#*10.6 ENSTAR Natural Gas Company Thrift Investment Plan,
as amended and restated (the amended and restated
plan is incorporated by reference to Exhibit 10.6
to Annual Report on Form 10-K for the year ended
December 31, 1992; the First and Second Amendments
thereto are filed herewith).
# 10.7 ENSTAR Natural Gas Company Retirement Plan for
Salaried Employees, as renamed, amended and
restated (incorporated by reference to Exhibit
10.7 to Annual Report on Form 10-K for the year
ended December 31, 1992).
# 10.8 ENSTAR Natural Gas Company Retirement Plan for
Operating Unit Employees, as amended and restated
(incorporated by
29
<PAGE> 31
reference to Exhibit 10.8 to Annual Report on
Form 10-K for the year ended December 31, 1992).
#*10.9 ENSTAR Natural Gas Company Profit by Service Plan
for Salaried Employees, as amended and restated
(the amended and restated plan is incorporated by
reference to Exhibit 10.9 to Annual Report on Form
10-K for the year ended December 31, 1992; the
First Amendment thereto is filed herewith).
#*10.10 ENSTAR Natural Gas Company Profit by Service Plan
for Classified Employees, as amended and restated
(the amended and restated plan is incorporated by
reference to Exhibit 10.10 to Annual Report on
Form 10-K for the year ended December 31, 1992;
the First and Second Amendments thereto are filed
herewith).
# 10.11 Seagull Energy Corporation Supplemental Benefit
Plan, as amended (the original plan is
incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for the year ended
December 31, 1990; the First Amendment thereto is
incorporated by reference to Exhibit 10.9 to
Annual Report on Form 10-K for the year ended
December 31, 1991).
10.12 Gas Purchase Agreement among Alaska Pipeline
Company and Marathon Oil Company dated as of May
1, 1988, as amended (incorporated by reference to
Exhibit 10.2 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993).
10.13 Agreement to terminate Gas Purchase Contract among
Alaska Pipeline Company and Union Oil Company of
California (incorporated by reference to Exhibit
10.3 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
# 10.14 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.6
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
#*10.15 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as
amended (the amended and restated Plan is
incorporated by reference to Exhibit 10.7 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is filed
herewith).
#*10.16 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as
amended (the amended and restated Plan is
incorporated by reference to Exhibit 10.8 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is filed
herewith).
# 10.17 Seagull Employee Stock Ownership Plan (the "Plan")
as amended, including the First through Fourth
Amendments thereto (incorporated by reference to
Exhibit 10.9 to
30
<PAGE> 32
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.18 Non-Recourse Promissory Note from the Plan to the
Company, dated November 15, 1989 (incorporated by
reference to Exhibit 10.10 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
10.19 Security (Pledge) Agreement dated November 15,
1989 by and between the Plan and the Company
(incorporated by reference to Exhibit 10.11 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.20 Sale Agreement made and entered into as of
November 19, 1993 between Novacor Petrochemicals
Ltd. and Seagull Energy Corporation (including
Appendix J, "Tax Provisions") (incorporated by
reference to Exhibit 2.1 to Current Report on Form
8-K filed January 19, 1994).
10.21 Guarantee executed in connection with Sale
Agreement included as Exhibit 10.20 hereto
(incorporated by reference to Exhibit 2.2 to
Current Report on Form 8-K filed January 19,
1994).
10.22 Purchase and Sale Agreement made and entered into
February 6, 1991 among Mesa Limited Partnership,
Mesa Operating Limited Partnership, Mesa
Midcontinent Limited Partnership and Seagull
(without exhibits and schedules), as amended
(incorporated by reference to Exhibits 2.3 and 2.4
to Amendment No. 1 dated March 5, 1991 to Current
Report on Form 8-K dated December 7, 1990 and to
Exhibits 2.3 and 2.4 to Current Report on Form 8-K
dated March 8, 1991).
#*10.23 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.42 to
Annual Report on Form 10-K for the year ended
December 31, 1990; the amended form of
Nonstatutory Stock Option Agreement is filed
herewith).
10.24 Gas Purchase Contract among Alaska Pipeline
Company and Shell Oil Company dated as of December
20, 1982, as amended (incorporated by reference to
Exhibit 10.29 to Annual Report on Form 10-K for
the year ended December 31, 1991).
# 10.25 Seagull Energy Corporation 1991 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.31 to Annual Report on Form 10-K for
the year ended December 31, 1991).
# 10.26 Seagull Energy Corporation 1992 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.32 to Annual Report on Form 10-K for
the year ended December 31, 1991).
# 10.27 Seagull Energy Corporation 1993 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.35 to Annual Report on Form 10-K for
the year ended December 31, 1992).
31
<PAGE> 33
10.28 Stock Purchase Agreement made and entered into as
of November 16, 1992 between Arkla, Inc. and
Seagull (not including disclosure schedules)
(incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K dated December 4, 1992,
as amended).
#*10.29 Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan, including forms of
agreements (the Plan is incorporated by reference
to Exhibit 10.37 to Annual Report on Form 10-K for
the year ended December 31, 1992; the amended
form of Nonstatutory Stock Option Agreement
is filed herewith).
#*10.30 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.38 to
Annual Report on Form 10-K for the year ended
December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is filed
herewith).
*21. Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick.
*23.2 Consent of Ryder Scott Company, independent
petroleum engineers.
*23.3 Consent of DeGolyer and MacNaughton,
independent petroleum engineers.
*23.4 Consent of Netherland, Sewell and Associates,
Inc., independent petroleum engineers.
*23.5 Consent of K&A Energy Consultants, Inc.,
independent petroleum engineers.
23.6 Consent of R. A. Lenser & Associates, Inc.,
independent petroleum engineers (incorporated by
reference to Exhibit 24.6 to Annual Report on Form
10-K for the year ended December 31, 1992).
*99.1 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the
year ended December 31, 1993 which are
incorporated by reference herein to this Annual
Report on Form 10-K of Seagull Energy Corporation
and Subsidiaries for the year ended December 31,
1993.
____________________________
* Filed herewith.
# Identifies management contracts and compensatory plans or
arrangements.
32
<PAGE> 34
(B) REPORTS ON FORM 8-K
There were no Reports on Form 8-K filed during the three months ended
December 31, 1993.
The Company filed a current report on Form 8-K dated January 4, 1994,
as amended, with respect to Seagull's acquisition of all the outstanding shares
of stock of Novalta Resources Inc. The items reported in such current report
were Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial
Statements and Exhibits). The following financial statements were included in
this report:
( i) Financial statements of business acquired.
The financial statements of Novalta Resources Inc.
and Subsidiaries - Years ended December 1993 and 1992
(incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated January 4,
1994, as amended).
(ii) Pro forma financial information.
The pro forma financial information giving effect to
the Seagull Canada Acquisition (incorporated by
reference to the "Unaudited Pro Forma Condensed
Financial Statements" contained in Item 7(b) of the
Company's Current Report on Form 8-K dated January 4,
1994, as amended).
33
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SEAGULL ENERGY CORPORATION
Date: March 18, 1994 By: /s/ Barry J. Galt
------------------------------
Barry J. Galt, Chairman of
the Board, President and
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ Barry J. Galt By: /s/ J. Evans Attwell
----------------------------------------------- ----------------------------
Barry J. Galt, Chairman of the Board, President J. Evans Attwell, Director
and Chief Executive Officer and Director Date: March 18, 1994
(Principal Executive Officer)
Date: March 18, 1994 By:
----------------------------
John B. Brock, Director
By: /s/ Robert W. Shower Date: March 18, 1994
-----------------------------------------------
Robert W. Shower, Executive Vice President and
Chief Financial Officer and Director (Principal By: /s/ John W. Elias
Financial Officer) ----------------------------
Date: March 18, 1994 John W. Elias, Director
Date: March 18, 1994
By: /s/ Rodney W. Bridges By: /s/ Peter J. Fluor
----------------------------------------------- ----------------------------
Rodney W. Bridges, Vice President and Peter J. Fluor, Director
Controller (Principal Accounting Officer) Date: March 18, 1994
Date: March 18, 1994
By: /s/ William R. Grant
----------------------------
William R. Grant, Director
Date: March 18, 1994
By: /s/ Dean P. Guerin
----------------------------
Dean P. Guerin, Director
Date: March 18, 1994
By: /s/ Richard M. Morrow
----------------------------
Richard M. Morrow, Director
Date: March 18, 1994
By: /s/ Dee S. Osborne
----------------------------
Dee S. Osborne, Director
Date: March 18, 1994
By: /s/ Sam F. Segnar
----------------------------
Sam F. Segnar, Director
Date: March 18, 1994
By: /s/ George M. Sullivan
----------------------------
George M. Sullivan, Director
Date: March 18, 1994
</TABLE>
34
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Seagull Energy Corporation:
Under date of January 31, 1994, except the last three paragraphs of
Note 17, Subsequent Events, which are as of March 11, 1994, we reported on the
consolidated balance sheets of Seagull Energy Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the years in the
three- year period ended December 31, 1993, as contained in the 1993 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1993. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in the accompanying index. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK
Houston, Texas
January 31, 1994
35
<PAGE> 37
SCHEDULE II
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (*)
<TABLE>
<CAPTION>
Balance
at Balance
Name of Beginning at End of
Debtor of Period Additions Deductions Period
---------------------- ---------- --------- ----------------------------- ----------------------
Amounts Amounts Not
Collected Written Off Current Current
--------- ----------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1991:
Barry J. Galt $250 $ - $ 25 $ - $ 25 $200
Year ended
December 31, 1992:
Barry J. Galt $225 $ - $ 25 $ - $ 25 $175
Year ended
December 31, 1993:
Barry J. Galt $200 $ - $200 $ - $ - $ -
</TABLE>
(*) Principal payments were made in equal annual installments beginning
April 2, 1991 . Annual interest payments at the rate of 6% per annum
were provided for throughout the term of the promissory notes. The
remaining principal balance of the notes and accrued interest for the
period were repaid in full in August 1993.
36
<PAGE> 38
SCHEDULE V
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT (1)
<TABLE>
<CAPTION>
Other
Balance at Changes Balance
Beginning Additions Add at End
Descriptions of Period at Cost (2) Retirements (Deduct) of Period
------------ --------- ----------- ----------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Gas and oil properties $ 172,140 $ 260,012 $ 17,971 $ (4,195) (3) $ 409,986
Pipeline facilities 66,710 473 121 - 67,062
Gas processing plant 10,963 161 - - 11,124
Utility plant 191,058 10,492 1,519 904 (4) 200,935
Equipment and other 5,027 2,557 194 - 7,390
---------- --------- -------- ----------- ----------
$ 445,898 $ 273,695 $ 19,805 $ (3,291) $ 696,497
========== ========= ======== =========== ==========
Year ended December 31, 1992:
Gas and oil properties $ 409,986 $ 485,767 $ 2,343 $ (5,232) (3) $ 888,178
Pipeline facilities 67,062 10,802 5,451 - 72,413
Gas processing plant 11,124 1,177 - - 12,301
Utility plant 200,935 9,024 804 (736) (5) 208,419
Equipment and other 7,390 3,172 298 - 10,264
---------- --------- -------- ----------- ----------
$ 696,497 $ 509,942 $ 8,896 $ (5,968) $1,191,575
========== ========= ======== =========== ==========
Year ended December 31, 1993:
Gas and oil properties $ 888,178 $ 120,740 $ 24,635 $ (10,534) (3) $ 972,460
(1,289) (6)
Pipeline facilities 72,413 468 9,862 - 63,019
Gas processing plants 12,301 1,647 - 1,860 (6) 15,808
Utility plant 208,419 10,094 1,630 - 216,883
Equipment and other 10,264 2,015 1,177 (571) (6) 10,531
---------- --------- --------- ----------- ----------
$1,191,575 $ 134,964 $ 37,304 $ (10,534) $1,278,701
========== ========= ========= =========== ==========
</TABLE>
(1) See Note 1 ("Gas and Oil Properties" and "Other Property, Plant and
Equipment") of the Consolidated Financial Statements included in the
Company's 1993 Annual Report to Shareholders and as part of Exhibit
99.1 attached hereto for information regarding depreciation methods.
(2) The additions to property, plant and equipment for the acquisitions of
Wacker, the Mid-Continent Assets and Seagull Mid-South are included
under "Additions at Cost" (see Note 2 of the Consolidated Financial
Statements included in the Company's 1993 Annual Report to
Shareholders and as part of Exhibit 99.1 attached hereto).
(3) Dry hole expense.
(4) Adjustment to investment tax credit related to ENSTAR Alaska.
(5) Adjustment for prior purchase business combination resulting from the
Company's adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, effective January 1, 1992 (see Notes
1 ("Income Taxes") and 13 of the Consolidated Financial Statements
included in the Company's 1993 Annual Report to Shareholders and as
part of Exhibit 99.1 attached hereto).
(6) Intercompany transfers.
37
<PAGE> 39
SCHEDULE VI
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Additions Other
Balance at Charged to Changes Balance
Beginning Costs and Add at End
Descriptions of Period Expenses Retirements (Deduct) of Period
------------ --------- -------- ----------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Gas and oil properties $ 60,252 $ 42,646 $16,759 $ - $ 86,139
Pipeline facilities 56,610 2,382 103 - 58,889
Gas processing plant 6,443 897 - - 7,340
Utility plant 34,359 7,868 1,428 - 40,799
Equipment and other 2,224 1,018 167 - 3,075
-------- -------- ------- -------- --------
$159,888 $ 54,811 $18,457 $ - $196,242
======== ======== ======= ======== ========
Year ended December 31, 1992:
Gas and oil properties $ 86,139 $ 52,855 $ 1,793 $ - $137,201
Pipeline facilities 58,889 2,290 5,048 - 56,131
Gas processing plant 7,340 902 - - 8,242
Utility plant 40,799 7,920 659 - 48,060
Equipment and other 3,075 1,271 207 - 4,139
-------- -------- ------- -------- --------
$196,242 $ 65,238 $ 7,707 $ - $253,773
======== ======== ======= ======== ========
Year ended December 31, 1993:
Gas and oil properties $137,201 $103,552 $15,611 $(691)(*) $224,451
Pipeline facilities 56,131 4,255 9,591 - 50,795
Gas processing plants 8,242 1,238 - 691 (*) 10,171
Utility plant 48,060 8,587 1,768 - 54,879
Equipment and other 4,139 1,912 835 - 5,216
-------- -------- ------- -------- --------
$253,773 $119,544 $27,805 $ - $345,512
======== ======== ======= ======== ========
</TABLE>
(*) Intercompany transfers.
38
<PAGE> 40
SCHEDULE X
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Item Charged to Costs and Expenses
---- ----------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------
1993 1992 1991
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maintenance and Repairs $5,576 $3,844 $4,156
Taxes, other than payroll
and income taxes:
Ad Valorem $6,080 $4,400 $4,137
Production $9,134 $4,045 $3,531
Other $1,817 $1,301 $1,533
</TABLE>
39
<PAGE> 41
EXHIBIT INDEX
EXHIBITS: Page
----
3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988,
May 21, 1991, and May 21, 1993 with the Secretary of
State of the State of Texas, that certain Statement
of Relative Rights and Preferences related to the
designation and issuance of the Company's $2.25
Convertible Exchangeable Preferred Stock, Series A,
filed August 6, 1986 with the Secretary of State of
the State of Texas and that certain Statement of
Resolution Establishing Series of Shares of Series B
Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the
Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
3.2 Bylaws of the Company, as amended through January 30,
1990 (incorporated by reference to Exhibit 3.2 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
4.1 Note Agreement dated June 17, 1985 by and among APC
and The Travelers Insurance Company, The Travelers
Life Insurance Company, and the Equitable Life
Assurance Society of the United States (collectively,
the "Insurance Companies") (including forms of notes
and other exhibits thereto) and Inducement Agreement
of even date therewith by and among Seagull and the
Insurance Companies (including exhibits thereto)
(incorporated by reference to Exhibit 4.1 to Annual
Report on Form 10-K for the year ended December 31,
1990).
4.2 Form of Consent and Agreement dated April 15, 1991 by
and among APC and the Insurance Companies (including
exhibits thereto) (incorporated by reference to
Exhibit 4.2 to Annual Report on Form 10-K for the
year ended December 31, 1992).
4.3 Rights Agreement dated as of March 17, 1989 between
the Company and NCNB Texas National Bank, as Rights
Agent, which includes the form of Statement of
Resolution setting forth the terms of the Series B
Junior Participating Preferred Stock, par value $1.00
per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
40
<PAGE> 42
Purchase Preferred Shares as Exhibit C (incorporated
by reference to Exhibit 4.8 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
4.4 First Amendment to Rights Agreement by and between
the Company and NationsBank of Texas, N. A. (formerly
NCNB Texas National Bank) dated as of June 18, 1992
(incorporated by reference to Exhibit 3.4 to
Registration Statement on Form S-3 (File No.
33-55426)).
4.5 Amended and Restated Credit Agreement dated June 25,
1993 by and among Seagull, each of the banks
signatory thereto and Texas Commerce Bank National
Association, as agent (without exhibits and
schedules) (incorporated by reference to Exhibit 4.1
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4.6 Form of Revolving Credit Loan Note executed in
connection with the Amended and Restated Credit
Agreement included as Exhibit 4.5 hereto
(incorporated by reference to Exhibit 4.2 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
4.7 Senior Indenture dated as of July 15, 1993 by and
between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K dated August 4, 1993).
4.8 Senior Subordinated Indenture dated as of July 15,
1993 by and between the Company and The Bank of New
York, as Trustee (incorporated by reference to
Exhibit 4.2 to Current Report on Form 8-K dated
August 4, 1993).
4.9 Specimen of 7 7/8% Senior Note due 2003 and
resolutions adopted by the Chairman of the Board of
Directors (incorporated by reference to Exhibit 4.3
to Current Report on Form 8-K dated August 4, 1993).
4.10 Specimen of 8 5/8% Senior Subordinated Note due 2005
and resolutions adopted by the Chairman of the Board
of Directors (incorporated by reference to Exhibit
4.4 to Current Report on Form 8-K dated August 4,
1993).
4.11 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by
and among
41
<PAGE> 43
Seagull and Aid Association for Lutherans, The
Equitable Life Assurance Society of the United
States, Equitable Variable Life Insurance Company,
Provident Life & Accident Insurance Company and
Teachers Insurance & Annuity Association of America
(including exhibits thereto) (incorporated by
reference to Exhibit 4.7 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1992).
4.12 First Amendment to Amended and Restated Credit
Agreement by and among Seagull, each of the banks
signatory thereto, and Texas Commerce Bank National
Association, as agent, dated December 30, 1993
(without exhibits and schedules) (incorporated by
reference to Exhibit 2.3 to Current Report on Form
8-K filed January 19, 1994).
4.13 Credit Agreement, U. S. $175 Million Reducing
Revolving Credit Facility, dated December 30, 1993 by
and among Seagull Energy Canada Ltd., each of the
banks signatory thereto, and Chemical Bank of Canada,
The Bank of Nova Scotia and Canadian Imperial Bank of
Commerce, as co-agents (without exhibits)
(incorporated by reference to Exhibit 2.4 to Current
Report on Form 8-K filed January 19, 1994).
4.14 Form of Revolving Credit Loan Note (U. S. Dollars)
executed in connection with the Credit Agreement
included as Exhibit 4.13 hereto (incorporated by
reference to Exhibit 2.5 to Current Report on Form
8-K filed January 19, 1994).
4.15 Form of Revolving Credit Loan Note (Canadian Dollars)
executed in connection with the Credit Agreement
included as Exhibit 4.13 hereto (incorporated by
reference to Exhibit 2.6 to Current Report on Form
8-K filed January 19, 1994).
4.16 Intercreditor Agreement executed in connection with
the Credit Agreement included as Exhibit 4.13 hereto
(incorporated by reference to Exhibit 2.7 to Current
Report on Form 8-K filed January 19, 1994).
4.17 Form of Bankers' Acceptance executed in connection
with the Credit Agreement included as Exhibit 4.13
hereto (incorporated by reference to Exhibit 2.8 to
Current Report on Form 8-K filed January 19, 1994).
4.18 Guarantee executed in connection with the Credit
Agreement included as Exhibit 4.13
42
<PAGE> 44
hereto (incorporated by reference to Exhibit 2.9 to
Current Report on Form 8-K filed January 19, 1994).
# 10.1 Seagull Thrift Plan, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.46 to the Annual Report on
Form 10-K for the year ended December 31, 1990; the
First and Second Amendments thereto are incorporated
by reference to Exhibit 10.1 to Annual Report on Form
10-K for the year ended December 31, 1991; the Third
Amendment thereto is incorporated by reference to
Exhibit 10.1 to Annual Report on Form 10-K for the
year ended December 31, 1992).
# 10.2 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of
the Board, President and Chief Executive Officer of
the Company (incorporated by reference to Exhibit
10.1 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
# 10.3 Outside Directors Deferred Fee Plan of the Company,
as amended and restated (incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K for the
year ended December 31, 1991).
# 10.4 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by
reference to Exhibit 10.4 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.5 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt dated
as of February 3, 1986, as amended (incorporated by
reference to Exhibit 10.5 to Annual Report on Form
10-K for the year ended December 31, 1991).
#*10.6 ENSTAR Natural Gas Company Thrift Investment Plan, as
amended and restated (the amended and restated plan
is incorporated by reference to Exhibit 10.6 to
Annual Report on Form 10-K for the year ended
December 31, 1992; the First and Second Amendments
thereto are filed herewith).
# 10.7 ENSTAR Natural Gas Company Retirement Plan for
Salaried Employees, as renamed, amended and restated
(incorporated by reference to Exhibit 10.7 to Annual
Report on Form 10-K for the year ended December 31,
1992).
43
<PAGE> 45
# 10.8 ENSTAR Natural Gas Company Retirement Plan for
Operating Unit Employees, as amended and restated
(incorporated by reference to Exhibit 10.8 to Annual
Report on Form 10-K for the year ended December 31,
1992).
#*10.9 ENSTAR Natural Gas Company Profit by Service Plan for
Salaried Employees, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.9 to Annual Report on Form
10-K for the year ended December 31, 1992; the First
Amendment thereto is filed herewith).
#*10.10 ENSTAR Natural Gas Company Profit by Service Plan for
Classified Employees, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.10 to Annual Report on Form
10-K for the year ended December 31, 1992; the First
and Second Amendments thereto are filed herewith).
# 10.11 Seagull Energy Corporation Supplemental Benefit Plan,
as amended (the original plan is incorporated by
reference to Exhibit 10.11 to Annual Report on Form
10-K for the year ended December 31, 1990; the First
Amendment thereto is incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K for the
year ended December 31, 1991).
10.12 Gas Purchase Agreement among Alaska Pipeline Company
and Marathon Oil Company dated as of May 1, 1988, as
amended (incorporated by reference to Exhibit 10.2
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.13 Agreement to terminate Gas Purchase Contract among
Alaska Pipeline Company and Union Oil Company of
California (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
# 10.14 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended
(incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
#*10.15 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended
(the amended and restated Plan is incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1993; the
44
<PAGE> 46
amended form of Nonstatutory Stock Option Agreement
is filed herewith).
#*10.16 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended
(the amended and restated Plan is incorporated by
reference to Exhibit 10.8 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1993; the amended
form of Nonstatutory Stock Option Agreement is filed
herewith).
# 10.17 Seagull Employee Stock Ownership Plan (the "Plan") as
amended, including the First through Fourth
Amendments thereto (incorporated by reference to
Exhibit 10.9 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
10.18 Non-Recourse Promissory Note from the Plan to the
Company, dated
November 15, 1989 (incorporated by reference to
Exhibit 10.10 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993).
10.19 Security (Pledge) Agreement dated November 15, 1989
by and between the Plan and the Company (incorporated
by reference to Exhibit 10.11 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
10.20 Sale Agreement made and entered into as of November
19, 1993 between Novacor Petrochemicals Ltd. and
Seagull Energy Corporation (including Appendix J,
"Tax Provisions") (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed
January 19, 1994).
10.21 Guarantee executed in connection with Sale Agreement
included as Exhibit 10.20 hereto (incorporated by
reference to Exhibit 2.2 to Current Report on Form
8-K filed January 19, 1994).
10.22 Purchase and Sale Agreement made and entered into
February 6, 1991 among Mesa Limited Partnership, Mesa
Operating Limited Partnership, Mesa Midcontinent
Limited Partnership and Seagull (without exhibits and
schedules), as amended (incorporated by reference to
Exhibits 2.3 and 2.4 to Amendment No. 1 dated March
5, 1991 to Current Report on Form 8-K dated December
7, 1990 and to Exhibits 2.3 and 2.4 to Current Report
on Form 8-K dated March 8, 1991).
45
<PAGE> 47
#*10.23 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.42 to Annual
Report on Form 10-K for the year ended December 31,
1990; the amended form of Nonstatutory Stock Option
Agreement is filed herewith).
10.24 Gas Purchase Contract among Alaska Pipeline Company
and Shell Oil Company dated as of December 20, 1982,
as amended (incorporated by reference to Exhibit
10.29 to Annual Report on Form 10-K for the year
ended December 31, 1991).
# 10.25 Seagull Energy Corporation 1991 Executive Incentive
Plan (incorporated by reference to Exhibit 10.31 to
Annual Report on Form 10-K for the year ended
December 31, 1991).
# 10.26 Seagull Energy Corporation 1992 Executive Incentive
Plan (incorporated by reference to Exhibit 10.32 to
Annual Report on Form 10-K for the year ended
December 31, 1991).
# 10.27 Seagull Energy Corporation 1993 Executive Incentive
Plan (incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended
December 31, 1992).
10.28 Stock Purchase Agreement made and entered into as of
November 16, 1992 between Arkla, Inc. and Seagull
(not including disclosure schedules) (incorporated by
reference to Exhibit 2.1 to Current Report on Form
8-K dated December 4, 1992, as amended).
#*10.29 Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan, including forms of
agreements (the Plan is incorporated by reference to
Exhibit 10.37 to Annual Report on Form 10-K for the
year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is filed
herewith).
#*10.30 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.38 to Annual
Report on Form 10-K for the year ended December 31,
1992; the amended form of Nonstatutory Stock Option
Agreement is filed herewith).
*21. Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick.
46
<PAGE> 48
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent
petroleum engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*23.5 Consent of K&A Energy Consultants, Inc., independent
petroleum engineers.
23.6 Consent of R. A. Lenser & Associates, Inc.,
independent petroleum engineers (incorporated by
reference to Exhibit 24.6 to Annual Report on Form
10-K for the year ended December 31,1992).
*99.1 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the
year ended December 31, 1993 which are incorporated
by reference herein to this Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries
for the year ended December 31, 1993.
____________________
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
47
<PAGE> 1
Exhibit 10.6
FIRST AMENDMENT TO
ENSTAR NATURAL GAS COMPANY
THRIFT INVESTMENT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION, (the "Company") has heretofore
adopted the ENSTAR NATURAL GAS COMPANY THRIFT INVESTMENT PLAN (the "Plan"), and
WHEREAS, Section 13.1 of the Plan provides that the Administrative
Committee appointed by the Chief Executive Officer of the Company to administer
the Plan (the "Committee") shall have the authority to make any administrative
modifications necessary or advisable by the Committee to facilitate the
efficient administration of the Plan; and
WHEREAS, the Committee desires to amend the Plan provision that
governs when a Class III Withdrawal can be made. Presently, a member may not
make a Class III Withdrawal unless he has had Basic Contributions allocated to
his account for at least five years. This amendment allows a member to make a
Class III Withdrawal as long as he has been a Member of the Plan for five or
more years.
NOW THEREFORE, the Plan is hereby amended, effective as of January 1,
1989, by deleting Section 8.2 of the Plan and substituting the following
therefor:
"8.2 CLASS III WITHDRAWALS: A Member may, as of any Valuation Date,
withdraw an amount equal to all amounts withdrawable pursuant to Section 8.1,
plus all amounts withdrawable pursuant to Section 8.3, plus an amount not
exceeding the then value of such Member's Company Contribution Account, and for
withdrawals in Plan Years beginning before January 1, 1993, less any Company
Matching Contributions made to such Account in the twenty-four months
immediately preceding such withdrawal. A Member who makes such a withdrawal
may not participate in the Plan for a period of twelve months following such
withdrawal. A Member may not make a withdrawal pursuant to this Section 8.2
unless he has been a Member of the Plan for at least five years."
As amended hereby, the Plan is specifically ratified and reaffirmed.
Executed this 9th day of June, 1993.
ADMINISTRATIVE COMMITTEE
ENSTAR NATURAL GAS COMPANY
THRIFT INVESTMENT PLAN
BY____________________________
RICHARD F. BARNES, CHAIRMAN
<PAGE> 2
SECOND AMENDMENT TO THE
ENSTAR NATURAL GAS COMPANY
THRIFT INVESTMENT PLAN
WHEREAS, Seagull Energy Corporation (the "Company") has heretofore adopted the
ENSTAR Natural Gas Company Thrift Investment Plan (the "Plan"); and
WHEREAS, Section 13.1 of the Plan provides that the administrative committee
appointed by the Chief Executive Officer of the Company to administer the Plan
(the "Committee") may make certain amendments to the Plan; and
WHEREAS, the Committee desires to make such an amendment to the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1989, by deleting Section 7.4(a) of the Plan and substituting the following
therefor:
"(a) Each Member, OR A MEMBER'S SURVIVING SPOUSE WHO HAS
ELECTED TO DEFER DISTRIBUTION UNDER THE TERMS OF THIS PLAN, shall have
the right to designate the beneficiary or beneficiaries to receive
payment of his benefit in the event of his death. Each such
designation shall be made by executing the beneficiary designation
form prescribed by the Committee and filing same with the Committee.
Any such designation may be changed at any time by execution of a new
designation in accordance with this Section. Notwithstanding the
foregoing, if a Member who is married on the date of his death
designates other than his surviving spouse as his beneficiary, such
designation shall not be effective unless (1) such spouse has
consented thereto in writing, and such consent (A) acknowledges the
effect of such specific designation, (B) either consents to the
specific designated beneficiary (which designation may not
subsequently be changed by the Member without spousal consent) or
expressly permits such designation by the Member without the
requirements of further consent by the spouse and (C) is witnessed by
a Plan representative (other than the Member) or a notary public or
(2) such consent may not be obtained because such spouse cannot be
located or because of other circumstances described by applicable
Treasury Regulations. Any such consent by such surviving spouse shall
be irrevocable."
As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 20th day of December, 1993.
ADMINISTRATIVE COMMITTEE
ENSTAR NATURAL GAS COMPANY
THRIFT INVESTMENT PLAN
BY: _________________________________
RICHARD F. BARNES, CHAIRMAN
<PAGE> 1
Exhibit 10.9
FIRST AMENDMENT TO THE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR SALARIED EMPLOYEES
WHEREAS, Seagull Energy Corporation (the "Company") has heretofore adopted the
ENSTAR Natural Gas Company Profit by Service Plan for Salaried Employees (the
"Plan"); and
WHEREAS, Section 15.1 of the Plan provides that the administrative committee
appointed by the Chief Executive Officer of the Company to administer the Plan
(the "Committee") may make certain amendments to the Plan; and
WHEREAS, the Committee desires to make such an amendment to the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1989, by deleting Section 8.2(a) of the Plan and substituting the following
therefor:
"(a) Each Member, OR A MEMBER'S SURVIVING SPOUSE WHO HAS
ELECTED TO DEFER DISTRIBUTION UNDER THE TERMS OF THIS PLAN, shall have
the right to designate the beneficiary or beneficiaries to receive
payment of his Article IX benefit in the event of his death. Each
such designation shall be made by executing the beneficiary
designation form prescribed by the Committee and filing same with the
Committee. Any such designation may be changed at any time by
execution of a new designation in accordance with this Section.
Notwithstanding the foregoing, if a Member who is married on the date
of his death designates other than his surviving spouse as his
beneficiary, such designation shall not be effective unless (1) such
spouse has consented thereto in writing, and such consent (A)
acknowledges the effect of such specific designation, (B) either
consents to the specific designated beneficiary (which designation may
not subsequently be changed by the Member without spousal consent) or
expressly permits such designation by the Member without the
requirements of further consent by the spouse and (C) is witnessed by
a Plan representative (other than the Member) or a notary public or
(2) such consent may not be obtained because such spouse cannot be
located or because of other circumstances described by applicable
Treasury Regulations. Any such consent by such surviving spouse shall
be irrevocable."
As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 20th day of December, 1993
ADMINISTRATIVE COMMITTEE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR SALARIED EMPLOYEES
BY: ________________________________________
RICHARD F. BARNES, CHAIRMAN
<PAGE> 1
Exhibit 10.10
FIRST AMENDMENT TO THE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES
WHEREAS, Seagull Energy Corporation (the "Company") has heretofore
adopted the ENSTAR Natural Gas Company Profit By Service Plan for Classified
Employees (the "PLAN"); and
WHEREAS, Section 15.1 of the Plan provides that the administrative
committee appointed by the Chief Executive Officer of the Company to administer
the Plan (the "COMMITTEE") may make certain amendments to the Plan; and
WHEREAS, the Committee desires to make such an amendment,
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1989, by deleting Section 7.4(b) of the Plan and substituting the following
therefor:
"(b) In the event that an amount credited to a terminated
Member's Profit Sharing Account becomes a forfeiture pursuant to
Paragraph (a) above, the terminated Member shall, upon subsequent
reemployment with the Company prior to incurring five consecutive
One-Year Breaks-in-Service, have the forfeited amount restored to such
Member's Profit Sharing Account, unadjusted by any subsequent gains or
losses of the Trust Fund, if such Member repays in cash an amount
equal to the amount so distributed to him from such Profit Sharing
Account within five years from the date the Member is reemployed. Any
such restoration shall be made as of the Valuation Date coincident
with or next succeeding the date of repayment. Notwithstanding
anything to the contrary in the Plan, forfeited amounts to be restored
by the Company pursuant to this Paragraph shall be charged against and
deducted from forfeitures otherwise available for allocation to other
Members in accordance with Section 4.2(a) in the Plan Year in which
such amounts are restored. If such forfeitures otherwise available
are not sufficient to provide such restoration, the portion of such
restoration not provided by forfeitures shall be charged against and
deducted from Company contributions otherwise available for allocation
to other Members in accordance with Section 4.2, and such excess
amount shall be a minimum required Company contribution (without
regard to net profits)."
As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 15th day of September, 1993.
ADMINISTRATIVE COMMITTEE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES
BY: __________________________________________
RICHARD F. BARNES, CHAIRMAN
<PAGE> 2
SECOND AMENDMENT TO THE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES
WHEREAS, Seagull Energy Corporation (the "Company") has heretofore adopted the
ENSTAR Natural Gas Company Profit by Service Plan for Classified Employees (the
"Plan"); and
WHEREAS, Section 15.1 of the Plan provides that the administrative committee
appointed by the Chief Executive Officer of the Company to administer the Plan
(the "Committee") may make certain amendments to the Plan; and
WHEREAS, the Committee desires to make such an amendment to the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1989, by deleting Section 8.2(a) of the Plan and substituting the following
therefor:
"(a) Each Member, OR A MEMBER'S SURVIVING SPOUSE WHO HAS
ELECTED TO DEFER DISTRIBUTION UNDER THE TERMS OF THIS PLAN, shall have
the right to designate the beneficiary or beneficiaries to receive
payment of his Article IX benefit in the event of his death. Each
such designation shall be made by executing the beneficiary
designation form prescribed by the Committee and filing same with the
Committee. Any such designation may be changed at any time by
execution of a new designation in accordance with this Section.
Notwithstanding the foregoing, if a Member who is married on the date
of his death designates other than his surviving spouse as his
beneficiary, such designation shall not be effective unless (1) such
spouse has consented thereto in writing, and such consent (A)
acknowledges the effect of such specific designation, (B) either
consents to the specific designated beneficiary (which designation may
not subsequently be changed by the Member without spousal consent) or
expressly permits such designation by the Member without the
requirement of further consent by the spouse and (C) is witnessed by a
Plan representative (other than the Member) or a notary public or (2)
such consent may not be obtained because such spouse cannot be located
or because of other circumstances described by applicable Treasury
Regulations. Any such consent by such surviving spouse shall be
irrevocable."
As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 20th day of December, 1993
ADMINISTRATIVE COMMITTEE
ENSTAR NATURAL GAS COMPANY
PROFIT BY SERVICE PLAN FOR CLASSIFIED EMPLOYEES
BY: __________________________________________
RICHARD F. BARNES, CHAIRMAN
<PAGE> 1
EXHIBIT 10.15
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________, 19__, between SEAGULL
ENERGY CORPORATION, a Texas corporation (the "COMPANY") and __________
("EMPLOYEE").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (the "PLAN"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("OPTION") to purchase all or any part of an
aggregate of ________ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "CODE").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be __________ per share. For all
purposes of this Agreement, fair market value of Stock shall be determined in
accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Corporate Secretary, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C> <C>
Less than 3 years 0%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
Notwithstanding anything in this agreement to the contrary, the
Committee appointed by the Board of Directors to the Company to administer the
Plan (the "COMMITTEE") in its sole discretion may waive the foregoing schedule
of vesting and permit Employee to exercise the Option in such amount or amounts
and at such time or times as the Committee shall determine.
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee
during Employee's lifetime and while Employee remains an employee of the
Company, except that:
<PAGE> 2
Page 2
(a) If Employee's employment with the Company terminates for cause
or voluntarily by Employee (other than by reason of normal
retirement at or after age sixty-five) without the written
consent of the Committee, this Option shall immediately
terminate and shall no longer be exercisable. For purposes of
this Agreement, "cause" shall mean Employee's gross negligence
or willful misconduct in performance of the duties of
Employee's employment, or Employee's final conviction of a
felony or of a misdemeanor involving moral turpitude.
(b) If Employee's employment with the Company terminates for any
reason other than death or as described in (a) above, this
Option may be exercised by Employee at any time during the
period of three months following such termination, or by
Employee's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates unless such
termination was by reason of normal retirement at or after age
sixty-five or total and permanent disability in either which
case this Option shall be exercisable in full.
(c) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option in
full at any time during the period of one year following the
date of Employee's death.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (c) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Employee shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have
been issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state income
tax purposes, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations.
Employee may elect with respect to this
<PAGE> 3
Page 3
Option to surrender or authorize the Company to withhold shares of Stock
(valued at their fair market value on the date of surrender or withholding of
such shares) in satisfaction of any such withholding obligation (a "Stock
Surrender Withholding Election"); provided, however, that:
(a) Any Stock Surrender Withholding Election shall be made by
written notice to the Company and thereafter shall be
irrevocable by Employee;
(b) Any Stock Surrender Withholding Election shall be subject to
disapproval by the Committee at any time;
(c) Any Stock Surrender Withholding Election shall be made prior
to the date Employee recognizes income with respect to the
exercise of this Option (the "Tax Date"); and
(d) If Employee is an "officer" of the Company or other person
subject to section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor law and wishes to make a
Stock Surrender Withholding Election, such person shall make
any Stock Surrender Withholding Election:
(i) more than six months after the date of grant of this
Option, except that this limitation shall not apply
in the event of death or disability of Employee prior
to the expiration of the six-month period; and
(ii) either at least six months prior to the Tax Date or
during the period beginning on the third business day
following the date of release for publication of the
Company's summary statement of sales and earnings for
a quarter or fiscal year and ending on the twelfth
business day following such date.
(e) When the Tax Date falls after the exercise of this Option and
Employee makes a Stock Surrender Withholding Election, the
full number of shares of Stock for which this Option is being
exercised shall be issued, but Employee shall be
unconditionally obligated to deliver to the Company on the Tax
Date a number of shares of Stock having a value equal to any
tax required to be withheld.
If Employee fails to deliver such money or make a Stock Surrender Withholding
Election pursuant to this Paragraph, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
5. STATUS OF STOCK. The Company intends to register for issuance
under the Securities Act of 1933, as amended (the "ACT") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if
<PAGE> 4
Page 4
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
BY: ____________________________________
CHAIRMAN OF THE BOARD
EMPLOYEE: ______________________________
<PAGE> 1
EXHIBIT 10.16
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the _____ day of ____, 199__, between SEAGULL
ENERGY CORPORATION, a Texas corporation (the "COMPANY") and
____________________ ("EMPLOYEE").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1986 STOCK
OPTION PLAN (the "PLAN"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("OPTION") to purchase all or any part of an
aggregate of ________ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "CODE").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $_______ per share. For all
purposes of this Agreement, fair market value of Stock shall be determined in
accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Corporate Secretary, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C> <C>
Less than 3 years 0%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
Notwithstanding anything in this agreement to the contrary, the
Committee appointed by the Board of Directors to the Company to administer the
Plan (the "COMMITTEE") in its sole discretion may waive the foregoing schedule
of vesting and permit Employee to exercise the Option in such amount or amounts
and at such time or times as the Committee shall determine.
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee
during Employee's lifetime and while Employee remains an employee of the
Company, except that:
<PAGE> 2
Page 2
(a) If Employee's employment with the Company terminates for cause
or voluntarily by Employee (other than by reason of normal
retirement at or after age sixty-five) without the written
consent of the Committee, this Option shall immediately
terminate and shall no longer be exercisable. For purposes of
this Agreement, "cause" shall mean Employee's gross negligence
or willful misconduct in performance of the duties of
Employee's employment, or Employee's final conviction of a
felony or of a misdemeanor involving moral turpitude.
(b) If Employee's employment with the Company terminates for any
reason other than death or as described in (a) above, this
Option may be exercised by Employee at any time during the
period of three months following such termination, or by
Employee's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates unless such
termination was by reason of normal retirement at or after age
sixty-five or total and permanent disability in either which
case this Option shall be exercisable in full.
(c) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option in
full at any time during the period of one year following the
date of Employee's death.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (c) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Employee shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have
been issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state income
tax purposes, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations.
Employee may elect with respect to this
<PAGE> 3
Page 3
Option to surrender or authorize the Company to withhold shares of Stock
(valued at their fair market value on the date of surrender or withholding of
such shares) in satisfaction of any such withholding obligation (a "Stock
Surrender Withholding Election"); provided, however, that:
(a) Any Stock Surrender Withholding Election shall be made by
written notice to the Company and thereafter shall be
irrevocable by Employee;
(b) Any Stock Surrender Withholding Election shall be subject to
disapproval by the Committee at any time;
(c) Any Stock Surrender Withholding Election shall be made prior
to the date Employee recognizes income with respect to the
exercise of this Option (the "Tax Date"); and
(d) If Employee is an "officer" of the Company or other person
subject to section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor law and wishes to make a
Stock Surrender Withholding Election, such person shall make
any Stock Surrender Withholding Election:
(i) more than six months after the date of grant of this
Option, except that this limitation shall not apply
in the event of death or disability of Employee prior
to the expiration of the six-month period; and
(ii) either at least six months prior to the Tax Date or
during the period beginning on the third business day
following the date of release for publication of the
Company's summary statement of sales and earnings for
a quarter or fiscal year and ending on the twelfth
business day following such date.
(e) When the Tax Date falls after the exercise of this Option and
Employee makes a Stock Surrender Withholding Election, the
full number of shares of Stock for which this Option is being
exercised shall be issued, but Employee shall be
unconditionally obligated to deliver to the Company on the Tax
Date a number of shares of Stock having a value equal to any
tax required to be withheld.
If Employee fails to deliver such money or make a Stock Surrender Withholding
Election pursuant to this Paragraph, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
5. STATUS OF STOCK. The Company intends to register for issuance
under the Securities Act of 1933, as amended (the "ACT") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if
<PAGE> 4
Page 4
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
BY: ____________________________________
CHAIRMAN OF THE BOARD
EMPLOYEE: ______________________________
<PAGE> 1
EXHIBIT 10.23
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the _____ day of ____, 199__, between SEAGULL
ENERGY CORPORATION, a Texas corporation (the "COMPANY") and __________________
("EMPLOYEE").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1990 STOCK
OPTION PLAN (the "PLAN"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("OPTION") to purchase all or any part of an
aggregate of ________ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "CODE").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $_______ per share. For all
purposes of this Agreement, fair market value of Stock shall be determined in
accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Corporate Secretary, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C> <C>
Less than 3 years 0%
3 year 40%
4 years 60%
5 years 80%
6 years 100%
</TABLE>
Notwithstanding anything in this agreement to the contrary, the
Committee appointed by the Board of Directors to the Company to administer the
Plan (the "COMMITTEE") in its sole discretion
<PAGE> 2
may waive the foregoing schedule of vesting and permit Employee to exercise the
Option in such amount or amounts and at such time or times as the Committee
shall determine.
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee
during Employee's lifetime and while Employee remains an employee of the
Company, except that:
(a) If Employee's employment with the Company terminates for cause
or voluntarily by Employee (other than by reason of normal
retirement at or after age sixty-five) without the written
consent of the Committee, this Option shall immediately
terminate and shall no longer be exercisable. For purposes of
this Agreement, "cause" shall mean Employee's gross negligence
or willful misconduct in performance of the duties of
Employee's employment, or Employee's final conviction of a
felony or of a misdemeanor involving moral turpitude.
(b) If Employee's employment with the Company terminates for any
reason other than death or as described in (a) above, this
Option may be exercised by Employee at any time during the
period of three months following such termination, or by
Employee's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates unless such
termination was by reason of normal retirement at or after age
sixty-five or total and permanent disability in either which
case this Option shall be exercisable in full.
(c) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option in
full at any time during the period of one year following the
date of Employee's death.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (c) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Employee shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have
been issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's
-2-
<PAGE> 3
death) shall not be or have any of the rights or privileges of a shareholder of
the Company with respect to shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state income
tax purposes, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations.
Employee may elect with respect to this Option to surrender or authorize the
Company to withhold shares of Stock (valued at their fair market value on the
date of surrender or withholding of such shares) in satisfaction of any such
withholding obligation (a "Stock Surrender Withholding Election"); provided,
however, that:
(a) Any Stock Surrender Withholding Election shall be made by
written notice to the Company and thereafter shall be
irrevocable by Employee;
(b) Any Stock Surrender Withholding Election shall be subject to
disapproval by the Committee at any time;
(c) Any Stock Surrender Withholding Election shall be made prior
to the date Employee recognizes income with respect to the
exercise of this Option (the "Tax Date"); and
(d) If Employee is an "officer" of the Company or other person
subject to section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor law and wishes to make a
Stock Surrender Withholding Election, such person shall make
any Stock Surrender Withholding Election:
(i) more than six months after the date of grant of this
Option, except that this limitation shall not apply
in the event of death or disability of Employee prior
to the expiration of the six-month period; and
(ii) either at least six months prior to the Tax Date or
during the period beginning on the third business day
following the date of release for publication of the
Company's summary statement of sales and earnings for
a quarter or fiscal year and ending on the twelfth
business day following such date.
(e) When the Tax Date falls after the exercise of this Option and
Employee makes a Stock Surrender Withholding Election, the
full number of shares of Stock for which this Option is being
exercised shall be issued, but Employee shall be
unconditionally obligated to deliver to the Company on the Tax
Date a number of shares of Stock having a value equal to any
tax required to be withheld.
If Employee fails to deliver such money or make a Stock Surrender Withholding
Election pursuant to this Paragraph, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
-3-
<PAGE> 4
5. STATUS OF STOCK. The Company intends to register for issuance
under the Securities Act of 1933, as amended (the "ACT") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
BY: _____________________________________
CHAIRMAN OF THE BOARD
EMPLOYEE: _______________________________
-5-
<PAGE> 1
EXHIBIT 10.29
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________________, 19___,
between SEAGULL ENERGY CORPORATION, a Texas corporation (the "COMPANY") and
________________________________ ("DIRECTOR").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1993
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN (the "PLAN"), a copy of which is
attached hereto as Exhibit A, by affording Director the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Director the right and option ("OPTION") to purchase all or any part of an
aggregate of ______ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended.
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $_______ per share, which has
been determined to be not less than the fair market value of the Stock at the
date of grant of this Option. For all purposes of this Agreement, fair market
value of Stock shall be determined in accordance with the provisions of the
Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chairman, President and Chief Executive Officer, at any time and from time to
time after the date of grant hereof, but, except as otherwise provided below,
this Option shall not be exercisable for more than a percentage of the
aggregate number of shares offered by this Option determined by the number of
full years from the date of grant hereof to the date of such exercise, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C> <C>
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
</TABLE>
This Option is not transferable by Director otherwise than by will or
the laws of descent and distribution, and may be exercised only by Director (or
Director's guardian or legal representative) during Director's lifetime. If a
Director's membership on the Board of Directors of the Company (the "BOARD")
terminates, this Option may be exercised as follows:
<PAGE> 2
(a) If Director's membership on the Board terminates for
cause or voluntarily by Director (other than by reason of mandatory
retirement pursuant to the policy of the Board) not at the request of
the Board, this Option may be exercised by Director at any time during
the period of three months following such termination, or by
Director's estate (or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the
death of Director) during a period of one year following Director's
death if Director dies during such three-month period, but in each
case only as to the number of shares Director was entitled to purchase
hereunder upon exercise of this Option as of the date Director's
membership on the Board so terminates. For purposes of this
Agreement, "cause" shall mean Director's gross negligence or willful
misconduct in performance of his duties as a director, or Director's
final conviction of a felony or of a misdemeanor involving moral
turpitude.
(b) If Director's membership on the Board terminates by
reason of disability, this Option may be exercised in full by Director
(or Director's guardian or legal representative or Director's estate
or the person who acquires this Option by will or the laws of descent
and distribution or otherwise by reason of the death of Director) at
any time during the period of one year following such termination.
(c) If Director dies while a member of the Board,
Director's estate, or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the
death of Director, may exercise this Option in full at any time during
the period of one year following the date of Director's death.
(d) If Director's membership on the Board terminates for
any reason other than as described in (a), (b) or (c) above, this
Option may be exercised in full by Director at any time during the
period of three months following such termination, or by Director's
estate (or the person who acquires this Option by will or the laws of
descent and distribution or otherwise by reason of the death of
Director) during a period of one year following Director's death if
Director dies during such three-month period.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (A) in
cash (including check, bank draft or money order payable to the order of the
Company), (B) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (C) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Director shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have
been issued by the Company to Director, Director (or the person permitted to
exercise this Option in the event of Director's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
-2-
<PAGE> 3
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Director for federal or state income
tax purposes, Director shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations,
and, if Director fails to do so, the Company is authorized to withhold from any
cash or Stock remuneration then or thereafter payable to Director any tax
required to be withheld by reason of such resulting compensation income. Upon
an exercise of this Option, the Company is further authorized in its discretion
to satisfy any such withholding requirement out of any cash or shares of Stock
distributable to Director upon such exercise.
5. STATUS OF STOCK. The Company intends to register for
issuance under the Securities Act of 1933, as amended (the "ACT"), the shares
of Stock acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use all
reasonable efforts to ensure that no such delay will occur. In the event
exemption from registration under the Act is available upon an exercise of this
Option, Director (or the person permitted to exercise this Option in the event
of Director's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state
securities laws. Director also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the shares of Stock purchased under this Option on the stock transfer records
of the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Stock
purchased under this Option.
6. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Director.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
By: _______________________________________________
Chairman, President and Chief Executive Officer
_______________________________________________
Director
-4-
<PAGE> 1
EXHIBIT 10.30
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________, 19__, between SEAGULL
ENERGY CORPORATION, a Texas corporation (the "COMPANY") and __________
("EMPLOYEE").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1993 STOCK
OPTION PLAN (the "PLAN"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("OPTION") to purchase all or any part of an
aggregate of ________ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "CODE").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be __________ per share. For all
purposes of this Agreement, fair market value of Stock shall be determined in
accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Corporate Secretary, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C> <C>
Less than 3 years 0%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
Notwithstanding anything in this agreement to the contrary, the
Committee appointed by the Board of Directors to the Company to administer the
Plan (the "COMMITTEE") in its sole discretion may waive the foregoing schedule
of vesting and permit Employee to exercise the Option in such amount or amounts
and at such time or times as the Committee shall determine.
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee
during Employee's lifetime and while Employee remains an employee of the
Company, except that:
<PAGE> 2
Page 2
(a) If Employee's employment with the Company terminates for cause
or voluntarily by Employee (other than by reason of normal
retirement at or after age sixty-five) without the written
consent of the Committee, this Option shall immediately
terminate and shall no longer be exercisable. For purposes of
this Agreement, "cause" shall mean Employee's gross negligence
or willful misconduct in performance of the duties of
Employee's employment, or Employee's final conviction of a
felony or of a misdemeanor involving moral turpitude.
(b) If Employee's employment with the Company terminates for any
reason other than death or as described in (a) above, this
Option may be exercised by Employee at any time during the
period of three months following such termination, or by
Employee's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such
three-month period, but in each case only as to the number of
shares Employee was entitled to purchase hereunder as of the
date Employee's employment so terminates unless such
termination was by reason of normal retirement at or after age
sixty-five or total and permanent disability in either which
case this Option shall be exercisable in full.
(c) If Employee dies while in the employ of the Company,
Employee's estate, or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option in
full at any time during the period of one year following the
date of Employee's death.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (c) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Employee shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have
been issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state income
tax purposes, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations.
Employee may elect with respect to this
<PAGE> 3
Page 3
Option to surrender or authorize the Company to withhold shares of Stock
(valued at their fair market value on the date of surrender or withholding of
such shares) in satisfaction of any such withholding obligation (a "Stock
Surrender Withholding Election"); provided, however, that:
(a) Any Stock Surrender Withholding Election shall be made by
written notice to the Company and thereafter shall be
irrevocable by Employee;
(b) Any Stock Surrender Withholding Election shall be subject to
disapproval by the Committee at any time;
(c) Any Stock Surrender Withholding Election shall be made prior
to the date Employee recognizes income with respect to the
exercise of this Option (the "Tax Date"); and
(d) If Employee is an "officer" of the Company or other person
subject to section 16(b) of the Securities Exchange Act of
1934, as amended, or any successor law and wishes to make a
Stock Surrender Withholding Election, such person shall make
any Stock Surrender Withholding Election:
(i) more than six months after the date of grant of this
Option, except that this limitation shall not apply
in the event of death or disability of Employee prior
to the expiration of the six-month period; and
(ii) either at least six months prior to the Tax Date or
during the period beginning on the third business day
following the date of release for publication of the
Company's summary statement of sales and earnings for
a quarter or fiscal year and ending on the twelfth
business day following such date.
(e) When the Tax Date falls after the exercise of this Option and
Employee makes a Stock Surrender Withholding Election, the
full number of shares of Stock for which this Option is being
exercised shall be issued, but Employee shall be
unconditionally obligated to deliver to the Company on the Tax
Date a number of shares of Stock having a value equal to any
tax required to be withheld.
If Employee fails to deliver such money or make a Stock Surrender Withholding
Election pursuant to this Paragraph, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
5. STATUS OF STOCK. The Company intends to register for issuance
under the Securities Act of 1933, as amended (the "ACT") the shares of Stock
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if
<PAGE> 4
Page 4
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
BY: ____________________________________
CHAIRMAN OF THE BOARD
EMPLOYEE: ______________________________
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The Company was incorporated in Texas in 1973. The following is a
listing of significant subsidiaries of the Company as of March 11, 1994:
<TABLE>
<CAPTION>
% Voting
Securities
Jurisdiction of or Beneficial
Incorporation Interest Owned
Name of Subsidiary or Organization by the Company
------------------ --------------- ---------------
<S> <C> <C>
Alaska Pipeline Company Alaska 100%
Cavallo Pipeline Company Texas 50%
(partnership)
Houston Oil & Minerals Corporation Nevada 100%
Seagull Energy Canada
Holding Company Wyoming 100%
Seagull Energy Canada Ltd. Alberta, Canada 100%
Seagull Energy E&P Inc. Texas 100%
Seagull Industrial Pipeline Company Texas 100%
Seagull Marketing Services, Inc. Texas 100%
Seagull Midcon Inc. Delaware 100%
Seagull Mid-South Inc. Delaware 100%
Seagull Natural Gas Company Texas 100%
Seagull Processing Company Delaware 100%
Seagull Shoreline System Texas 19%
(partnership)
Seagull Transmission Company Texas 100%
Wacker Oil Inc. Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Seagull Energy Corporation:
We consent to the incorporation by reference in the following
Registration Statements of Seagull Energy Corporation of our reports dated
January 31, 1994, except the last three paragraphs of Note 17, Subsequent
Events, which are as of March 11, 1994, relating to the consolidated balance
sheets of Seagull Energy Corporation and Subsidiaries as of December 31, 1993
and 1992 and the related consolidated statements of earnings, shareholders'
equity and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1993 which reports appear or are
incorporated by reference in the December 31, 1993 Annual Report on Form 10-K
of Seagull Energy Corporation:
a. Form S-8, Seagull Thrift Plan (2-72014).
b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and
Incentive Stock Option Plan (2-80834).
c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463).
d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock
Option Plan (2-93087).
e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock
Option Plan (33-22475).
f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan
(33-43483).
g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan
(33-50643).
h. Form S-8, Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan (33-50645).
KPMG PEAT MARWICK
Houston, Texas
March 28, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the
year ended December 31, 1993, and the incorporation by reference thereof into
the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834,
33-14463, 33-43483, 33-50643 and 33-50645) and on Forms S-8 and S-3 (Nos.
2-93087 and 33-22475).
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 21, 1994
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report to
Shareholders of Seagull Energy Corporation and Subsidiaries (the "Company") for
the year ended December 31, 1993 (the "Annual Report") in Note 4, Supplemental
Gas and Oil Producing Activities, of Notes to Consolidated Financial
Statements; provided, however, since the Annual Report contains only aggregate
reserve information that combines the reserve and discounted present worth
estimates prepared by DeGolyer and MacNaughton with the reserve and discounted
present worth estimates of other petroleum consultants, in providing our
consent we have necessarily relied on a letter dated March 9, 1994, from the
Company with respect to the estimates of such other petroleum consultants to
verify that the Annual Report correctly reflects our estimates. The Company's
Annual Report on Form 10-K for the year ended December 31, 1993 (the "Form
10-K") incorporates by reference the Annual Report. We further consent to the
use of our name under the heading "Exploration and Production" of Item 1 in the
Form 10-K and the incorporation by reference of the Form 10-K into the
Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463,
33-43483, 33-50643 and 33-50645) and on Forms S-8 and S-3 (Nos. 2-93087 and
33-22475).
DeGOLYER AND MacNAUGHTON
PETROLEUM ENGINEERS
Dallas, Texas
March 16, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the
year ended December 31, 1993, and the incorporation by reference thereof into
the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834,
33-14463, 33-43483, 33-50643 and 33-50645) and on Forms S-8 and S-3 (Nos.
2-93087 and 33-22475).
NETHERLAND, SEWELL & ASSOCIATES,INC.
PETROLEUM ENGINEERS
Houston, Texas
March 28, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the
year ended December 31, 1993, and the incorporation by reference thereof into
the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834,
33-14463, 33-43483, 33-50643 and 33-50645) and on Forms S-8 and S-3 (Nos.
2-93087 and 33-22475).
K&A ENERGY CONSULTANTS, INC.
PETROLEUM ENGINEERS
Houston, Texas
March 28, 1994
<PAGE> 1
EXHIBIT 99.1
PORTIONS OF THE 1993 SEAGULL ENERGY CORPORATION ANNUAL REPORT
TO SHAREHOLDERS INCORPORATED BY REFERENCE INTO THE 1993
SEAGULL ENERGY CORPORATION ANNUAL REPORT ON FORM 10-K
INDEX
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Unaudited):
Results of Operations................................................................. 2
Liquidity and Capital Resources....................................................... 9
Consolidated Financial Statements:
Consolidated Statements of Earnings................................................... 12
Consolidated Balance Sheets........................................................... 13
Consolidated Statements of Cash Flows................................................. 14
Consolidated Statements of Shareholders' Equity....................................... 15
Notes to Consolidated Financial Statements............................................ 16
Independent Auditors' Report.......................................................... 41
</TABLE>
1
<PAGE> 2
SEAGULL ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1993 1992 1991 1992-'93 1991-'92
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Exploration and production................ $227,437 $ 91,991 $ 81,099 + 147 + 13
Pipeline and marketing.................... 42,484 37,240 37,823 + 14 - 2
Alaska transmission and distribution...... 107,244 109,598 129,615 - 2 - 15
-------- -------- -------- ------ ------
$377,165 $238,829 $248,537 + 58 - 4
-------- -------- -------- ------ ------
-------- -------- -------- ------ ------
Operating profit (loss):
Exploration and production................ $ 42,969 $ (1,613) $ 1,275 +2,764 - 227
Pipeline and marketing.................... 14,065 9,057 7,884 + 55 + 15
Alaska transmission and distribution...... 18,955 22,439 21,024 - 16 + 7
-------- -------- -------- ------ ------
$ 75,989 $ 29,883 $ 30,183 + 154 - 1
-------- -------- -------- ------ ------
-------- -------- -------- ------ ------
Earnings before cumulative effect of changes
in accounting principles.................. $ 27,198 $ 4,415 $ 5,107 + 516 - 14
Net earnings................................ $ 27,198 $ 6,688 $ 5,107 + 307 + 31
Net cash provided by operating activities
before changes in operating assets and
liabilities............................... $160,762 $ 81,368 $ 66,654 + 98 + 22
Net cash provided by operating activities... $119,761 $ 72,187 $ 69,773 + 66 + 3
Earnings per share:
Earnings before cumulative effect of
changes
in accounting principles............... $ 0.76 $ 0.17 $ 0.23 + 347 - 26
Cumulative effect of changes in accounting
principles............................. -- 0.09 -- - 100 N/A
-------- -------- -------- ------ ------
Net earnings.............................. $ 0.76 $ 0.26 $ 0.23 + 192 + 13
-------- -------- -------- ------ ------
-------- -------- -------- ------ ------
Weighted average number of common shares
outstanding (in thousands)................ 35,790 25,583 22,692 + 40 + 13
-------- -------- -------- ------ -----
-------- -------- -------- ------ -----
</TABLE>
Revenues and Operating Profit are discussed in the respective segment
sections.
1993 Results Compared to 1992
Seagull Energy Corporation and Subsidiaries (the "Company") recorded a
significant increase in net earnings for the year ended December 31, 1993 versus
the prior year due to increases in operating profit, partially offset by
increases in interest and general and administrative expenses. Net earnings for
1993 includes a pre-tax gain of approximately $3.8 million relating to the sales
of nonstrategic producing properties. The Company's 1993 net earnings also
benefitted from a reduction in the Company's income tax provision due to
utilization of approximately $4.8 million in Internal Revenue Code Section 29
tax credits, which more than offset a 1% increase in the federal corporate tax
rate from 34% to 35%. In addition, net earnings for the prior year included a
$4.6 million pre-tax settlement of litigation (the "Seismic Litigation
Settlement") and the cumulative effect of two changes in accounting principles
described below. See "Other (Income) Expense" and "Income Taxes" sections below.
Effective January 1, 1992, the Company adopted two Statements of Financial
Accounting Standards ("SFAS"), SFAS No. 109, Accounting for Income Taxes, and
SFAS No. 106, Employers' Accounting for
2
<PAGE> 3
Postretirement Benefits Other Than Pensions. The cumulative effect of these
accounting changes as of January 1, 1992 resulted in a net increase in net
earnings of approximately $2.3 million, or $0.09 per share, as reflected in the
Company's consolidated statement of earnings for the year ended December 31,
1992.
Net cash provided by operating activities before and after changes in
operating assets and liabilities for 1993 increased substantially in comparison
to 1992 primarily as a result of significant increases in the Company's natural
gas production primarily due to the Company's acquisition of Arkla Exploration
Company (the "Mid-South Acquisition") in December 1992.
On June 4, 1993, the Company effected, in the form of a 100 percent stock
dividend, a two-for-one stock split (the "Stock Split") of all the issued shares
of Seagull Common Stock. The weighted average number of common shares
outstanding and per share amounts for all periods have been restated to reflect
the Stock Split. All share amounts included in the consolidated balance sheets
and consolidated statements of shareholders' equity as of dates prior to June 4,
1993 were not adjusted to reflect the Stock Split.
The increase in the weighted average number of common shares outstanding in
1993 over 1992 was due to the February 1993 sale of 5,060,000 shares (10,120,000
shares after the Stock Split) of Seagull Common Stock pursuant to an
underwritten public offering.
1992 Results Compared to 1991
The Company's net earnings for 1992 increased from 1991 primarily due to
the Seismic Litigation Settlement and the cumulative effect of two changes in
accounting principles described above, partially offset by higher general and
administrative expenses and a higher effective income tax rate. See "Other
(Income) Expense" and "Income Taxes" sections below.
Net cash provided by operating activities before changes in operating
assets and liabilities, increased 22% in 1992 versus 1991 primarily due to
increases in cash flows generated by the Company's Exploration and Production
("E&P") segment and the Seismic Litigation Settlement. Net cash provided by
operating activities was not materially different from the 1991 amount.
The weighted average number of common shares outstanding in 1992 reflects
the full year effect of the December 1991 sale of 1.5 million shares (3.0
million shares after the Stock Split) of Seagull Common Stock pursuant to an
underwritten public offering.
3
<PAGE> 4
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1993 1992 1991 1992-'93 1991-'92
-------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Natural gas................................. $203,137 $70,689 $55,691 + 187 + 27
Oil and condensate.......................... 23,597 18,849 22,546 + 25 - 16
Natural gas liquids......................... 3,132 2,706 2,518 + 16 + 7
Other....................................... (2,429) (253) 344 - 860 - 174
-------- ------- ------- ------ -----
227,437 91,991 81,099 + 147 + 13
Lifting costs................................. 53,243 26,230 24,018 + 103 + 9
General operating expense..................... 10,408 4,614 3,933 + 126 + 17
Exploration charges........................... 17,265 9,905 9,227 + 74 + 7
Depreciation, depletion and amortization...... 103,552 52,855 42,646 + 96 + 24
-------- ------- ------- ------ -----
Operating profit (loss)....................... $ 42,969 $(1,613) $ 1,275 +2,764 - 227
-------- ------- ------- ------ -----
-------- ------- ------- ------ -----
OPERATING DATA:
Net daily production(1):
Natural gas (MMcf).......................... 279.5 104.2 90.2 + 168 + 16
Oil and condensate (Bbl).................... 3,868 2,769 3,043 + 40 - 9
Natural gas liquids (Bbl)................... 773 725 618 + 7 + 17
Combined (MMcfe)(2)......................... 307.4 125.2 112.1 + 146 + 12
Average sales prices:
Natural gas ($ per Mcf)..................... 1.99 1.85 1.69 + 8 + 9
Oil and condensate ($ per Bbl).............. 16.72 18.60 20.30 - 10 - 8
Natural gas liquids ($ per Bbl)............. 11.10 10.20 11.17 + 9 - 9
Combined ($ per Mcfe)(2).................... 2.03 2.01 1.97 + 1 + 2
Lifting costs ($ per Mcfe)(2):
Lease operating............................. 0.25 0.33 0.37 - 24 - 11
Workovers................................... 0.04 0.05 0.05 - 20 --
Production taxes............................ 0.08 0.09 0.09 - 11 --
Transportation.............................. 0.07 0.06 0.04 + 17 + 50
Ad valorem taxes............................ 0.03 0.04 0.04 - 25 --
Total....................................... 0.47 0.57 0.59 - 18 - 3
DD&A rate ($ per Mcfe)(2)..................... 0.92 1.15 1.04 - 20 + 11
</TABLE>
- ---------------
(1) Natural gas stated in million cubic feet ("MMcf") or thousand cubic feet
("Mcf"); oil and condensate and natural gas liquids stated in barrels
("Bbl").
(2) Mcfe and MMcfe represent the equivalent of one thousand cubic feet and one
million cubic feet of natural gas, respectively. Oil and condensate and
natural gas liquids are converted to gas at a ratio of one barrel of
liquids per six Mcf of gas, based on relative energy content.
The increase in operating profit of the E&P segment for the year ended
December 31, 1993 as compared to 1992 was due to a significant increase in
revenues as a result of increased natural gas production and higher natural gas
prices, which more than offset increases in depreciation, depletion and
amortization ("DD&A") expense, exploration charges and lifting costs.
DD&A expense and lifting costs increased as a result of the significant
increase in production. However, both DD&A expense and lifting costs per
equivalent unit of production declined in 1993. Exploration charges also
increased in 1993 due to higher dry hole costs as a result of increased
exploratory activity. In 1993, the Company was successful on eight gross
exploratory wells in 27 attempts, compared with three successes out of 15 wells
drilled during 1992.
4
<PAGE> 5
The increase in natural gas production was primarily due to contributions
from properties acquired in connection with the Mid-South Acquisition. On
December 31, 1992, the Company acquired the outstanding capital stock of Arkla
Exploration Company from Arkla, Inc. ("Arkla"), which more than doubled the
Company's proved natural gas reserves as of such date. In addition, because of
the improvement in natural gas prices, the Company had substantially no
price-related curtailments of gas production in 1993 compared with significant
curtailments in prior years. In response to the sustained growth in demand for
and shrinking industry deliverability of natural gas, particularly from the
offshore Gulf Coast, the Company continues to boost its deliverability through
accelerated exploration and exploitative activities. The Company's
deliverability increased significantly in the fourth quarter of 1993 primarily
due to production flowing for the first time from three newly installed Company
operated production facilities offshore Texas and Louisiana.
Although revenues for the E&P segment were much higher for the year ended
December 31, 1992 compared with 1991 due to an increase in production and higher
natural gas prices, these increases were more than offset by increased DD&A
expense, exploration charges and lifting costs. The higher DD&A charge was due
both to the increase in natural gas production and a higher DD&A rate per unit
of production. Exploration charges increased primarily due to higher dry hole
costs. Total lifting costs increased due to the increase in production; however,
lifting costs per unit of production declined slightly.
The increase in natural gas production in 1992 was primarily due to the
full period effect of production from certain gas and oil assets (the
"Mid-Continent Assets"), purchased from Mesa Limited Partnership, a predecessor
of Mesa, Inc., in March 1991, and to production flowing for the first time from
certain of the Company's discoveries. In addition, the improvement in prices and
growing demand for natural gas prompted the Company to increase production to
near maximum deliverability in late 1992 and for the 1992-93 winter season. The
Company's development activities were also accelerated in the fourth quarter of
1992 to boost deliverability further for 1993.
The E&P segment is the Company's primary growth area. That growth has been
achieved over the past six years primarily through acquisitions: Houston Oil &
Minerals Corporation ("HO&M") in 1988; the assets of Houston Oil Trust in 1989;
Wacker Oil Inc. ("Wacker") in 1990; the Mid-Continent Assets in 1991 and Seagull
Mid-South Inc., formerly Arkla Exploration Company, in 1992. In addition, on
January 4, 1994, the Company acquired all of the outstanding shares of stock of
Novalta Resources Inc. ("Novalta") and an intercompany note (the "Seagull Canada
Acquisition"), which added 257.4 billion cubic feet ("Bcf") of natural gas and
2.8 million barrels ("MMbbl") of oil, condensate and natural gas liquids to the
Company's net proved reserves as of such date. See Notes 2 and 17 of Notes to
Consolidated Financial Statements beginning on page 16 of this Exhibit.
In 1993, a four-company exploration group including the Company was awarded
four production licenses in United Kingdom waters. The awards gave the Company a
10% interest in three licenses in the Irish Sea totaling 398,319 acres and a 20%
interest in a fourth license in the North Sea which totals 60,785 acres. Seismic
studies and other evaluation activities on the licensed blocks have been ongoing
since mid-1993. The first two of eight planned exploratory wells are scheduled
during the latter part of 1994. During the first quarter of 1994, the Company
increased its interests in these licenses to 20% and 30%, respectively. The
Company anticipates that its share of exploration-related costs will approximate
$13 million over the next five years as the program is currently structured.
Finally, the future results of this segment will be affected by the market
prices of natural gas and oil. The availability of a ready market for oil, gas
and liquid products in the future will depend on numerous factors beyond the
control of the Company, including weather, production of other domestic crude
oil, natural gas and liquid products, imports, marketing of competitive fuels,
proximity and capacity of oil and gas pipelines and other transportation
facilities, any oversupply of oil, gas and liquid products, the regulatory
environment, and other domestic and political events, none of which can be
predicted with certainty. As in the past, the Company would expect to curtail
gas production during times of inferior prices. However, due to the sustained
improvements in natural gas prices and demand throughout 1993 and various field
operating considerations, the Company does not anticipate curtailing gas sales
in the coming year to the significant extent of curtailments in years prior to
1993.
5
<PAGE> 6
PIPELINE AND MARKETING
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
1993 1992 1991 1992-'93 1991-'92
------- ------ ------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING PROFIT:
Pipelines................................... $ 8,561 $5,671 $3,331 + 51 + 70
Gas marketing............................... 2,862 784 9 +265 N/A
Gas processing.............................. 518 2,157 3,093 - 76 - 30
Operating and construction services......... 2,124 445 1,451 +377 - 69
------- ------ ------ ---- ----
$14,065 $9,057 $7,884 + 55 + 15
------- ------ ------ ---- ----
------- ------ ------ ---- ----
OPERATING DATA:
Average daily volumes (MMcf):
Gas gathering............................. 311 196 193 + 59 + 2
Partnership systems (net)................. 117 102 91 + 15 + 12
Gas marketing............................. 446 290 250 + 54 + 16
Gas processing(*):
Average daily inlet volumes (MMcf)........ 273 243 247 + 12 - 2
Average daily net production (Bbl)........ 3,305 3,198 3,453 + 3 - 7
</TABLE>
- ---------------
(*) 1993 data includes contributions from two small onshore Texas plants for the
first time.
In the pipeline and marketing segment, operating profit increased in 1993
over 1992 due primarily to improvements in the pipelines and gas marketing areas
and as a result of profits recognized from a pipeline construction project.
These contributions more than offset a decline in operating profit in the gas
processing area.
Operating profit in the pipelines area, which includes the Company's
interests in two partnership systems, improved due primarily to increased
volumes transported through four new gas gathering systems, two acquired in June
1992 and two acquired as part of the Mid-South Acquisition in December 1992. An
increase in volumes delivered by the Company's partnership systems also
contributed to the improvement.
In the gas marketing area, operating profit improved in 1993 due to a 54%
increase in sales volumes primarily as a result of increases in the E&P
segment's natural gas production discussed earlier and a 13% increase in
margins.
The Company recognized operating profit in 1993 on a pipeline construction
project; an 8.7 mile, 16-inch gas pipeline that the Company constructed for an
international exploration company from a platform to a gathering pipeline
offshore Louisiana. The project was completed in early 1994.
Operating profit in the gas processing area declined in 1993 primarily due
to increases in natural gas costs and significant declines in prices received
for extracted products.
Operating profit in the pipeline and marketing segment increased in 1992 as
compared to 1991 due to improvements in the pipelines and gas marketing areas
which more than offset declines in the construction and gas processing areas.
Operating profit in the pipelines area improved primarily due to increased
volumes delivered by the Company's partnership systems. Volumes transported
through the two gas gathering systems acquired in June 1992 also contributed to
the improvement.
In the gas marketing area, operating profit improved due to increased sales
volumes and higher margins. Operating profit from gas processing declined 30%
during 1992 as a result of lower average natural gas liquids prices coupled with
higher average natural gas prices. In addition, net natural gas liquids
production decreased because one significant producer elected to recover ethane
in 1992. The absence of construction profits comparable to those recognized in
1991 also had a negative impact on 1992 operating profit.
6
<PAGE> 7
Historically, the Company has not been engaged in pipeline construction
projects on a regularly recurring basis. The Company currently has no
construction projects pending; however, several projects are actively being
pursued.
ALASKA TRANSMISSION AND DISTRIBUTION
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1993 1992 1991 1992-'93 1991-'92
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $107,244 $109,598 $129,615 - 2 - 15
Cost of gas sold............................ 59,898 59,999 81,935 -- - 27
Operations and maintenance expense.......... 20,880 19,976 19,678 + 5 + 2
Depreciation, depletion and amortization.... 7,511 7,184 6,978 + 5 + 3
-------- -------- -------- ------ ------
Operating profit............................ $ 18,955 $ 22,439 $ 21,024 -16 + 7
-------- -------- -------- ------ ------
-------- -------- -------- ------ ------
OPERATING DATA:
Degree days (*)............................. 9,382 10,653 10,178 -12 + 5
Volumes (Bcf):
Gas Sold.................................. 28.9 30.9 35.3 - 6 - 12
Gas Transported........................... 11.3 10.2 4.3 +11 +137
Combined.................................. 40.2 41.1 39.6 - 2 + 4
Margins ($ per Mcf):
Gas Sold.................................. 1.49 1.47 1.32 + 1 + 11
Gas Transported........................... 0.36 0.40 0.27 -10 + 48
Combined.................................. 1.17 1.20 1.20 - 2 --
Year-end customers.......................... 88,200 86,400 84,800 + 2 + 2
</TABLE>
- ---------------
(*) A measure of weather severity calculated by subtracting the mean temperature
for each day from 65 degrees Fahrenheit. More degree days equate to colder
weather.
Operating profit of the Alaska transmission and distribution segment
(ENSTAR Natural Gas Company, a division of the Company, and Alaska Pipeline
Company, a wholly owned subsidiary (collectively referred to herein as "ENSTAR
Alaska")) for the year ended December 31, 1993 declined from 1992 primarily due
to unusually warm weather in the utility's market area.
ENSTAR Alaska's gas sales revenues and the associated cost of gas sold both
declined for the year ended December 31, 1992 from the 1991 period. In the
fourth quarter of 1991, one large utility customer began purchasing gas directly
from gas producers. However, ENSTAR Alaska currently transports the utility's
gas supplies for a transportation fee that approximates the price at which
ENSTAR Alaska sold gas to the utility previously, less the cost of that gas.
Accordingly, operating profit for the Alaska transmission and distribution
segment was not materially affected by these factors in 1992. However, operating
profit for 1992 improved over 1991 as a result of higher non-power customer
demand due to an increase in customers and colder temperatures.
Future operating profit for this segment will be affected by weather,
regulatory action and customer growth in ENSTAR Alaska's service area. The
Company expects customer growth to continue to be relatively modest. During the
1993 summer construction season, approximately 55 miles of new distribution
pipeline were installed to connect some 1,800 new customers.
7
<PAGE> 8
OTHER (INCOME) EXPENSE
<TABLE>
<CAPTION>
PERCENT CHANGE
-------------------
1993 1992 1991 1992-'93 1991-'92
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
General and administrative....................... $11,666 $10,099 $ 8,427 + 16 + 20
Interest expense................................. 36,753 17,574 17,875 +109 - 2
Interest income and other........................ (5,708) (4,705) (1,426) + 21 +230
------- ------- ------- -------- --------
$42,711 $22,968 $24,876 + 86 - 8
------- ------- ------- -------- --------
------- ------- ------- -------- --------
</TABLE>
General and administrative expenses increased for the year ended December
31, 1993 in comparison to 1992 due to costs associated with three compensation
plans, one for outside directors, one for key managers, and the other for all
Company employees, that are tied directly to the price of the Seagull Common
Stock. The closing price of Seagull Common Stock increased from $15.563
(adjusted for Stock Split) at December 31, 1992 to $25.375 at December 31, 1993.
Also, increases in other payroll related expenses contributed to the increase in
general and administrative expenses in 1993. These increases were partially
offset by a decline in costs related to potential acquisitions which were not
consummated.
On December 31, 1992, the Company incurred additional debt to finance the
Mid-South Acquisition. In addition, a large portion of the Company's outstanding
floating rate debt was refinanced in July 1993 with longer term debt bearing
interest at fixed rates which were somewhat higher than the floating rates in
effect for the debt being replaced. As a result of these transactions, the
Company's interest expense and overall average interest rate increased for 1993.
Interest income and other for 1993 includes a pre-tax gain of approximately
$3.8 million relating to sales of nonstrategic oil and gas producing properties.
Net proceeds from the sales totaled approximately $13.0 million, resulting in an
after-tax gain of approximately $2.8 million, or $0.08 per share. The parcels
sold had proven reserves estimated at approximately 19 Bcf of natural gas
equivalents.
General and administrative expenses increased for the year ended December
31, 1992 in comparison to 1991 as a result of increases in payroll related
expenses and a charge of approximately $1.2 million for costs related to a
potential acquisition which was not consummated.
During the first quarter of 1992, the Company incurred approximately
$400,000 in severance expenses (included in general and administrative expenses
and operations and maintenance costs) when the Company reduced its non-Alaskan
workforce by more than 10 percent. The workforce reduction was primarily a
result of the depressed state of natural gas demand and prices in early 1992,
coupled with a decrease in planned capital spending for 1992. The Company's
workforce temporarily increased by approximately 240 employees as a result of
the Mid-South Acquisition on December 31, 1992. The Company has retained a
sizeable group of these employees. All severance expenses incurred in connection
with any workforce reductions in the Mid-South area during 1993 were paid by
Arkla. No additional workforce reductions are currently planned.
Interest expense declined approximately 15% for the year ended December 31,
1992 in comparison to 1991 as a result of a decrease in the level of debt
outstanding during the year as well as a decline in the overall average interest
rate. This decline, however, was substantially offset by a fourth quarter 1992
charge to interest expense resulting from the expensing of $2.3 million in
unamortized debt acquisition costs relating to the repayment of the Company's
then existing revolving credit line in connection with the Mid-South
Acquisition.
Interest income and other for the year ended December 31, 1992 includes
$4.6 million relating to the Seismic Litigation Settlement resulting from a
claim made by the Company that certain of the seismic data acquired by it in
connection with its acquisition of HO&M was actually delivered to other
purchasers. In accordance with the settlement agreement, the Company received a
cash payment in July 1992 of $2.6 million and will receive up to $5 million in
pipeline business accommodations through December 31, 1995. If less than $3
million of business accommodations are realized, the Company will receive a cash
payment in early 1996 equal to the difference between $3 million and the sum of
the business accommodations realized. The
8
<PAGE> 9
$4.6 million in 1992 income includes the $2.6 million cash payment plus the
present value of the $3 million guaranteed minimum payment for business
accommodations less certain expenses.
INCOME TAXES
The Company's effective tax rate of 18.3% for the year ended December 31,
1993 was substantially lower than the statutory federal tax rate of 35%
primarily because the Company utilized approximately $4.8 million in credits
allowed under Section 29 of the Internal Revenue Code of 1986, as amended, to
reduce its 1993 regular income tax liability. The Section 29 (Tight Sands)
credits are allowed for production of fuels derived from nonconventional sources
that are sold to nonrelated parties.
The effect of utilizing the Section 29 credits discussed above more than
offset the effect of an increase in the federal corporate tax rate from 34% to
35% called for in recently enacted tax legislation. The effect of this rate
change was an increase in the Company's 1993 provision for federal income taxes
of approximately $1.3 million.
The provision for income taxes for 1993 and 1992 is not comparable to 1991
due to the Company's adoption of SFAS No. 109 effective January 1, 1992. This
SFAS requires the use of the "liability method," which bases the amount of
current and future taxes payable on events recognized in the consolidated
financial statements and under existing tax laws. The Company recognized the
cumulative effect of this change in accounting principle in the line item
entitled "Cumulative Effect of Changes in Accounting Principles" in the
accompanying consolidated statement of earnings for the year ended December 31,
1992. Accordingly, periods prior to January 1, 1992 were not restated to reflect
this change.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for 1993 were substantially higher than those for 1992
due to significant increases in the Company's exploitative activities, primarily
resulting from the large number of prospects acquired in connection with the
Mid-South Acquisition, and the Company's exploratory activities in response to
improvements in prices received and demand for natural gas. The Company's E&P
activities and related capital expenditures had been dramatically reduced in
1992 as a result of unacceptable natural gas prices early in the year.
Capital expenditures for 1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
1993 1992 1991 1992-'93 1991-'92
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Exploration and production:
Lease acquisitions................ $ 7,396 $ 5,396 $ 4,446 + 37 + 21
Exploration....................... 26,824 8,378 15,053 +220 - 44
Development....................... 63,598 18,341 38,960 +247 - 53
-------- -------- -------- -------- --------
97,818 32,115 58,459 +205 - 45
Pipeline and marketing............... 2,115 1,622 634 + 30 +156
Alaska transmission and
distribution...................... 10,094 9,024 10,492 + 12 - 14
Corporate............................ 2,015 890 2,124 +126 - 58
-------- -------- -------- -------- --------
$112,042 $ 43,651 $ 71,709 +157 - 39
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
ACQUISITIONS, NET OF CASH ACQUIRED:
Exploration and production........... $ 29,470 $391,531 $201,767 - 92 + 94
Pipeline and marketing............... -- 10,357 -- N/A N/A
-------- -------- -------- -------- --------
$ 29,470 $401,888 $201,767 - 93 + 99
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE> 10
In October 1993, the Company purchased an interest in a producing natural
gas field in East Texas for approximately $26.6 million, effective September 1,
1993. The interest purchased contained proved reserves estimated at
approximately 28.3 Bcf of natural gas and approximately 143,000 Bbl of
condensate, or the equivalent of 29.2 Bcf of natural gas as of the October 1993
closing date.
Plans for 1994 call for capital expenditures of approximately $173 million,
including about $160 million in exploration and production. The Company
anticipates spending approximately $100 million for development, $10 million for
lease acquisitions and $50 million will be devoted to exploration.
The growth in the E&P segment over the past six years has been accomplished
primarily through acquisitions financed initially by bank borrowings; however,
since August 1990, the Company has reduced borrowings under existing bank
facilities by $520 million with net proceeds received from three separate
Seagull Common Stock offerings and the July 1993 sale of Senior and Senior
Subordinated Notes discussed below, all in underwritten public offerings. See
Notes 6 and 9 of Notes to Consolidated Financial Statements beginning on page 16
of this Exhibit.
In connection with the Mid-South Acquisition, the Company entered into a
credit agreement (the "Credit Agreement") with a group of major U.S. and
international banks (the "Banks"). The Credit Agreement provided for a $150
million term loan, which was repaid in full in February 1993 with the net
proceeds of approximately $164 million from the sale of 5,060,000 shares
(10,120,000 shares after the Stock Split) of Seagull Common Stock, and a $475
million revolving credit line. See Notes 2, 6 and 9 of Notes to Consolidated
Financial Statements beginning on page 16 of this Exhibit.
In June 1993, the Company amended and restated the Credit Agreement
converting the facility into a single revolving credit facility (the "Revolver")
with a total commitment of $475 million and a final maturity of December 31,
1999.
Under the terms of the Revolver, the commitments thereunder begin to
decline on March 31, 1996 in equal quarterly reductions of $27.5 million and a
final reduction of $62.5 million on December 31, 1999. The amount of senior
indebtedness available to the Company under the provisions of the Revolver is
subject to a borrowing base (the "Borrowing Base") based upon the proved
reserves of the Company's exploration and production segment and the financial
performance of the Company's other business segments. The Borrowing Base is
generally determined annually, but may be redetermined, at the option of either
the Company or the Banks, one additional time each year, and will be
redetermined upon the sale of certain assets included in the Borrowing Base.
As of January 4, 1994, immediately following the Seagull Canada
Acquisition, the available commitment under the Revolver is subject to a $610
million Borrowing Base and is determined after consideration of outstanding
borrowings under the Company's other senior debt facilities. As of February 28,
1994, borrowings outstanding under the Revolver were $188.5 million, leaving
immediately available unused commitments of approximately $141.1 million, net of
outstanding letters of credit of $2.2 million, $100 million of borrowings
outstanding under the Senior Notes discussed below, the nominated maximum
borrowing availability of $160 million under the Canadian Credit Agreement
discussed below, and $18.2 million in borrowings outstanding under the Company's
money market facilities.
In connection with the Seagull Canada Acquisition, Seagull Energy Canada
Ltd. ("Seagull Canada"), the indirect wholly owned subsidiary of the Company
which acquired Novalta, entered into a new $175 million reducing revolving
credit facility (the "Canadian Credit Agreement") with a group of 10 Canadian
affiliates of major U.S. and international banks. The Canadian Credit Agreement
provides for dual currency borrowings in U.S. and Canadian dollars with a
nominated maximum borrowing availability of $160 million, which may be increased
or decreased by the Company at any time pursuant to provisions of the Canadian
Credit Agreement, up to a maximum commitment of $175 million. The Canadian
Credit Agreement matures on December 31, 1999 and commitments thereunder begin
to decline on March 31, 1996 in equal quarterly reductions of $10,937,500. As of
January 4, 1994, immediately following the Seagull Canada Acquisition,
approximately $152 million in borrowings were outstanding under this facility.
10
<PAGE> 11
In July 1993, the Company sold $100 million of senior notes (the "Senior
Notes") and $150 million of senior subordinated notes (the "Senior Subordinated
Notes") (collectively the "Notes"). The Senior Notes bear interest at 7 7/8% per
annum, are not redeemable prior to maturity or subject to any sinking fund and
mature on August 1, 2003. The Senior Subordinated Notes bear interest at 8 5/8%
per annum, are not subject to any sinking fund and mature on August 1, 2005. On
or after August 1, 2000, the Senior Subordinated Notes are redeemable at the
option of the Company, in whole or in part, at redemption prices declining from
102.59% in 2000 to 100.00% in 2003 and thereafter. The Notes were issued at par
and interest is paid semi-annually. Net proceeds from the offering, totaling
approximately $245.0 million, were used to repay borrowings outstanding under
the Revolver.
In addition to the facilities discussed above, the Company has money market
facilities with two major U.S. banks with a combined maximum commitment of $70
million. These lines of credit bear interest at rates made available by the
banks at their discretion and may be canceled at either the Company's or the
banks' discretion. The lines are subject to annual renewal.
Management believes that the Company's capital resources will be sufficient
to finance current and forecasted operations. However, the Company continues to
actively pursue potential acquisitions and, depending upon the size and terms of
any such acquisition, additional financing may be required.
To date, compliance with applicable environmental and safety regulations by
the Company has not required any significant capital expenditures or materially
affected its business or earnings. The Company believes it is in substantial
compliance with environmental and safety regulations and foresees no material
expenditures in the future; however, the Company is unable to predict the impact
that compliance with future regulations may have on capital expenditures,
earnings and competitive position.
11
<PAGE> 12
SEAGULL ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Exploration and production............................... $227,437 $ 91,991 $ 81,099
Pipeline and marketing................................... 42,484 37,240 37,823
Alaska transmission and distribution..................... 107,244 109,598 129,615
-------- -------- --------
377,165 238,829 248,537
-------- -------- --------
Costs of Operations:
Alaska transmission and distribution cost of gas sold.... 59,898 59,999 81,935
Cost of other gas sold................................... 2,660 3,888 5,913
Operations and maintenance............................... 104,797 71,923 68,377
Exploration charges...................................... 17,265 9,905 9,227
Depreciation, depletion and amortization................. 116,556 63,231 52,902
-------- -------- --------
301,176 208,946 218,354
-------- -------- --------
Operating Profit........................................... 75,989 29,883 30,183
Other (Income) Expense:
General and administrative............................... 11,666 10,099 8,427
Interest expense......................................... 36,753 17,574 17,875
Interest income and other................................ (5,708) (4,705) (1,426)
-------- -------- --------
42,711 22,968 24,876
-------- -------- --------
Earnings Before Income Taxes and Cumulative Effect of
Changes in Accounting Principles......................... 33,278 6,915 5,307
Income Taxes............................................... 6,080 2,500 200
-------- -------- --------
Earnings Before Cumulative Effect of Changes in Accounting
Principles............................................... 27,198 4,415 5,107
Cumulative Effect of Changes in Accounting Principles...... -- 2,273 --
-------- -------- --------
Net Earnings............................................... $ 27,198 $ 6,688 $ 5,107
-------- -------- --------
-------- -------- --------
Earnings Per Share:
Earnings before cumulative effect of changes in
accounting principles................................. $ 0.76 $ 0.17 $ 0.23
Cumulative effect of changes in accounting principles.... -- 0.09 --
-------- -------- --------
Net Earnings............................................. $ 0.76 $ 0.26 $ 0.23
-------- -------- --------
-------- -------- --------
Weighted Average Number of Common Shares Outstanding (in
thousands)............................................... 35,790 25,583 22,692
-------- -------- --------
-------- -------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
12
<PAGE> 13
SEAGULL ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 5,572 $ 3,882
Accounts receivable, net.......................................... 98,734 89,823
Inventories....................................................... 4,382 4,153
Prepaid expenses and other........................................ 6,520 926
---------- ----------
Total Current Assets......................................... 115,208 98,784
Property, Plant and Equipment -- at cost (successful efforts method
for gas and oil properties)....................................... 1,278,701 1,191,575
Accumulated Depreciation, Depletion and Amortization................ 345,512 253,773
---------- ----------
933,189 937,802
Other Assets........................................................ 69,854 66,378
---------- ----------
Total Assets........................................................ $1,118,251 $1,102,964
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 84,904 $ 99,520
Accrued expenses.................................................. 30,134 12,713
Prepaid gas and oil sales......................................... 7,590 27,933
Current maturities of long-term debt.............................. 1,538 3,743
---------- ----------
Total Current Liabilities.................................... 124,166 143,909
Long-Term Debt...................................................... 459,787 608,011
Other Noncurrent Liabilities........................................ 66,785 80,928
Deferred Income Taxes............................................... 28,134 26,443
Shareholders' Equity:
Common Stock, $.10 par value; authorized 100,000,000 shares (1993)
and 40,000,000 shares (1992); issued 36,378,659 shares (1993)
and 12,977,257 shares (1992)................................... 3,638 1,298
Additional paid-in capital........................................ 324,192 158,503
Retained earnings................................................. 120,713 93,515
Less -- note receivable from employee stock ownership plan........ (6,029) (6,508)
Less -- 326,812 shares (1993) and 163,406 shares (1992) of Common
Stock held in Treasury, at cost................................ (3,135) (3,135)
---------- ----------
Total Shareholders' Equity................................... 439,379 243,673
Commitments and Contingencies.......................................
---------- ----------
Total Liabilities and Shareholders' Equity.......................... $1,118,251 $1,102,964
---------- ----------
---------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
13
<PAGE> 14
SEAGULL ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Net earnings.......................................... $ 27,198 $ 6,688 $ 5,107
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of changes in accounting
principles....................................... -- (2,273) --
Depreciation, depletion and amortization........... 119,544 65,238 54,811
Amortization of loan acquisition costs............. 4,261 2,927 745
Deferred income taxes.............................. 1,050 2,305 438
Dry hole expense................................... 10,534 5,232 4,195
Gain on sales of property, plant and equipment..... (3,929) (177) (46)
Distributions in excess of earnings from
partnerships..................................... 1,506 872 888
Other.............................................. 598 556 516
--------- --------- ---------
160,762 81,368 66,654
Changes in operating assets and liabilities, net of
acquisitions:
Decrease (Increase) in accounts receivable, net.... (7,029) 5,039 (1,764)
Decrease (Increase) in inventories, prepaid
expenses and other............................... 757 (457) (1,089)
Increase (Decrease) in accounts payable............ (16,292) (11,334) 7,781
Decrease in prepaid gas and oil sales.............. (27,933) -- --
Increase (Decrease) in accrued expenses and
other............................................ 9,496 (2,429) (1,809)
--------- --------- ---------
Net Cash Provided By Operating Activities........ 119,761 72,187 69,773
Investing Activities:
Capital expenditures.................................. (112,042) (43,651) (71,709)
Acquisitions, net of cash acquired.................... (29,470) (401,888) (201,767)
Proceeds from sales of property, plant and
equipment.......................................... 13,428 1,347 1,394
--------- --------- ---------
Net Cash Used In Investing Activities............ (128,084) (444,192) (272,082)
Financing Activities:
Proceeds from revolving lines of credit and other
borrowings......................................... 599,490 756,500 365,900
Principal payments on revolving lines of credit and
other borrowings................................... (750,039) (369,877) (198,205)
Fees paid to acquire financing........................ (6,535) (18,282) (3,201)
Proceeds from sales of common stock................... 166,140 794 37,571
Purchase of treasury stock............................ -- (210) --
Other................................................. 957 765 1,272
--------- --------- ---------
Net Cash Provided By Financing Activities........ 10,013 369,690 203,337
--------- --------- ---------
Increase (Decrease) In Cash And Cash
Equivalents................................... 1,690 (2,315) 1,028
Cash And Cash Equivalents At Beginning Of Year.......... 3,882 6,197 5,169
--------- --------- ---------
Cash And Cash Equivalents At End Of Year................ $ 5,572 $ 3,882 $ 6,197
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
14
<PAGE> 15
SEAGULL ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL NOTE
COMMON PAID-IN RETAINED RECEIVABLE TREASURY
STOCK CAPITAL EARNINGS FROM ESOP STOCK TOTAL
------ ---------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
January 1, 1991.................... $1,137 $ 119,924 $ 81,720 $(7,340) $ (2,925) $192,516
Net earnings..................... -- -- 5,107 -- -- 5,107
Issuance of common stock,
1,500,000 shares.............. 150 36,586 -- -- -- 36,736
Exercise of employee stock
options, 60,304 shares........ 6 829 -- -- -- 835
Repayment of Note Receivable by
ESOP.......................... -- -- -- 396 -- 396
Other............................ -- 207 -- -- -- 207
------ ---------- -------- --------- -------- --------
December 31, 1991.................. 1,293 157,546 86,827 (6,944) (2,925) 235,797
Net earnings..................... -- -- 6,688 -- -- 6,688
Purchase of treasury stock, 9,438
shares........................ -- -- -- -- (210) (210)
Exercise of employee stock
options, 50,235 shares........ 5 789 -- -- -- 794
Repayment of Note Receivable by
ESOP.......................... -- -- -- 436 -- 436
Other............................ -- 168 -- -- -- 168
------ ---------- -------- --------- -------- --------
December 31, 1992.................. 1,298 158,503 93,515 (6,508) (3,135) 243,673
Net earnings..................... -- -- 27,198 -- -- 27,198
Issuance of common stock,
5,060,000 shares.............. 506 163,131 -- -- -- 163,637
Two-for-one stock split.......... 1,807 (1,807) -- -- -- --
Exercise of employee stock
options, 271,645 shares....... 27 2,476 -- -- -- 2,503
Repayment of Note Receivable by
ESOP.......................... -- -- -- 479 -- 479
Other............................ -- 1,889 -- -- -- 1,889
------ ---------- -------- --------- -------- --------
December 31, 1993.................. $3,638 $ 324,192 $120,713 $(6,029) $ (3,135) $439,379
------ ---------- -------- --------- -------- --------
------ ---------- -------- --------- -------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
15
<PAGE> 16
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C> <C>
1. Summary of Significant Accounting Policies..................................... 16
2. Acquisitions................................................................... 18
3. Property, Plant and Equipment.................................................. 19
4. Supplemental Gas and Oil Producing Activities (Unaudited)...................... 19
5. Other Noncurrent Assets........................................................ 23
6. Long-Term Debt................................................................. 25
7. Other Noncurrent Liabilities................................................... 28
8. Fair Value of Financial Instruments............................................ 29
9. Shareholders' Equity........................................................... 30
10. Stock Option Plans............................................................. 30
11. Employee Benefit Plans......................................................... 31
12. Interest Income and Other...................................................... 33
13. Income Taxes................................................................... 34
14. Business Segments.............................................................. 37
15. Selected Quarterly Financial Data (Unaudited).................................. 38
16. Commitments and Contingencies.................................................. 38
17. Subsequent Events.............................................................. 39
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The accompanying consolidated financial statements include
the accounts of Seagull Energy Corporation and Subsidiaries (the "Company"), all
of which are wholly owned. All significant intercompany transactions have been
eliminated.
The results of operations of Seagull Mid-South Inc. ("Seagull Mid-South"),
formerly Arkla Exploration Company ("Arkla Exploration") have been included with
those of the Company since December 31, 1992, and the results of operations of
certain gas and oil assets (the "Mid-Continent Assets") purchased from Mesa
Limited Partnership, a predecessor of Mesa, Inc., ("Mesa") have been included
with those of the Company since March 8, 1991, the respective acquisition dates
(See Note 2).
Partnerships in which the Company holds a 50% interest or less are
accounted for using the equity method.
Regulation. The Company operates in Alaska through ENSTAR Natural Gas
Company ("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"),
a wholly owned subsidiary (collectively referred to herein as "ENSTAR Alaska").
ENSTAR Alaska is subject to regulation by the Alaska Public Utilities Commission
("APUC"), which has jurisdiction over, among other things, rates, accounting
procedures and standards of service.
Cash Equivalents. The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Supplemental Disclosures of Cash Flow Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest, net of amount capitalized......................... $ 26,753 $ 19,079 $ 16,114
Income taxes................................................ $ 7,140 $ 878 $ 3,748
</TABLE>
16
<PAGE> 17
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories. Materials and supplies are valued at the lower of average cost
or market value (net realizable value). Inventories of hydrocarbon products are
valued on a first-in, first-out (FIFO) basis at the lower of cost or market
value.
Gas And Oil Properties. The Company uses the successful efforts method of
accounting for its gas and oil operations. The costs of unproved leaseholds are
capitalized pending the results of exploration efforts. Unproved leaseholds with
significant acquisition costs are assessed periodically, on a
property-by-property basis, and a loss is recognized to the extent, if any, that
the cost of the property has been impaired. Unproved leaseholds whose
acquisition costs are not individually significant are aggregated, and the
portion of such costs estimated to ultimately prove nonproductive, based on
experience, is amortized over an average holding period. As unproved leaseholds
are determined to be productive, the related costs are transferred to proved
leaseholds. Exploratory dry holes and geological and geophysical charges are
expensed. Depletion of proved leaseholds and amortization and depreciation of
the costs of all development and successful exploratory drilling are provided by
the unit-of-production method based upon estimates of proved gas and oil
reserves on a field-by-field basis. Estimated costs (net of salvage value) of
dismantling and abandoning gas and oil production facilities are computed and
included in depreciation and depletion using the unit-of-production method. The
total estimated future dismantlement and abandonment cost being amortized as of
December 31, 1993 was approximately $23.2 million. On a world-wide basis, should
the net capitalized costs exceed the estimated future undiscounted after tax net
cash flows from proved gas and oil reserves, such excess costs would be charged
to expense.
Other Property, Plant And Equipment. Depreciation of gas gathering pipeline
facilities is computed principally using the unit-of-production method based on
the estimated proved reserves to be transported through the pipeline facility.
Depreciation of the utility plant, gas processing plants and other property is
computed using the straight-line method over their estimated useful lives, which
vary from 3 to 33 years. Gain or loss on sale or disposition of non-utility
property is credited or charged to interest income and other.
Utility plant facilities are subject to APUC regulation. When utility
properties are disposed of or otherwise retired, the original cost of the
property, plus cost of retirement, less salvage value, is charged to accumulated
depreciation.
Maintenance, repairs and renewals are charged to operations and maintenance
expense except that renewals which extend the life of the property are
capitalized.
Treasury Stock. The Company follows the cost method of accounting for
treasury stock transactions.
Revenue Recognition. The Company records revenue following the entitlement
method of accounting for production gas imbalances.
The Company constructs pipeline systems for third parties and recognizes
profits on construction under the percentage-of-completion method.
ENSTAR Alaska's operating revenues are based on rates authorized by the
APUC which are applied to customers' consumption of natural gas. ENSTAR Alaska
records unbilled revenue, including amounts to be billed under a purchased gas
adjustment clause, at the end of each accounting period.
General and Administrative Expense. General and administrative expenses
represent various overhead costs of corporate departments. All overhead expenses
directly related to the operations of the Company's business segments are
included in operations and maintenance costs and exploration charges.
Interest Rate Swap Agreements. The Company has entered into interest rate
swap agreements to manage the impact of changes in interest rates. The
differential interest to be paid or received is accrued as interest rates change
and is recognized over the life of the agreements as a component of interest
expense.
17
<PAGE> 18
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes. Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
This SFAS requires the use of the liability method under which deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized as part of the provision for income taxes in the period that
includes the enactment date.
Prior to January 1, 1992, the Company used the deferral method of
accounting for income taxes, under which deferred taxes were provided for all
material timing differences arising from the recognition of certain items of
income and expense in different accounting periods for tax and financial
accounting purposes using the tax rate applicable for the year of the
calculation. Under the deferral method, deferred taxes were not adjusted for
subsequent changes in tax rates.
Earnings per Share. The weighted average number of common shares
outstanding for the computation of earnings per share for the year ended
December 31, 1993 gives effect to the assumed exercise of dilutive stock options
as of the beginning of the year. The effect of dilutive stock options is
insignificant on the earnings per share computations for the years ended
December 31, 1992 and 1991.
On June 4, 1993, the Company effected, in the form of a 100 percent stock
dividend, a two-for-one stock split (the "Stock Split") of all the issued shares
of the Company's common stock ("Seagull Common Stock"). The weighted average
number of common shares outstanding and per share amounts for all periods have
been restated to reflect the Stock Split. All share amounts included in the
consolidated balance sheets and consolidated statements of shareholders' equity
as of dates prior to June 4, 1993 were not adjusted to reflect the Stock Split.
Changes in Financial Presentation. Certain reclassifications have been made
in the 1992 and 1991 financial statements to conform to the presentation used in
1993.
2. ACQUISITIONS
Seagull Mid-South Inc. On December 31, 1992, the Company purchased all of
the outstanding capital stock of Arkla Exploration from Arkla, Inc. ("Arkla")
for approximately $397 million in cash, subject to certain customary
post-closing adjustments (the "Mid-South Acquisition"). The purchase price was
adjusted for, among other things, certain title defects and an adjustment
relating to the net aggregate gas imbalances attributable to Arkla Exploration's
interest in the properties it owned. The final adjusted purchase price was
approximately $393 million. The acquisition was accounted for as a purchase.
Seagull Mid-South's assets (the "Mid-South Properties") consist almost
exclusively of natural gas and oil reserves and developed and undeveloped lease
acreage concentrated principally in a small number of fields located in
Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Arkla Exploration entered
into prepaid gas and oil sales contracts prior to its acquisition by the
Company. As of December 31, 1992, Seagull Mid-South was obligated to deliver for
no future consideration approximately 13 billion cubic feet ("Bcf") of gas and
approximately one million barrels ("MMbbl") of oil and condensate pursuant to
these contracts over periods expiring January 31, 1994 and June 30, 1995,
respectively. As of December 31, 1993, approximately 620 million cubic feet
("MMcf") of gas and 529,000 barrels of oil and condensate remain to be delivered
under these contracts.
Mid-Continent Assets. On March 8, 1991, the Company purchased the
Mid-Continent Assets from Mesa for approximately $199 million in cash after
certain adjustments. In addition, the Company and Mesa entered into a contingent
gas price payment agreement at the closing pursuant to which the Company would
generally pay an additional $450,000 (up to a maximum of $25 million) for each
$.01 that the weighted average
18
<PAGE> 19
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
wellhead price, as defined, of natural gas sold from the Mid-Continent Assets
exceeds $1.80 per thousand cubic feet ("Mcf") for the three year period ending
December 31, 1993. The estimated weighted average wellhead price, as defined, of
natural gas sold for the three year period ended December 31, 1993 was $1.76 per
Mcf. Based upon this estimated price, the Company does not anticipate that any
payment will be required under the contingent gas price payment agreement. The
Mid-Continent Assets include gas and oil interests generally located in Western
Oklahoma and the Texas Panhandle and certain related assets. The acquisition was
accounted for as a purchase.
See Note 17 for information concerning the Company's acquisition of Novalta
Resources Inc. ("Novalta") (the "Seagull Canada Acquisition") in January 1994.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of the Company's property, plant and equipment are shown
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gas and oil properties.............................................. $ 972,460 $ 888,178
Pipeline facilities................................................. 63,019 72,413
Gas processing plants............................................... 15,808 12,301
Utility plant....................................................... 216,883 208,419
Equipment and other................................................. 10,531 10,264
---------- ---------
$1,278,701 $1,191,575
---------- ---------
---------- ---------
</TABLE>
Interest cost capitalized as property, plant and equipment amounted to
approximately $0.9 million in 1993 and 1992 and $1.7 million in 1991. Total
depreciation, depletion and amortization related to property, plant and
equipment amounted to approximately $119.5 million, $65.2 million and $54.8
million in 1993, 1992 and 1991, respectively.
4. SUPPLEMENTAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Proved properties...................................................... $956,604 $876,419
Unproved properties.................................................... 15,856 11,759
-------- --------
972,460 888,178
Accumulated depreciation, depletion and amortization................... 224,451 137,201
-------- --------
$748,009 $750,977
-------- --------
-------- --------
</TABLE>
19
<PAGE> 20
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of properties:
Proved................................................... $ 22,568 $455,970 $199,499
Unproved................................................. 7,750 3,078 6,500
Exploration costs.......................................... 26,824 8,378 15,053
Development costs.......................................... 63,598 18,341 38,960
-------- -------- --------
$120,740 $485,767 $260,012
-------- -------- --------
-------- -------- --------
</TABLE>
RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues..................................................... $227,437 $91,991 $81,099
Lifting costs:
Lease operating expense.................................... 28,806 15,334 14,946
Workover expense........................................... 4,249 2,449 2,058
Production taxes........................................... 9,133 4,045 3,531
Transportation expenses.................................... 7,764 2,757 1,827
Ad valorem taxes........................................... 3,291 1,645 1,656
-------- ------- -------
53,243 26,230 24,018
General operating expense.................................... 10,408 4,614 3,933
Exploration charges.......................................... 17,265 9,905 9,227
Depreciation, depletion and amortization..................... 103,552 52,855 42,646
-------- ------- -------
Operating profit (loss)...................................... 42,969 (1,613) 1,275
Income tax expense (benefit)(*).............................. 7,851 (584) 48
-------- ------- -------
Results of operations from producing activities.............. $ 35,118 $(1,029) $ 1,227
-------- ------- -------
-------- ------- -------
</TABLE>
- ---------------
(*) Income tax expense is calculated by applying the current effective tax rate
to operating profit.
20
<PAGE> 21
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE QUANTITY INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1992 1991
--------------------- -------------------- --------------------
GAS OIL GAS OIL GAS OIL
(MMCF) (MBBL)(1) (MMCF) (MBBL)(1) (MMCF) (MBBL)(1)
-------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Beginning of year............ 884,327 18,149 335,121 11,014 127,709 5,791
Purchases of reserves in
place..................... 34,350 198 573,526 6,691 167,098 4,639
Sales of reserves in place... (9,587) (1,554) (181) (24) (506) (52)
Revisions of previous
estimates................. 24,924 (1,281) (5,503) 1,548 7,675 982
Extensions and discoveries... 83,158 972 19,501 199 66,051 990
Production................... (102,025) (1,694) (38,137) (1,279) (32,906) (1,336)
-------- --------- ------- --------- ------- ---------
End of year(2)............... 915,147 14,790 884,327 18,149 335,121 11,014
-------- --------- ------- --------- ------- ---------
-------- --------- ------- --------- ------- ---------
Proved developed reserves:
Beginning of year............ 675,861 11,552 265,987 7,213 106,369 3,901
-------- --------- ------- --------- ------- ---------
-------- --------- ------- --------- ------- ---------
End of year.................. 693,610 9,362 675,861 11,552 265,987 7,213
-------- --------- ------- --------- ------- ---------
-------- --------- ------- --------- ------- ---------
</TABLE>
- ---------------
(1) "Mbbl" represents one thousand barrels of oil.
(2) At December 31, 1993 and 1992, includes approximately 620 MMcf and 13 Bcf of
gas, respectively, and 529 Mbbl and one MMbbl of oil, respectively, related
to prepaid gas and oil sales.
Proved reserves attributable to the properties obtained on January 4, 1994
in connection with the Seagull Canada Acquisition (see Note 17) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------
GAS OIL
(MMCF) (MBBL)
------- ------
<S> <C> <C>
Proved developed and undeveloped reserves................................. 257,382 2,783
------- ------
------- ------
Proved developed reserves................................................. 236,945 2,529
------- ------
------- ------
</TABLE>
The Company's standardized measure of discounted future net cash flows and
changes therein as of December 31, 1993, 1992 and 1991 are provided based on the
present value of future net revenues from proved gas and oil reserves (all
located in the United States prior to 1994) estimated by independent petroleum
engineers in accordance with guidelines established by the Securities and
Exchange Commission. These estimates were computed by applying appropriate
current prices for gas and oil to estimated future production of proved gas and
oil reserves over the economic lives of the reserves and assuming continuation
of existing economic conditions. Year end 1993 calculations were made utilizing
average prices for natural gas and oil, condensate and natural gas liquids that
existed at December 31, 1993 of $2.33 per Mcf and $12.13 per barrel ("Bbl"),
respectively. Income taxes are computed by applying the statutory federal income
tax rate to the net cash inflows relating to proved gas and oil reserves less
the tax bases of the properties involved and giving effect to any net operating
loss carryforwards, tax credits and allowances relating to such properties. The
reserve volumes provided by the independent petroleum engineers are estimates
only and should not be construed as being exact quantities. These reserves may
or may not be recovered and may increase or decrease as a result of future
operations of the Company and changes in market conditions.
21
<PAGE> 22
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Future cash inflows(*).............................................. $2,318,243 $2,168,259
Future development costs............................................ (234,494) (206,574)
Future production costs............................................. (564,915) (522,686)
---------- ----------
Future net cash flows before income taxes........................... 1,518,834 1,438,999
10% annual discount................................................. (625,504) (604,461)
---------- ----------
Discounted future net cash flows before income taxes................ 893,330 834,538
Discounted income taxes............................................. (165,682) (140,090)
---------- ----------
Standardized measure of discounted future net cash flows(*)......... $ 727,648 $ 694,448
---------- ----------
---------- ----------
</TABLE>
- ---------------
(*) At December 31, 1993 and 1992, future cash inflows include approximately
$10.3 million and $38.3 million, respectively, for prepaid gas and oil
sales made by Arkla Exploration prior to its acquisition by the Company. In
addition, the standardized measure of discounted future net cash flows
includes approximately $6.2 million and $23.7 million, respectively,
relating to these prepaid sales. As discussed in Note 2, Seagull Mid-South
was obligated, as of December 31, 1992, under prepaid gas and oil sales
contracts to deliver for no future consideration approximately 13 Bcf of
gas and approximately one MMbbl of oil and condensate over periods expiring
January 31, 1994 and June 30, 1995, respectively. As of December 31, 1993,
620 MMcf of gas and 529 Mbbl of oil and condensate remain to be delivered
under these contracts.
The standardized measure of discounted future net cash flows relating to
the properties obtained on January 4, 1994 in connection with the Seagull Canada
Acquisition (see Note 17) is as follows:
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Future cash inflows.......................................................... $ 493,067
Future development costs..................................................... (22,113)
Future production costs...................................................... (121,425)
---------
Future net cash flows before income taxes.................................... 349,529
10% annual discount.......................................................... (160,085)
---------
Discounted future net cash flows before income taxes......................... 189,444
Discounted income taxes...................................................... (62,149)
---------
Standardized measure of discounted future net cash flows..................... $ 127,295
---------
---------
</TABLE>
22
<PAGE> 23
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPAL SOURCES OF CHANGE IN THE STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows,
beginning of year....................................... $ 694,448 $289,881 $158,757
Purchases of reserves in place.......................... 28,871 486,048 166,477
Sales of reserves in place.............................. (13,679) (259) (776)
Revisions of previous quantity estimates less related
costs................................................ 16,660 (4,155) 11,457
Extensions and discoveries less related costs........... 87,345 13,760 56,308
Net changes in prices and production costs.............. 28,393 15,790 (48,457)
Development costs incurred during period and changes in
estimated future development costs................... 22,248 8,595 13,245
Sales of gas and oil produced during period, net of
lifting costs........................................ (174,194) (65,761) (57,081)
Accretion of discount................................... 83,454 35,407 20,181
Net change in income taxes.............................. (25,591) (75,900) (21,137)
Other................................................... (20,307) (8,958) (9,093)
--------- -------- --------
33,200 404,567 131,124
--------- -------- --------
Standardized measure of discounted future net cash flows,
end of year............................................. $ 727,648 $694,448 $289,881
--------- -------- --------
--------- -------- --------
</TABLE>
5. OTHER NONCURRENT ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Natural gas imbalances................................................... $31,271 $35,418
Debt acquisition costs................................................... 19,007 17,305
Investments in partnerships.............................................. 7,377 8,883
Acquisition costs -- Seagull Canada Acquisition.......................... 7,745 --
Other.................................................................... 4,454 4,772
------- -------
$69,854 $66,378
------- -------
------- -------
</TABLE>
Natural Gas Imbalances. The Company records revenue following the
entitlement method of accounting for production imbalances, in which any excess
amount received above the Company's share is treated as a liability. If less
than the Company's entitlement is received, the underproduction is recorded as
an asset. The Company records revenue from gas marketing sales net of the cost
of gas and third-party delivery fees, with any resulting transportation
imbalances recorded as a current receivable or payable.
23
<PAGE> 24
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's natural gas imbalance assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1993 1992
--------------------- ---------------------
AMOUNT VOLUMES AMOUNT VOLUMES
------- ------- ------- -------
(DOLLARS IN THOUSANDS AND VOLUMES IN BCF)
<S> <C> <C> <C> <C>
ASSETS:
Current.............................. $ 5,808 3.6 $ 2,686 1.8
Noncurrent........................... 31,271 20.9 35,418 23.8
------- ------- ------- -------
$37,079 24.5 $38,104 25.6
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES:
Current.............................. $ 7,546 4.5 $ 5,552 3.7
Noncurrent........................... 31,693 20.7 39,011 25.7
------- ------- ------- -------
$39,239 25.2 $44,563 29.4
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Debt Acquisition Costs. Debt acquisition costs represent financing costs
incurred in connection with the execution of various facilities entered into or
securities issued by the Company. These costs are capitalized and amortized to
interest expense over the life of the related debt. As discussed in Note 6, the
Company has a $475 million revolving credit line which matures in 1999.
Financing costs initially incurred in 1992 of approximately $16.7 million were
capitalized in connection with this facility and will be amortized to interest
expense over periods ending December 31, 1999. Approximately $5.0 million in
financing costs incurred were capitalized in connection with the Company's July
1993 issuance of $250 million in senior and senior subordinated notes, and will
be amortized to interest expense over periods ending August 1, 2005 (see Note
6).
Investments in Partnerships.
Seagull Shoreline System. The Company, through one of its wholly owned
subsidiaries, serves as operator and at December 31, 1993 held
approximately a 19% interest in the Seagull Shoreline System ("SSS"), a
partnership that owns an offshore gas pipeline. At December 31, 1993, the
Company's investment in SSS amounted to $2.3 million.
Cavallo Pipeline Company. A wholly owned subsidiary of the Company
owns a 50% interest in, and operates, Cavallo Pipeline Company ("Cavallo").
The Cavallo system consists of an offshore pipeline system. At December 31,
1993, the Company's investment in Cavallo amounted to approximately $5.1
million.
Acquisition Costs -- Seagull Canada Acquisition. Acquisition costs
represent costs incurred in connection with the Seagull Canada Acquisition,
including a deposit of approximately $7.5 million paid in November 1993 which
was applied as part of the cash purchase price paid in January 1994 (see Note
17).
24
<PAGE> 25
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt for 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Seagull Energy Corporation:
Money market facilities, variable rates (3.875%-4.75% at December 31,
1993) due in 1994.................................................. $ 70,000 $ --
Term Loan, variable rates (8% at December 31, 1992) due in
1993-1995.......................................................... -- 150,000
Revolving credit, variable rates (6% and 8% at December 31, 1993 and
1992) due in 1996-1999............................................. 77,000 391,000
Senior notes, 7.875%, due August 1, 2003.............................. 100,000 --
Senior subordinated notes, 8.625%, due August 1, 2005................. 150,000 --
Alaska Pipeline Company:
Unsecured industrial development bonds:
7.75%-8.00% due in 1993-2008....................................... 12,915 13,100
Other unsecured indebtedness:
9.95%-12.80% notes, due in 1993-2000............................... 2,750 9,107
8.15%-8.81% notes, due in 1997-2009................................ 50,000 50,000
Other debt............................................................ 26 33
-------- --------
462,691 613,240
Less: Current maturities................................................ 1,538 3,743
Unamortized debt discount......................................... 1,366 1,486
-------- --------
Total long-term debt.................................................... $459,787 $608,011
-------- --------
-------- --------
</TABLE>
Money Market Facilities. The Company has money market facilities with two
major U.S. banks with a combined maximum commitment of $70 million. These lines
of credit bear interest at rates made available by the banks at their discretion
and may be canceled at either the Company's or the banks' discretion. The lines
are subject to annual renewal. In connection with the Seagull Canada Acquisition
(see Note 17), borrowings outstanding under the Company's money market
facilities were reduced to $10 million in January 1994 and the remaining $60
million was refinanced with borrowings under the Revolver (defined below).
Seagull Energy Corporation Revolving Credit. During 1993, the Company
amended and restated its credit agreement with a group of major U.S. and
international banks (the "Banks") converting the facility into a single
revolving credit facility (the "Revolver") with a total commitment of $475
million and a final maturity of December 31, 1999. The facility was also amended
to, among other things, release as security all of the following: (i) a pledge
of the stock of all direct or indirect subsidiaries of the Company whose shares
had been pledged; (ii) a mortgage on all gas and oil properties of the Company
and its subsidiaries; and (iii) guaranties from each of the Company's
subsidiaries pledging stock or mortgaging properties as described above. Under
the terms of the Revolver, the commitments thereunder begin to decline on March
31, 1996 in equal quarterly reductions of $27.5 million and a final reduction of
$62.5 million on December 31, 1999.
The Revolver is an unsecured credit facility that contains restrictive
provisions regarding the incurrence of additional debt, the making of
investments outside existing lines of business, the maintenance of certain
financial ratios (based upon the Company's consolidated financial condition and
results of operations), the incurrence of additional liens, the declaration or
payment of dividends (other than dividends payable on up to $100 million of
preferred stock or dividends payable solely in the form of additional shares of
the Company's common stock) and the repurchase or redemption of capital stock.
Under the most restrictive of these provisions, approximately $9.1 million was
available for payment of cash dividends on Seagull Common Stock
25
<PAGE> 26
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or to repurchase Seagull Common Stock as of December 31, 1993. As of January 4,
1994, immediately following the Seagull Canada Acquisition, the Company's
consolidated Debt to Capitalization Ratio, as defined under the Revolver,
increased to 60.2%. In the event the Company's consolidated Debt to
Capitalization Ratio is in excess of 60% as of March 31, 1994, the Company would
not be able to pay any cash dividends on or repurchase any Seagull Common Stock
under these provisions. No cash dividends have been paid on Seagull Common Stock
since the Company became an independent entity in 1981. However, in connection
with the consummation of the ENSTAR Alaska Stock Offering (see Note 17), the
Revolver will be required to be amended to allow for the payment of cash
dividends on the ENSTAR Alaska Stock.
The Revolver bears interest, at the Company's option, at a rate equal to
(i) either one, two, three or six month Adjusted LIBOR, plus a margin (the
"LIBOR Margin") or (ii) the Reference Rate, plus a margin (the "Prime Margin").
The "Reference Rate" is the greater of (i) 0.5% per annum above the daily
federal funds rate or (ii) the prime rate of the agent bank. The LIBOR Margin
ranges from 0.625% to 2.5% per annum, depending upon the Company's credit rating
and consolidated Debt to Capitalization Ratio (as defined under the Revolver),
and the Prime Margin ranges from 0% to 1.5% per annum, depending upon the same
factors.
Under provisions included in the Revolver, the amount of senior
indebtedness available to the Company is subject to a borrowing base (the
"Borrowing Base"), based upon the proved reserves of the Company's exploration
and production segment and the financial performance of the Company's other
business segments. The Borrowing Base is generally determined annually, but may
be redetermined, at the option of either the Company or the Banks, one
additional time each year, and will be redetermined upon the sale of certain
assets included in the Borrowing Base. If the Borrowing Base is redetermined in
such a manner that the amount outstanding under the Revolver (or any other
permitted senior debt facility) exceeds the new Borrowing Base, then the Company
must repay the Revolver or such other indebtedness in an amount necessary to
cure the deficiency. If such deficiency has not been cured within 30 days, such
deficiency must be cured in three equal quarterly installments.
As of January 4, 1994, immediately following the Seagull Canada
Acquisition, the available commitment under the Revolver is subject to a $610
million Borrowing Base and is determined after consideration of outstanding
borrowings under the Company's other senior debt facilities. On that date,
borrowings outstanding under the Revolver were $188.5 million, leaving
immediately available unused commitments of approximately $149.3 million, net of
outstanding letters of credit of $2.2 million, $100 million of borrowings
outstanding under the Senior Notes (defined below), the nominated maximum
borrowing availability of $160 million under the Canadian Credit Agreement
(defined below), and $10 million in borrowings outstanding under the Company's
money market facilities.
Canadian Credit Agreement. In connection with the Seagull Canada
Acquisition (see Note 17), Seagull Energy Canada Ltd. ("Seagull Canada"), the
indirect wholly owned subsidiary of the Company which acquired Novalta, entered
into a new $175 million reducing revolving credit facility (the "Canadian Credit
Agreement") with a group of 10 Canadian affiliates of major U.S. and
international banks. The Canadian Credit Agreement provides for dual currency
borrowings in U.S. and Canadian dollars with a nominated maximum borrowing
availability of $160 million, which may be increased or decreased by the Company
at any time pursuant to provisions of the Canadian Credit Agreement, up to a
maximum commitment of $175 million. The Canadian Credit Agreement matures on
December 31, 1999 and commitments thereunder begin to decline on March 31, 1996
in equal quarterly reductions of $10,937,500. As of January 4, 1994, immediately
following the Seagull Canada Acquisition, approximately $152 million in
borrowings were outstanding under this facility, which are currently denominated
in Canadian dollars.
Borrowings outstanding in Canadian dollars bear interest, at Seagull
Canada's option, at a rate equal to (i) either one, two, three or six month
Bankers' Acceptance Rate plus the LIBOR Margin or (ii) the Paying Agent's prime
rate plus the Prime Margin. Borrowings outstanding under the Canadian Credit
Agreement
26
<PAGE> 27
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
funded in U.S. dollars bear interest, at Seagull Canada's option, in a manner
similar to borrowings outstanding under the Revolver as described above. The
Canadian Credit Agreement is an unsecured credit facility guaranteed by the
Company and contains restrictive provisions similar to those included in the
Revolver.
Senior and Senior Subordinated Notes. In July 1993, Seagull sold $100
million of senior notes (the "Senior Notes") and $150 million of senior
subordinated notes (the "Senior Subordinated Notes") (collectively the "Notes")
in an underwritten public offering. The Senior Notes bear interest at 7 7/8% per
annum, are not redeemable prior to maturity or subject to any sinking fund and
mature on August 1, 2003. The Senior Subordinated Notes bear interest at 8 5/8%
per annum, are not subject to any sinking fund and mature on August 1, 2005. On
or after August 1, 2000, the Senior Subordinated Notes are redeemable at the
option of the Company, in whole or in part, at redemption prices declining from
102.59% in 2000 to 100.00% in 2003 and thereafter (expressed as a percentage of
principal amount), plus accrued interest to the redemption date. The Notes were
issued at par and interest is paid semiannually.
The Notes represent unsecured obligations of the Company. The Senior Notes
rank pari passu with senior indebtedness of the Company while the Senior
Subordinated Notes are subordinate in right of payment to all existing and
future senior indebtedness of the Company. The Notes contain conditions and
restrictive provisions including, among other things, restrictions on additional
indebtedness by the Company and by its subsidiaries, as well as restrictions on
the incurrence of secured debt and entering into sale and leaseback
transactions. Net proceeds from the offering, totaling approximately $245.0
million, were used to repay borrowings outstanding under the Revolver.
Interest Rate Swap Agreements. The Company enters into interest rate swap
agreements to manage the impact of changes in interest rates. During 1993, the
following interest rate swap agreements were in effect:
<TABLE>
<CAPTION>
INTEREST RATE
NOTIONAL EFFECTIVE MATURITY ----------------------
AMOUNT DATE DATE RECEIVED PAID
- --------- -------- -------- --------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
$15,000 9/11/92 9/11/93 Floating 5.52%
40,000 9/11/92 9/11/95 Floating 6.76%
20,000 9/16/92 9/16/94 Floating 6.265%
25,000 9/11/92 9/11/94 Floating 6.265%
50,000 8/2/93 7/31/98 5.635% Floating
50,000 8/2/93 7/31/97 5.43% Floating
50,000 8/2/93 7/31/96 5.199% Floating
</TABLE>
While notional amounts are used to express the volume of the interest rate
swap transactions discussed above, the amount potentially subject to credit
risk, in the event of nonperformance by the Company's counterparties, is
significantly smaller. For the year ended December 31, 1993, interest expense
included approximately $1.8 million net expense relating to these agreements.
Alaska Pipeline Company. All long-term debt of ENSTAR Alaska is issued by
APC. The majority of the capital requirements of ENG are met by loans from APC
pursuant to intercompany notes secured by a mortgage on the properties, rights
and franchises (other than certain excepted properties) of ENG. The senior
unsecured notes of APC provide for restrictions on dividends, additional
borrowings and purchases, redemptions or retirements of shares of capital stock,
other than in stock of APC. Under the most restrictive provisions of these
financing arrangements, approximately $14.2 million was available for the making
of restricted investments, restricted stock payments and restricted subordinated
debt payments as of December 31, 1993.
27
<PAGE> 28
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1992, APC issued three new series of APC senior unsecured notes
totaling $50 million to a group of institutional investors. The notes have
interest rates ranging from 8.15% to 8.81% and have final maturities ranging
from 2001 to 2009. The proceeds were used to retire APC's then existing $40
million unsecured credit agreement, to meet sinking fund requirements on other
APC debt and for working capital purposes. The Company has not guaranteed
payment of the new senior unsecured notes of APC.
APC has a $5 million revolving line of credit, none of which was utilized
during 1993. This is a one year line of credit which has historically been
renewed annually and is used for seasonal working capital requirements.
Annual Maturities. At December 31, 1993, the Company's aggregate annual
maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (DOLLARS IN THOUSANDS)
------------------------
<S> <C>
1994...................................................... $ 1,538
1995...................................................... $ 1,550
1996...................................................... $ 1,564
1997...................................................... $ 7,577
1998...................................................... $ 9,097
Thereafter................................................ $441,365
</TABLE>
For purposes of the above table, the required payments related to the money
market facilities are considered to be funded with amounts available under the
Revolver.
7. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Natural gas imbalances................................................... $31,693 $39,011
Refundable customer advances for construction............................ 11,623 10,379
Prepaid gas and oil sales................................................ 2,732 10,322
Contingent consideration -- Wacker....................................... -- 3,104
Other.................................................................... 20,737 18,112
------- -------
$66,785 $80,928
------- -------
------- -------
</TABLE>
Natural Gas Imbalances. Revenues for natural gas production received and
sold by the Company in excess of the Company's ownership percentage of total gas
production (See Note 5).
Refundable Customer Advances For Construction. Customer deposits received
by ENSTAR Alaska for construction of main extensions refundable either wholly or
in part over a period not to exceed 10 years.
Prepaid Gas and Oil Sales. Prepayments received pursuant to prepaid gas and
oil sales contracts Arkla Exploration entered into prior to its acquisition by
the Company (See Notes 2 and 4).
Contingent Consideration -- Wacker. A portion of the adjusted purchase
price of Wacker Oil Inc. ("Wacker") withheld pending resolution of issues that
developed with respect to two of its producing gas wells prior to the closing of
the acquisition of Wacker by the Company in 1990. The disposition of the
contingent consideration was settled through arbitration on December 2, 1993
pursuant to provisions of the agreements executed in connection with the
acquisition. The arbitration resulted in a payment to the seller of $1 million
of
28
<PAGE> 29
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the funds withheld at closing. This amount was paid in December 1993, and the
remaining unpaid contingent consideration was accounted for as a reduction to
the purchase price.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1993 1992
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents..................... $ 5,572 $ 5,572 $ 3,882 $ 3,882
Liabilities:
Customer deposits............................. (1,672) (1,571) (1,809) (1,701)
Refundable customer advances for
construction............................... (11,983) (9,858) (10,812) (8,314)
Long-term debt:
Seagull Energy Corporation:
Term Loan................................ -- -- (150,000) (150,000)
Revolver and money market facilities..... (147,000) (147,000) (391,000) (391,000)
Senior Notes............................. (100,000) (99,500) -- --
Senior Subordinated Notes................ (150,000) (149,250) -- --
Alaska Pipeline Company, including current
maturities............................... (64,325) (75,800) (70,754) (75,667)
Interest rate swap agreements:
In a receivable position...................... -- 1,986 -- --
In a payable position......................... -- (2,709) -- (3,161)
</TABLE>
Cash and Cash Equivalents. The carrying amount approximates fair value
because of the short maturity of these instruments.
Customer Deposits And Refundable Customer Advances For Construction. The
fair value is based on discounted cash flow analyses utilizing a discount rate
of 6% with monthly payments ratably over the estimated period of deposit or
advance refunding.
Long-Term Debt.
Seagull Energy Corporation. The carrying amount of borrowings outstanding
under the Company's Term Loan, Revolver and money market facilities approximates
fair value because these instruments bear interest at rates tied to current
market rates.
The fair value of the Company's Senior and Senior Subordinated Notes is
estimated based on quoted market prices for the same issues.
Alaska Pipeline Company. The fair value of APC's long-term debt is
estimated based on quoted market prices for the same or similar issues.
Interest Rate Swap Agreements. The fair values are obtained from the
financial institutions that are counterparties to the transactions. These values
represent the estimated amount the Company would pay or receive to terminate the
agreements, taking into consideration current interest rates and the current
creditworthiness of the counterparties. The Company's interest rate swap
agreements are off balance sheet
29
<PAGE> 30
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions and, accordingly, there are no respective carrying amounts for
these transactions included in the accompanying consolidated balance sheets as
of December 31, 1993 and 1992.
9. SHAREHOLDERS' EQUITY
Seagull Common Stock. In February 1993, the Company sold 5,060,000 shares
(10,120,000 shares after the Stock Split) of Seagull Common Stock in an
underwritten public offering. Net proceeds from the offering, totaling
approximately $163.6 million, were used to repay the Company's then existing
term loan in full, with the remaining $13.6 million being used to repay
borrowings outstanding under the Revolver.
In December 1991, the Company sold 1.5 million shares (3.0 million shares
after the Stock Split) of Seagull Common Stock in an underwritten public
offering. Net proceeds from the offering, totaling approximately $37 million,
were used to repay borrowings outstanding under the Company's then existing
revolving credit line.
See Note 6 for information concerning restrictions imposed by the Revolver
on the Company's future purchases of Common Stock.
Preferred Stock. The Company is authorized to issue 5,000,000 shares of
preferred stock, par value $1.00 per share, in one or more series. There were no
shares issued or outstanding as of December 31, 1993, 1992 and 1991.
Preferred Share Purchase Rights. In 1989, the Company adopted a Share
Purchase Rights Plan to protect the Company's shareholders from coercive or
unfair takeover tactics. Under the Plan, each outstanding share and each share
of Seagull Common Stock subsequently issued has attached to it one Right,
exercisable at $32.75 (adjusted for Stock Split), subject to certain
adjustments. Generally, in the event a person or group acquires 20% or more of
the outstanding Seagull Common Stock other than pursuant to a cash tender offer
for all shares of such Seagull Common Stock (provided that the tender offer
increases the acquiring person's or group's ownership to at least 85% of the
outstanding Seagull Common Stock), or in the event the Company is acquired in a
merger or other business combination or 50% or more of the Company's
consolidated assets or earning power is sold, each Right entitles the holder to
purchase shares of Seagull Common Stock of the Company or of the acquiring
company, having a value of twice the exercise price. The Rights, under certain
circumstances, are redeemable at the option of the Company's Board of Directors
at a price of $0.01 per Right, within 10 days (subject to extension) following
the day on which the acquiring person or group exceeds the 20% threshold. The
Rights expire on March 22, 1999.
10. STOCK OPTION PLANS
The Company currently has six stock option plans: the 1981 Stock Option
Plan; the 1983 Stock Option Plan; the 1986 Stock Option Plan; the 1990 Stock
Option Plan; the 1993 Stock Option Plan and the 1993 Nonemployee Directors'
Stock Option Plan. Twenty percent of (i) all options granted through December
31, 1992, (ii) 100,000 options granted in May 1993, and (iii) all options
granted under the 1993 Nonemployee Directors' Stock Option Plan become
exercisable on a cumulative basis in each of the first five years and expire 10
years after the date of grant. Beginning in 1993, 40% of all other options
granted become exercisable after three years and 20% become exercisable on a
cumulative basis in each of the next three years, and the options expire 10
years after the date of grant. The options are granted at the quoted market
value of Seagull Common Stock on the date of grant. Accordingly, no compensation
expense is recognized in the Company's results of operations relating to these
options.
30
<PAGE> 31
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relating to stock options is summarized as follows (adjusted
for Stock Split):
<TABLE>
<CAPTION>
1993 1992 1991
-------------------- -------------------- -------------------
OPTION OPTION OPTION
PRICE PRICE PRICE
PER PER PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding --
Beginning of year........... 1,862,872 1,366,736 1,513,344
Granted.................. 615,000 $26.38 711,000 $11.94 -- --
Exercised................ (304,952) $ 6.31- (100,664) $ 3.25- (120,608) $ 5.56-
$14.88 $14.88 $10.81
Cancelled................ (13,028) (114,200) (26,000)
--------- --------- ---------
Balance outstanding --
End of year................. 2,159,892 $ 6.31- 1,862,872 $ 6.31- 1,366,736 $ 3.25-
$26.38 $14.88 $14.88
--------- --------- ---------
Options exercisable --
End of year................. 763,892 764,736 726,168
--------- --------- ---------
--------- --------- ---------
Options available for grant --
End of year................. 1,430,060 242,104 858,904
--------- --------- ---------
--------- --------- ---------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Retirement Plans. Effective January 1, 1986, the Company adopted an
unfunded retirement plan which provides for supplemental benefits to certain
officers and key employees. As of December 31, 1993, only one person was
designated to participate in such plan. Total expenses of the plan were
approximately $0.2 million for 1993 and 1992 and $0.3 million for 1991. The
retirement plan's costs are included in general and administrative expenses.
ENSTAR Alaska has two defined benefit retirement plans which cover salaried
employees (the "Salaried Retirement Plan") and operating employees (the
"Operating Unit Plan"). Clerical unit personnel, which constitute approximately
25% of total ENSTAR Alaska personnel, are not covered under a retirement plan.
Determination of benefits for the salaried employees is based upon a combination
of years of service and final monthly compensation. Benefits for operating
employees are based solely on years of service. ENSTAR Alaska's policy is to
fund the minimum contributions required by applicable regulations. The net
pension costs are included in operations and maintenance costs.
31
<PAGE> 32
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the ENSTAR Alaska plans' funded status and
the amounts recognized in the consolidated financial statements at December 31,
1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------------- ----------------------
SALARIED OPERATING SALARIED OPERATING
EMPLOYEES EMPLOYEES EMPLOYEES EMPLOYEES
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $(4,756) $(2,753) $(4,196) $(2,449)
-------- -------- -------- --------
-------- -------- -------- --------
Accumulated benefit obligation.................... $(4,866) $(2,773) $(4,285) $(2,465)
-------- -------- -------- --------
-------- -------- -------- --------
Projected benefit obligation for services rendered
to date........................................... $(5,921) $(2,773) $(5,778) $(2,465)
Plan assets at fair value, primarily listed stocks
and corporate and U.S. bonds...................... 4,094 2,790 3,721 2,467
-------- -------- -------- --------
Plan assets in excess of (less than) projected
benefit obligation................................ (1,827) 17 (2,057) 2
Unrecognized prior service cost..................... 90 19 245 21
Unrecognized net loss............................... 417 632 618 585
Unrecognized net obligation (asset) arising out of
the initial application of SFAS No. 87, amortized
over 15 years (salaried) and 18 years
(operating)....................................... 748 (101) 842 (111)
Additional minimum liability........................ (200) -- (212) --
-------- -------- -------- --------
Prepaid (accrued) pension cost...................... $ (772) $ 567 $ (564) $ 497
-------- -------- -------- --------
-------- -------- -------- --------
Net pension cost includes the following components:
Service cost -- benefits earned during the
period......................................... $ 232 $ 110 $ 195 $ 84
Interest cost on projected benefit obligation..... 413 190 386 162
Actual return on plan assets...................... (333) (224) (185) (197)
Net amortization and deferral....................... 147 40 22 18
-------- -------- -------- --------
Net periodic pension cost........................... $ 459 $ 116 $ 418 $ 67
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The assumed weighted average discount rate for both ENSTAR Alaska plans was
7.25% for 1993 and 1992, and the rate of increase in future compensation for the
Salaried Retirement Plan used in determining the projected benefit obligation
was 5% and 5.5% for 1993 and 1992, respectively. The expected long-term rate of
return on plan assets for both ENSTAR Alaska plans was 8%.
Profit Sharing Plans. ENSTAR Alaska has profit sharing plans for salaried
employees and union employees. Annual contributions for each plan are determined
by the Company's Board of Directors pursuant to formulae which contain minimum
contribution requirements. Profit sharing expense was approximately $0.3 million
for each of the years 1993, 1992 and 1991, and is included in operations and
maintenance costs.
Thrift Plans. The Seagull Thrift Plan and the ENSTAR Natural Gas Company
Thrift Plan (collectively, the "Thrift Plans") are qualified employee savings
plans in accordance with the provisions of Section 401(k) of the Internal
Revenue Code of 1986. Company contributions to the Thrift Plans were
approximately $1.3 million, $0.9 million and $0.8 million for the years 1993,
1992 and 1991, respectively. The Thrift Plans' costs are included in operations
and maintenance costs and general and administrative expenses.
Employee Stock Ownership Plan. On November 15, 1989, the Company formed the
Seagull Employee Stock Ownership Plan (the "ESOP") for the benefit of the
non-Alaskan employees of the Company. The ESOP borrowed from the Company $7.7
million at an interest rate of 10% per annum to be repaid in 12 equal annual
installments of principal and interest. The ESOP used the borrowed funds and the
1989 contributions
32
<PAGE> 33
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from the Company to purchase 948,150 shares (adjusted for Stock Split) of
Seagull Common Stock at $8.438 per share (adjusted for Stock Split) from the
Company's treasury. The purchase price was based upon the closing price of the
Seagull Common Stock on the New York Stock Exchange on the date the ESOP was
formed.
The promissory note has been and will be funded entirely by contributions
from the Company. Company contributions of approximately $0.5 million in 1993
and $0.4 million in 1992 and 1991 are included in operations and maintenance
costs and general and administrative expenses.
Postretirement Benefits Other Than Pensions. ENSTAR Alaska has a
postretirement medical plan which covers all of its salaried employees.
Determination of benefits is based upon the combined age of the retiree and
years of service at retirement. Prior to January 1, 1992, ENSTAR Alaska
accounted for these obligations on a "pay-as-you-go" basis.
Effective January 1, 1992, the Company adopted SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. This SFAS changes
the accounting treatment for such benefits from a pay-as-you-go basis to a
method where the expected costs for these benefits are accrued during the years
the plan participants render service. The Company recognized the cumulative
effect of this change in accounting principle in the line item entitled
"Cumulative Effect of Changes in Accounting Principles" in the accompanying
consolidated statement of earnings for the year ended December 31, 1992.
Accordingly, periods prior to January 1, 1992 were not restated to reflect this
change.
The cumulative effect of this accounting change as of January 1, 1992,
resulted in a reduction in earnings of $0.7 million, (after income taxes of $0.4
million), or $0.03 per share. The effect of this change on earnings before the
cumulative effect for the year ended December 31, 1992, and the pro forma effect
of retroactive application of this accounting change on earnings for the year
ended December 31, 1991 were not material.
12. INTEREST INCOME AND OTHER
Interest income and other includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income.................................................. $ 454 $ 413 $ 493
Seismic Litigation Settlement.................................... -- 4,606 --
Gain on sales of property, plant and equipment................... 4,175 177 46
Other............................................................ 1,079 (491) 887
------ ------ ------
$5,708 $4,705 $1,426
------ ------ ------
------ ------ ------
</TABLE>
Seismic Litigation Settlement. Interest income and other for the year ended
December 31, 1992 includes $4.6 million relating to the Seismic Litigation
Settlement resulting from a claim made by the Company that certain of the
seismic data acquired by it in connection with its 1988 acquisition of Houston
Oil & Minerals Corporation ("HO&M") was actually delivered to other purchasers.
In accordance with the settlement agreement, the Company received a cash payment
in July 1992 of $2.6 million and will receive up to $5 million in pipeline
business accommodations through December 31, 1995. If less than $3 million of
business accommodations are realized, the Company will receive a cash payment in
early 1996 equal to the difference between $3 million and the sum of the
business accommodations realized. The $4.6 million in 1992 income includes the
$2.6 million cash payment plus the present value of the $3 million guaranteed
minimum payment for business accommodations less certain expenses.
Gain on Sales of Property, Plant and Equipment. Interest income and other
for the year ended December 31, 1993 includes a pre-tax gain of approximately
$3.8 million relating to sales of non-strategic oil
33
<PAGE> 34
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and gas producing properties. Net proceeds from the sales totaled approximately
$13.0 million, resulting in an after-tax gain of $2.8 million, or $0.08 per
share. The parcels sold had proven reserves estimated at approximately 19
billion cubic feet of natural gas equivalents.
13. INCOME TAXES
Total income tax expense for the years ended December 31, 1993 and 1992 was
allocated as follows:
<TABLE>
<CAPTION>
1993 1992
------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Income tax provision before cumulative effect of changes in accounting
principles.......................................................... $6,080 $ 2,500
Adjustments for certain changes in accounting principles.............. -- (3,473)
Additional paid-in capital for compensation expense for tax purposes
in excess of amounts recognized for financial reporting purposes.... (1,966) (214)
------ -------
$4,114 $(1,187)
------ -------
------ -------
</TABLE>
The provision for income taxes for each of the years ended December 31,
1993, 1992 and 1991 was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................................... $3,667 $ 131 $ 285
State........................................................... 1,363 64 (523)
------ ------ -----
Total current.............................................. 5,030 195 (238)
------ ------ -----
Deferred:
Federal......................................................... 1,128 (212) (485)
State........................................................... (78) 2,517 923
------ ------ -----
Total deferred............................................. 1,050 2,305 438
------ ------ -----
Income tax provision before cumulative effect of changes in
accounting principles........................................... $6,080 $2,500 $ 200
------ ------ -----
------ ------ -----
</TABLE>
The provision for income taxes before cumulative effect of changes in
accounting principles for the years ended December 31, 1993 and 1992 is not
comparable to 1991 due to the Company's adoption of SFAS No. 109, Accounting for
Income Taxes, effective January 1, 1992. The Company recognized the cumulative
effect of this change in accounting principle in the line item entitled
"Cumulative Effect of Changes in Accounting Principles" in the accompanying
consolidated statement of earnings for the year ended December 31, 1992.
Accordingly, periods prior to January 1, 1992 were not restated to reflect this
change. The cumulative effect of this accounting change as of January 1, 1992
resulted in an increase in earnings of approximately $3.0 million, or $0.12 per
share. The effect of this change on earnings before income taxes for the year
ended December 31, 1992 was not material.
34
<PAGE> 35
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes before cumulative effect of changes in
accounting principles for each of the years ended December 31, 1993, 1992 and
1991 was different than the amount computed using the federal statutory rate
(35% for 1993, 34% for 1992 and 1991) for the following reasons:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount computed using the statutory rate...................... $11,647 $ 2,351 $ 1,804
Increase (Reduction) in taxes resulting from:
Utilization of Internal Revenue Code Section 29 (Tight
Sands) credits........................................... (4,773) -- --
Excess of tax basis over book basis of acquired assets...... -- -- (2,093)
State income taxes, net..................................... 835 1,703 264
Increase (Decrease) in deferred tax asset valuation
allowance................................................ (859) 1,119 --
Adjustments to beginning-of-the-year tax bases per the 1992
and 1991 tax returns..................................... (657) (1,828) --
Increase in the beginning-of-the-year balance of the
deferred tax liabilities due to the increase in the
corporate federal income tax rate........................ 960 -- --
Other....................................................... (1,073) (845) 225
------- ------- -------
Income tax provision before cumulative effect of changes in
accounting principles....................................... $ 6,080 $ 2,500 $ 200
------- ------- -------
------- ------- -------
</TABLE>
The significant components of deferred income tax expense attributable to
income from continuing operations for the years ended December 31, 1993 and 1992
are as follows:
<TABLE>
<CAPTION>
1993 1992
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax expense (exclusive of the effects of other components
listed below)........................................................ $ 949 $1,186
Increase (Decrease) in deferred tax asset valuation allowance.......... (859) 1,119
Increase in the beginning-of-the-year balance of the deferred tax
liabilities due to the increase in the corporate federal income tax
rate................................................................. 960 --
------ ------
$1,050 $2,305
------ ------
------ ------
</TABLE>
As discussed in Note 1, under SFAS No. 109 deferred income taxes have been
provided for all temporary differences between the carrying amounts of assets
and liabilities for financial accounting and tax purposes. In 1991, prior to the
adoption of SFAS No. 109, deferred income taxes were provided based on timing
differences in certain items of income and expense recognized for income tax
purposes in periods different from the periods for financial accounting
purposes.
35
<PAGE> 36
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets as of December
31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, due to differences in depreciation,
depletion and amortization........................................ $ 45,296 $ 38,619
Investments in partnership, due to difference in depreciation........ 606 1,307
Other................................................................ 509 546
-------- --------
Deferred tax liabilities............................................... 46,411 40,472
-------- --------
Deferred tax assets:
Minimum tax credit carryforwards..................................... (12,221) (9,065)
Investment tax credit carryforwards.................................. (2,771) (3,334)
Deferred compensation/retirement related items accrued for
financial reporting purposes...................................... (3,269) (2,263)
Contingent consideration related to acquisitions/dispositions........ (604) (1,975)
Other................................................................ (3,134) (1,332)
-------- --------
Deferred tax assets.................................................... (21,999) (17,969)
Less -- valuation allowance............................................ 1,943 2,802
-------- --------
Net deferred tax assets................................................ (20,056) (15,167)
-------- --------
Net deferred tax liabilities........................................... $ 26,355 $ 25,305
-------- --------
-------- --------
</TABLE>
For federal income tax purposes, as of December 31, 1993, the Company has
unused investment tax credits of approximately $2.8 million which will expire in
the years 1998 through 2000, and unused minimum tax credits of approximately
$12.2 million which are available over an indefinite period.
During 1991, the tax effects of timing differences were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Net operating loss offsetting deferred taxes for financial accounting
purposes...................................................................... $(7,778)
Depreciation, depletion and partnership earnings................................ (1,890)
Gas and oil property costs capitalized for financial accounting purposes........ 12,180
Minimum tax credit carryforward for tax purposes................................ (1,462)
Other........................................................................... (612)
-------
Total deferred tax provision.................................................... $ 438
-------
-------
</TABLE>
36
<PAGE> 37
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. BUSINESS SEGMENTS
Information on the Company's operations by business segment is as follows
for the year ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES(*):
Exploration and production.............................. $ 227,437 $ 91,991 $ 81,099
Pipeline and marketing.................................. 42,484 37,240 37,823
Alaska transmission and distribution.................... 107,244 109,598 129,615
---------- ---------- --------
$ 377,165 $ 238,829 $248,537
---------- ---------- --------
---------- ---------- --------
OPERATING PROFIT:
Exploration and production.............................. $ 42,969 $ (1,613) $ 1,275
Pipeline and marketing.................................. 14,065 9,057 7,884
Alaska transmission and distribution.................... 18,955 22,439 21,024
---------- ---------- --------
75,989 29,883 30,183
---------- ---------- --------
General and administrative expense...................... (11,666) (10,099) (8,427)
Interest expense........................................ (36,753) (17,574) (17,875)
Interest income and other............................... 5,708 4,705 1,426
---------- ---------- --------
Earnings before income taxes.............................. $ 33,278 $ 6,915 $ 5,307
---------- ---------- --------
---------- ---------- --------
OPERATIONS AND MAINTENANCE EXPENSE:
Exploration and production.............................. $ 63,651 $ 30,844 $ 27,951
Pipeline and marketing.................................. 20,266 21,103 20,748
Alaska transmission and distribution.................... 20,880 19,976 19,678
---------- ---------- --------
$ 104,797 $ 71,923 $ 68,377
---------- ---------- --------
---------- ---------- --------
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production.............................. $ 103,552 $ 52,855 $ 42,646
Pipeline and marketing.................................. 5,493 3,192 3,278
Alaska transmission and distribution.................... 7,511 7,184 6,978
---------- ---------- --------
$ 116,556 $ 63,231 $ 52,902
---------- ---------- --------
---------- ---------- --------
IDENTIFIABLE ASSETS:
Exploration and production.............................. $ 816,812 $ 831,222 $371,208
Pipeline and marketing.................................. 70,675 65,378 49,611
Alaska transmission and distribution.................... 185,701 186,519 189,059
Corporate............................................... 45,063 19,845 8,674
---------- ---------- --------
$1,118,251 $1,102,964 $618,552
---------- ---------- --------
---------- ---------- --------
CAPITAL EXPENDITURES:
Exploration and production.............................. $ 97,818 $ 32,115 $ 58,459
Pipeline and marketing.................................. 2,115 1,622 634
Alaska transmission and distribution.................... 10,094 9,024 10,492
Corporate............................................... 2,015 890 2,124
---------- ---------- --------
$ 112,042 $ 43,651 $ 71,709
---------- ---------- --------
---------- ---------- --------
ACQUISITIONS, NET OF CASH ACQUIRED:
Exploration and production.............................. $ 29,470 $ 391,531 $201,767
Pipeline and marketing.................................. -- 10,357 --
---------- ---------- --------
$ 29,470 $ 401,888 $201,767
---------- ---------- --------
---------- ---------- --------
</TABLE>
- ---------------
(*) Intersegment revenues are recorded at market prices.
37
<PAGE> 38
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
EARNINGS (LOSS)
REVENUES OPERATING PROFIT NET EARNINGS (LOSS) PER SHARE(1)
--------------------- ------------------- -------------------- -----------------
1993 1992 1993 1992 1993 1992 1993 1992
-------- -------- ------- ------- ------- ------ ----- -----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31,................ $103,192 $ 67,533 $19,421 $ 6,854 $ 3,853 $2,942(2) $0.12 $0.12(2)
June 30,................. 86,973 49,216 15,201 4,902 3,624 2,603(3) 0.10 0.10(3)
September 30,............ 81,790 48,898 17,077 2,547 7,273(5) (2,310) 0.20(5) (0.09)
December 31,............. 105,210 73,182 24,290 15,580 12,448 3,453(4) 0.34 0.13(4)
-------- -------- ------- ------- ------- ------ ----- -----
Total.................... $377,165 $238,829 $75,989 $29,883 $27,198 $6,688 $0.76 $0.26
-------- -------- ------- ------- ------- ------ ----- -----
-------- -------- ------- ------- ------- ------ ----- -----
</TABLE>
- ---------------
(1) Adjusted for the two-for-one stock split of the Seagull Common Stock
effected June 4, 1993. (See Notes 1 and 9).
(2) Includes the cumulative effect of two changes in accounting principles in
the first quarter of 1992 representing an increase in earnings of
approximately $2.3 million, or $0.09 per share. (See Notes 1, 11 and 13).
(3) Includes an after-tax gain in the second quarter of 1992 of approximately
$2.9 million, or $0.12 per share, relating to the Seismic Litigation
Settlement. (See Note 12).
(4) Includes two charges in the fourth quarter of 1992 resulting from the
expensing of $2.3 million in unamortized loan acquisition costs relating to
the repayment of the Company's then existing revolving credit line and $1.2
million in costs related to a potential acquisition which was not
consummated. The effect of these charges on net earnings was a reduction of
approximately $1.5 million and $0.8 million, respectively, or $0.06 and
$0.03 per share, respectively.
(5) Includes an after-tax gain in the third quarter of 1993 of approximately
$2.7 million, or $0.08 per share, relating to sales of non-strategic oil
and gas producing properties. (See Note 12).
16. COMMITMENTS AND CONTINGENCIES
Lease Commitments. The Company leases certain office space and equipment
under operating lease arrangements which contain renewal options and escalation
clauses. Future minimum rental payments under these leases are $2.8 million and
$2.4 million in 1994 and 1995, respectively, range between $1.6 million and $2.4
million in each of the years 1996-1998, and total $10.4 million for all
subsequent years. Total rental expense under operating leases for 1993, 1992 and
1991 was approximately $1.7 million, $1.8 million and $1.7 million,
respectively.
Concentrations of Credit Risk. The Company operates in all phases of the
natural gas industry with sales to resellers such as pipeline companies and
local distribution companies as well as to end-users such as commercial
businesses, industrial concerns and residential consumers. While certain of
these customers are affected by periodic downturns in the economy in general or
in their specific segment of the natural gas industry, the Company believes that
its level of credit-related losses due to such economic fluctuations has been
immaterial and will continue to be immaterial to the Company's results of
operations in the long term.
Litigation. The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
the effect on its financial condition and results of operations, if any, will
not be material.
38
<PAGE> 39
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENTS
Seagull Canada Acquisition. In January 1994, an indirect wholly owned
subsidiary of the Company acquired all of the outstanding shares of stock of
Novalta and an intercompany note (the "Note") from Novalta to its parent,
Novacor Petrochemicals Ltd. ("Novacor Petrochemicals") for a purchase price of
approximately $203 million in cash, subject to customary postclosing adjustments
described below (the "Seagull Canada Acquisition"). The economic effective date
of the Seagull Canada Acquisition was December 31, 1993 (the "Effective Date").
The purchase price was adjusted for, among other things, working capital and
capital expenditures for 1993 in excess of a specified threshold pursuant to the
provisions of the Sale Agreement, dated November 19, 1993, between Seagull and
Novacor Petrochemicals. Effective as of the January 1994 Closing Date, Novalta
was amalgamated with Seagull Canada, the indirect subsidiary of the Company that
acquired Novalta. As a result of the amalgamation, the Note was extinguished.
The acquisition was accounted for as a purchase.
Seagull Canada's assets (the "Seagull Canada Properties") consist primarily
of natural gas and oil reserves and developed and undeveloped lease acreage
concentrated principally in a small number of fields located in Alberta, Canada.
According to reserve estimates prepared as of December 31, 1993 by an
independent petroleum engineering firm, the Seagull Canada Properties had proved
reserves totaling 257.4 Bcf of natural gas and 2.8 MMbbl of oil, condensate and
natural gas liquids. Approximately 80 percent of these reserves and 75 percent
of Seagull Canada's total producing wells are concentrated in 16 of 95 total
fields. As of December 31, 1993, the Seagull Canada Properties consisted of
lease acreage holdings including approximately 200,000 net developed acres and
approximately 250,000 net undeveloped acres.
In connection with the Seagull Canada Acquisition, the Company entered into
the Canadian Credit Agreement (see Note 6).
The following table presents the unaudited pro forma results of the
combined operations of the Company and Novalta for the year ended December 31,
1993 as though the acquisition of Novalta had occurred on January 1, 1993,
financed primarily with borrowings under the Canadian Credit Agreement as well
as borrowings under the Revolver (see Note 6).
The results presented give effect to depreciation, depletion and
amortization of assets recognized in recording the purchase, interest on debt
incurred to effect the purchase and the related income tax effects of these
items. The unaudited pro forma information presented does not purport to be
indicative of actual results if the combination had been in effect on the date
or for the period indicated, or of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993
------------------------
PRO FORMA
ACTUAL (UNAUDITED)
-------- -----------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues............................................................. $377,165 $409,523
Net earnings......................................................... $ 27,198 $ 22,162
Earnings per share................................................... $ 0.76 $ 0.62
</TABLE>
39
<PAGE> 40
SEAGULL ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the pro forma consolidated total assets and
pro forma capitalization of the Company as of December 31, 1993 as though the
acquisition of Novalta had occurred on December 31, 1993, financed primarily
with borrowings under the Canadian Credit Agreement as well as borrowings under
the Revolver (see Note 6).
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------
PRO FORMA
ACTUAL (UNAUDITED)
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total assets.................................................... $1,118,251 $1,342,654
---------- ----------
---------- ----------
Long-term portion of debt....................................... $ 459,787 $ 653,093
Shareholders' equity............................................ 439,379 439,379
---------- ----------
Total capitalization............................................ $ 899,166 $1,092,472
---------- ----------
---------- ----------
Long-term portion of debt to total capitalization............... 51.1% 59.8%
---------- ----------
---------- ----------
</TABLE>
ENSTAR Alaska Stock Proposal. In March 1994, the Board of Directors
approved, subject to shareholder approval, a plan (the "ENSTAR Alaska Stock
Proposal") to create and issue a new class of common stock of the Company
intended to reflect separately the performance of ENSTAR Alaska (the "ENSTAR
Alaska Stock"). As part of the ENSTAR Alaska Stock Proposal, and following the
issuance of the ENSTAR Alaska Stock, currently outstanding Seagull Common Stock
will reflect separately the performance of the Company's exploration and
production and pipeline and marketing segments. In addition, certain terms of
the Seagull Common Stock will be amended to allow for the creation and issuance
of the ENSTAR Alaska Stock.
The Company currently expects that, shortly after shareholder approval of
the ENSTAR Alaska Stock Proposal and subject to prevailing market and other
conditions, it will make a public offering (the "ENSTAR Alaska Stock Offering")
for cash of shares of ENSTAR Alaska Stock. Net proceeds from the ENSTAR Alaska
Stock Offering would be used to repay amounts borrowed under the Revolver, none
of which is attributable to ENSTAR Alaska.
The ENSTAR Alaska Stock Proposal will be submitted to shareholders at the
Company's Annual Meeting of Shareholders in June 1994.
40
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Seagull Energy Corporation:
We have audited the accompanying consolidated balance sheets of Seagull
Energy Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seagull
Energy Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Notes 11 and 13 to the consolidated financial statements,
respectively, the Company adopted the provisions of the Financial Accounting
Standards Board Statements of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, and No. 109,
Accounting for Income Taxes, in 1992.
KPMG PEAT MARWICK
Houston, Texas
January 31, 1994, except as to
the last three paragraphs of
Note 17, Subsequent Events,
which are as of March 11, 1994.
41
