<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
-------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission file number 1-8094
---------------------------------------------------------
Seagull Energy Corporation
(Exact name of registrant as specified in its charter)
Texas 74-1764876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fannin, Suite 1700, Houston, Texas 77002-6714
(Address of principal executive offices) (Zip code)
(713) 951-4700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 / /.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 1, 1994
----- -------------------------------
<S> <C>
Common Stock, $.10 par value 36,094,873
</TABLE>
<PAGE> 2
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C>
Presentation of Financial Information............................. 3
Consolidated Statements of Earnings - Three Months
Ended September 30, 1994 and 1993 (Unaudited)................... 4
Consolidated Statements of Earnings - Nine Months
Ended September 30, 1994 and 1993 (Unaudited)................... 5
Consolidated Balance Sheets - September 30, 1994
and December 31, 1993 (Unaudited)............................... 6
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1994 and 1993 (Unaudited)................... 7
Notes to Consolidated Financial Statements (Unaudited)............ 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited).......................... 11
PART II. OTHER INFORMATION......................................... 20
SIGNATURES.......................................................... 21
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESENTATION OF FINANCIAL INFORMATION
In the opinion of management, the following unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Seagull Energy Corporation and Subsidiaries (the
"Company" or "Seagull") as of September 30, 1994, and the results of its
operations for the three and nine months ended September 30, 1994 and 1993, and
cash flows for the nine month periods then ended. All such adjustments made
are of a normal, recurring nature. The results of operations for the three and
nine months ended September 30, 1994 are not necessarily indicative of the
results to be expected for the full year.
The financial information presented herein should be read in
conjunction with the consolidated financial statements and notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
-3-
<PAGE> 4
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Dollars in Thousands Except Per-Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues:
Exploration and production......................................................... $ 57,104 $ 56,283
Pipeline and marketing ............................................................ 9,829 10,586
Alaska transmission and distribution............................................... 14,111 14,921
----------- -----------
81,044 81,790
Costs of Operations:
Alaska transmission and distribution cost of gas sold.............................. 6,559 7,612
Operations and maintenance......................................................... 29,295 25,859
Exploration charges................................................................ 7,178 3,024
Depreciation, depletion and amortization........................................... 34,594 28,218
----------- -----------
77,626 64,713
----------- -----------
Operating Profit..................................................................... 3,418 17,077
Other (Income) Expense:
General and administrative......................................................... 1,709 2,997
Interest expense................................................................... 14,243 8,835
Interest income and other.......................................................... (1,103) (3,908)
----------- -----------
14,849 7,924
----------- -----------
Earnings (Loss) Before Income Taxes.................................................. (11,431) 9,153
Income Tax Expense (Benefit)......................................................... (5,140) 1,880
----------- -----------
Net Earnings (Loss).................................................................. $ (6,291) $ 7,273
=========== ===========
Earnings (Loss) Per Share............................................................ $ (0.17) $ 0.20
=========== ===========
Weighted Average Number of Common Shares Outstanding................................. 36,908,710 37,060,913
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE> 5
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per-Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1994 1993
-------------- ------------
<S> <C> <C>
Revenues:
Exploration and production......................................................... $ 208,222 $ 165,987
Pipeline and marketing............................................................. 29,984 32,930
Alaska transmission and distribution............................................... 69,460 73,038
----------- -----------
307,666 271,955
Costs of Operations:
Alaska transmission and distribution cost of gas sold.............................. 35,407 40,618
Operations and maintenance......................................................... 88,820 81,094
Exploration charges................................................................ 17,396 13,376
Depreciation, depletion and amortization........................................... 110,550 85,168
----------- -----------
252,173 220,256
----------- -----------
Operating Profit..................................................................... 55,493 51,699
Other (Income) Expense:
General and administrative......................................................... 8,754 9,752
Interest expense................................................................... 37,790 27,190
Interest income and other.......................................................... (1,376) (4,593)
----------- -----------
45,168 32,349
----------- -----------
Earnings Before Income Taxes......................................................... 10,325 19,350
Income Tax Expense................................................................... 1,120 4,600
----------- -----------
Net Earnings......................................................................... $ 9,205 $ 14,750
=========== ===========
Earnings Per Share................................................................... $ 0.25 $ 0.41
=========== ===========
Weighted Average Number of Common Shares Outstanding................................. 36,933,090 35,607,449
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
-5-
<PAGE> 6
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 8,823 $ 5,572
Accounts receivable, net......................................................... 79,048 98,734
Inventories...................................................................... 5,152 4,382
Prepaid expenses and other....................................................... 3,759 6,520
---------- ----------
Total Current Assets........................................................... 96,782 115,208
Property, Plant and Equipment - at cost
(successful efforts method for gas and oil properties)............................ 1,555,942 1,278,701
Accumulated Depreciation, Depletion and Amortization............................... 434,518 345,512
---------- ----------
1,121,424 933,189
Other Assets....................................................................... 61,528 69,854
---------- ----------
Total Assets....................................................................... $1,279,734 $1,118,251
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................. $ 78,183 $ 84,904
Accrued expenses................................................................. 28,136 30,134
Prepaid gas and oil sales........................................................ 4,398 7,590
Current maturities of long-term debt............................................. 1,550 1,538
---------- ----------
Total Current Liabilities...................................................... 112,267 124,166
Long-Term Debt..................................................................... 613,795 459,787
Other Noncurrent Liabilities....................................................... 58,515 66,785
Deferred Income Taxes.............................................................. 46,767 28,134
Shareholders' Equity:
Common Stock, $0.10 par value; authorized
100,000,000 shares; issued 36,421,285 shares (1994)
and 36,378,659 shares (1993).................................................... 3,642 3,638
Additional paid-in capital....................................................... 324,604 324,192
Retained earnings................................................................ 129,918 120,713
Foreign currency translation adjustment.......................................... (610) --
Less - note receivable from employee stock
ownership plan.................................................................. (6,029) (6,029)
Less - 326,812 shares of Common Stock held in
Treasury, at cost............................................................... (3,135) (3,135)
---------- ----------
Total Shareholders' Equity.................................................... 448,390 439,379
Commitments and Contingencies......................................................
---------- ----------
Total Liabilities and Shareholders' Equity......................................... $1,279,734 $1,118,251
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE> 7
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
---------- ---------
<S> <C> <C>
Operating Activities:
Net earnings....................................................................... $ 9,205 $ 14,750
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, depletion and amortization....................................... 112,763 87,428
Amortization of deferred financing costs....................................... 3,121 3,250
Deferred income taxes.......................................................... (3,108) 1,090
Dry hole expense............................................................... 9,526 9,475
Gain on sales of property, plant and equipment, net............................ (360) (3,928)
Distributions in excess of earnings from partnerships, net..................... 1,179 1,253
Other.......................................................................... 90 90
-------- --------
132,416 113,408
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable.............................................. 31,724 1,942
Decrease (Increase) in inventories, prepaid expenses
and other.................................................................. 4,795 (3,211)
Decrease in accounts payable................................................. (13,356) (20,323)
Decrease in prepaid gas and oil sales........................................ (5,925) (23,183)
Increase (Decrease) in accrued expenses and other............................ (11,509) 4,495
-------- --------
Net Cash Provided By Operating Activities.................................. 138,145 73,128
Investing Activities:
Capital expenditures............................................................... (96,980) (78,861)
Acquisitions, net of cash acquired................................................. (195,128) 1,196
Proceeds from sales of property, plant and equipment............................... 542 11,019
-------- --------
Net Cash Used In Investing Activities...................................... (291,566) (66,646)
Financing Activities:
Proceeds from revolving lines of credit and other borrowings....................... 688,306 392,466
Principal payments on revolving lines of credit and
other borrowings................................................................. (531,731) (560,021)
Fees paid to acquire financing.....,............................................... (13) (5,592)
Proceeds from sales of common stock................................................ 328 165,712
Other.............................................................................. (315) 434
-------- --------
Net Cash Provided By (Used In) Financing Activities........................ 156,575 (7,001)
Effect of exchange rate changes on cash.............................................. 97 --
-------- --------
Increase (Decrease) In Cash And Cash Equivalents........................... 3,251 (519)
Cash And Cash Equivalents At Beginning Of Period..................................... 5,572 3,882
-------- --------
Cash And Cash Equivalents At End Of Period........................................... $ 8,823 $ 3,363
======== ========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE> 8
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Supplemental Disclosures of Cash Flow Information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Nine Months
Ended September 30,
--------------------
Cash paid during the period for: 1994 1993
------- -------
<S> <C> <C>
Interest, net of amount capitalized . . . . . . . . . . . . . . . . . $38,491 $22,486
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,269 $ 7,031
- ------------------------------------------------------------------------------------------------------
</TABLE>
Foreign Currency Translation.
The functional currency for the Company's foreign operations is the
applicable local currency. Translation from applicable foreign currencies to
U. S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using primarily a weighted average exchange rate during the period.
Adjustments resulting from such translation are included as a separate
component of shareholders' equity. Deferred income taxes have not been
provided on translation adjustments because the unremitted earnings from
Seagull's foreign operations are considered to be permanently invested.
Earnings Per Share.
The weighted average number of common shares outstanding used in the
computation of earnings per share for all periods gives effect to the assumed
exercise of dilutive stock options as of the beginning of each
respective period.
NOTE 2. ACQUISITION
On January 4, 1994, Seagull acquired all of the outstanding shares of
stock of Novalta Resources Inc. ("Novalta") for a purchase price of
approximately $202 million in cash (the "Seagull Canada Acquisition"). The
economic effective date was December 31, 1993. Effective as of the January 4,
1994 closing date, Novalta was amalgamated with Seagull Energy Canada Ltd.
("Seagull Canada"), the indirect subsidiary of Seagull that acquired Novalta.
The Seagull Canada Acquisition was financed primarily with a new $175
million reducing revolving credit facility (the "Canadian Credit Agreement"),
as well as borrowings under Seagull's amended and restated revolving credit
facility (the "Revolver"). For additional information, see Notes 2 and 6 to
the Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
Actual results of Seagull Canada's operations for the three and nine
month periods ended September 30, 1994 are reflected in Seagull's accompanying
unaudited consolidated financial statements.
-8-
<PAGE> 9
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. DEBT
In May 1994, the Company amended the Revolver to, among other things,
(i) increase the maximum commitment from $475 million to $725 million, (ii)
extend the maturity date to December 31, 2000, (iii) adjust certain financial
covenants relating to dividend limitations and permitted leverage ratios and
(iv) adjust the pricing features of the credit facility.
The provisions of the Revolver limit the total amount of senior
indebtedness available to the Company (the "Borrowing Base"). In May 1994, the
Borrowing Base was redetermined and the total amount of senior indebtedness
available to the Company was increased from $610 million to $625 million. The
available commitment under the Revolver, up to the maximum of $725 million, is
subject to the Borrowing Base and is determined after consideration of
outstanding borrowings under Seagull's other senior debt facilities.
In May 1994, the Company also amended the Canadian Credit Agreement
for items similar to amendments (ii), (iii) and (iv) to the Revolver noted
above.
NOTE 4. ENSTAR ALASKA STOCK PROPOSAL
On June 1, 1994, shareholders approved 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 the Company's Alaska
transmission and distribution segment ("ENSTAR Alaska") (the "ENSTAR Alaska
Stock"). Subject to prevailing market and other conditions, the Company is
authorized to proceed at any time with an underwritten public offering (the
"ENSTAR Alaska Stock Offering") for cash of shares of ENSTAR Alaska Stock. The
Company will not, however, proceed with the ENSTAR Alaska Stock Offering until
such conditions improve so that they are comparable to those that existed at
the time the Company initiated its preparation for such offering earlier this
year. If market conditions do not improve to the extent necessary to allow
Seagull to proceed with the ENSTAR Alaska Stock Offering by the end of 1994,
the Company will expense approximately $2.0 million in related transaction
costs in the fourth quarter. As part of the ENSTAR Alaska Stock Proposal, and
following the issuance of the ENSTAR Alaska Stock, Seagull's currently
outstanding common stock (the "Seagull Common Stock") would 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
would be amended to allow for the creation and issuance of the 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.
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<PAGE> 10
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is a party to ongoing litigation in the normal course of
business. 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.
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<PAGE> 11
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
The following discussion is intended to assist in an understanding of
the Company's financial position and results of operations for each of the
periods indicated. The Company's accompanying unaudited financial statements
and the notes thereto contain detailed information that should be referred to
in conjunction with the following discussion.
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ Percent ----------------- Percent
1994 1993 Change 1994 1993 Change
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Exploration and production . . . . . . . . . $57,104 $56,283 + 1 $208,222 $165,987 + 25
Pipeline and marketing . . . . . . . . . . . 9,829 10,586 - 7 29,984 32,930 - 9
Alaska transmission and distribution . . . . 14,111 14,921 - 5 69,460 73,038 - 5
- ----------------------------------------------------------------------------------------------------------------
$81,044 $81,790 - 1 $307,666 $271,955 + 13
================================================================================================================
Operating Profit:
Exploration and production . . . . . . . . . $ 78 $13,068 -100 $ 33,709 $ 29,763 + 13
Pipeline and marketing . . . . . . . . . . . 2,800 3,392 - 17 9,663 10,860 - 11
Alaska transmission and distribution . . . . 540 617 - 12 12,121 11,076 + 9
- ----------------------------------------------------------------------------------------------------------------
$ 3,418 $17,077 - 80 $ 55,493 $ 51,699 + 7
================================================================================================================
Net Earnings (Loss) . . . . . . . . . . . . . . $(6,291) $ 7,273 -186 $ 9,205 $ 14,750 - 38
Earnings (Loss) Per Share . . . . . . . . . . . $ (0.17) $ 0.20 -185 $ 0.25 $ 0.41 - 39
Net Cash Provided by Operating Activities
Before Changes in Operating Assets and
Liabilities . . . . . . . . . . . . . . . . . $28,725 $35,818 - 20 $132,416 $113,408 + 17
Net Cash Provided by Operating Activities . . . $45,357 $21,956 +107 $138,145 $ 73,128 + 89
Weighted Average Number of Common Shares
Outstanding (in thousands) . . . . . . . . . . 36,909 37,061 -- 36,933 35,607 + 4
================================================================================================================
</TABLE>
Revenues and operating profit are discussed in the respective
segment sections.
The decrease in net earnings for the nine months ended September 30,
1994 was due to an increase in interest expense partially offset by an increase
in operating profit. The decrease in net earnings for the 1994 third quarter
was due to a decrease in operating profit and an increase in interest expense.
In addition, the sale of two parcels of
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<PAGE> 12
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
non-strategic producing properties contributed an after-tax gain of $2.7
million to results for the 1993 third quarter and nine months. (See "Other
(Income) Expense" section below).
Net cash provided by operating activities before changes in operating
assets and liabilities increased for the nine month period of 1994 versus 1993
because of a 31% increase in natural gas production principally due to
production contributed from properties acquired in connection with the
Company's acquisition of Novalta Resources Inc. ("Novalta") (the "Seagull
Canada Acquisition") and to production flowing for the first time beginning in
late 1993 and early 1994 from certain of the Company's discoveries and three
newly installed Company operated production facilities offshore Texas and
Louisiana. Net cash provided by operating activities before changes in
operating assets and liabilities decreased in the third quarter of 1994
compared to the 1993 quarter due to lower natural gas prices, higher
exploration charges and higher interest expense more than offsetting the
increase in natural gas production.
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<PAGE> 13
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- Percent --------------------- Percent
1994 1993 Change 1994 1993 Change
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Natural Gas . . . . . . . . . . . . . . $50,875 $50,884 -- $188,898 $146,909 + 29
Oil and Condensate . . . . . . . . . . 5,866 5,401 + 9 17,703 18,797 - 6
Natural Gas Liquids . . . . . . . . . . 812 895 - 9 2,119 2,520 - 16
Other . . . . . . . . . . . . . . . . . (449) (897) + 50 (498) (2,239) + 78
- ---------------------------------------------------------------------------------------------------------------
57,104 56,283 + 1 208,222 165,987 + 25
Lifting Costs . . . . . . . . . . . . . . 15,515 12,600 + 23 47,136 39,261 + 20
General Operating Expense . . . . . . . . 2,850 2,663 + 7 8,890 8,225 + 8
Exploration Charges . . . . . . . . . . . 7,178 3,024 +137 17,396 13,376 + 30
Depreciation, Depletion
and Amortization . . . . . . . . . . . 31,483 24,928 + 26 101,091 75,362 + 34
- ---------------------------------------------------------------------------------------------------------------
Operating Profit . . . . . . . . . . . . $ 78 $13,068 -100 $ 33,709 $ 29,763 + 13
===============================================================================================================
OPERATING DATA (1):
Net Daily Production (2):
Natural Gas (MMcf) . . . . . . . . . . 330.2 276.1 + 20 360.1 274.5 + 31
Oil and Condensate (Bbl) . . . . . . . 3,869 3,688 + 5 4,265 4,041 + 6
Natural Gas Liquids (Bbl) . . . . . . . 987 941 + 5 898 800 + 12
Combined (MMcfe) (3) . . . . . . . . . 359.4 303.9 + 18 391.1 303.5 + 29
Average Sales Prices:
Natural Gas ($ per Mcf) . . . . . . . . 1.67 2.00 - 16 1.92 1.96 - 2
Oil and Condensate ($ per Bbl) . . . . 16.48 15.92 + 4 15.20 17.04 - 11
Natural Gas Liquids ($ per Bbl) . . . . 8.94 10.34 - 14 8.64 11.54 - 25
Combined ($ per Mcfe) (3) . . . . . . . 1.72 2.01 - 14 1.95 2.00 - 2
Lifting Costs ($ per Mcfe) (3):
Lease Operating . . . . . . . . . . . . 0.28 0.22 + 27 0.25 0.26 - 4
Workovers . . . . . . . . . . . . . . . 0.02 0.05 - 60 0.02 0.03 - 33
Production Taxes . . . . . . . . . . . 0.06 0.08 - 25 0.07 0.08 - 12
Transportation . . . . . . . . . . . . 0.08 0.07 + 14 0.08 0.07 + 14
Ad Valorem Taxes . . . . . . . . . . . 0.03 0.03 -- 0.02 0.03 - 33
Total . . . . . . . . . . . . . . . . . 0.47 0.45 + 4 0.44 0.47 - 6
DD&A Rate ($ per Mcfe) (3) . . . . . . . 0.95 0.89 + 7 0.95 0.91 + 4
===============================================================================================================
</TABLE>
(1) Domestic and Canadian operations combined.
(2) Natural gas stated in million cubic feet ("MMcf") or thousand cubic
feet ("Mcf"); oil and condensate and natural gas liquids stated in
barrels ("Bbl").
(3) MMcfe and Mcfe represent the equivalent of one million and one
thousand 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.
-13-
<PAGE> 14
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
EXPLORATION AND PRODUCTION, continued
Operating profit of the exploration and production ("E&P") segment for
the nine months ended September 30, 1994 increased compared to the 1993 period
due to higher revenues as a result of a significant increase in natural gas
production, which was partially offset by increased depreciation, depletion and
amortization ("DD&A") expense, lifting costs and exploration charges. Although
natural gas production was up 20% in the third quarter of 1994 compared to the
1993 period, E&P operating profit for the 1994 quarter was substantially lower
due to a 16% decrease in natural gas prices.
The increases in natural gas production were primarily due to
production contributed from properties acquired in connection with the Seagull
Canada Acquisition on January 4, 1994, which averaged 55.1 and 52.4 MMcf per
day for the 1994 quarter and nine month period, respectively, and to production
flowing for the first time in late 1993 and early 1994 from certain of the
Company's discoveries and three newly installed Company operated production
facilities offshore Texas and Louisiana. The increases in production would
have been higher but for voluntary curtailments in June, August and September
1994 due to inferior natural gas prices.
DD&A expense and lifting costs increased for the three and nine month
periods ended September 30, 1994 as a result of the significant
increases in production.
Exploration charges were higher for the nine months ended September
30, 1994 primarily due to an increase in seismic costs, while the third quarter
exploration charges were higher than the 1993 quarter because of an increase in
dry hole costs. Through mid-October, four of 14 exploratory wells drilled
during 1994 were successful, seven wells were drilling and one well was being
evaluated. Seagull plans to drill a total of approximately 30 exploratory
wells in 1994.
Seagull's exploitation program continues to be active in 1994.
Through mid-October, 141 of 151 development wells drilled, all onshore, were
successful including 60 successes out of 60 wells drilled in Canada. The
Company plans to continue its exploitation activities at a comparable pace
during the fourth quarter, focusing its efforts primarily onshore in the
Mid-Continent and Mid-South areas, as well as in Canada.
As a result of its active exploration and exploitation programs,
Seagull expects to increase its level of deliverability in late 1994 and early
1995. However, the Company expects to continue curtailing gas production
whenever prices are deemed to be below acceptable levels.
E&P operating profit for the fourth quarter of 1994 is expected to be
substantially below 1993 as a result of the lower natural gas prices that the
Company is receiving in October and November, additional curtailment in October
and November and the projected number of exploratory wells that will be drilled
in the quarter that could result in an increase in dry hole costs. The
Company's results of operations are significantly affected by natural
gas prices.
-14-
<PAGE> 15
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
PIPELINE AND MARKETING
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- Percent ----------------- Percent
1994 1993 Change 1994 1993 Change
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROFIT:
Pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,695 $1,785 - 5 $5,066 $ 6,642 - 24
Marketing and Supply . . . . . . . . . . . . . . . . . . . . . 364 552 - 34 3,313 1,889 + 75
Gas Processing . . . . . . . . . . . . . . . . . . . . . . . . 529 (103) +614 307 744 - 59
Operating and
Construction Services . . . . . . . . . . . . . . . . . . . . 212 1,158 - 82 977 1,585 - 39
- ------------------------------------------------------------------------------------------------------------------------------
$2,800 $3,392 - 17 $9,663 $10,860 - 11
==============================================================================================================================
OPERATING DATA:
Average Daily Volumes (MMcf):
Gas Gathering . . . . . . . . . . . . . . . . . . . . . . . . . 287 302 - 5 283 321 - 12
Partnership Systems (net) . . . . . . . . . . . . . . . . . . . 111 103 + 8 112 118 - 5
Marketing and Supply . . . . . . . . . . . . . . . . . . . . . 528 447 + 18 563 443 + 27
Gas Processing:
Average Daily Inlet Volumes (MMcf) . . . . . . . . . . . . . . 274 275 -- 279 276 + 1
Average Daily Net Production (Bbl) . . . . . . . . . . . . . . 4,709 3,473 + 36 3,892 3,581 + 9
===============================================================================================================================
</TABLE>
Operating profit in the pipelines area, which includes the Company's
gas gathering and product pipeline systems as well as the Company's interests
in two partnership systems, declined primarily due to reduced volumes delivered
for the three month and nine month periods ended September 30, 1994 compared to
1993.
In the marketing and supply area, operating profit improved in the
1994 nine month period because of a 27% increase in sales volumes due partially
to increases in the E&P segment's domestic natural gas production. Although
sales volumes increased 18% in the third quarter of 1994, marketing and supply
operating profit declined for the period due to a 29% decrease in
margins.
Gas processing operating profit for the nine months ended September
30, 1994 was lower than the 1993 period primarily as a result of the 13%
decline in prices received for extracted products. Lower natural gas prices
reduced the gas processing area's operating costs during the third quarter of
1994, resulting in the increase in operating profit for the 1994 quarter
compared to 1993.
Operating profit for the operating and construction services area was
lower in both of the 1994 periods because of a construction project the Company
began in mid-1993 -- an 8.7 mile, 16-inch gas pipeline that Seagull
-15-
<PAGE> 16
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
PIPELINE AND MARKETING, continued
constructed for an international exploration company from a platform to a
gathering pipeline offshore Louisiana. The project was completed in the first
quarter of 1994.
ALASKA TRANSMISSION AND DISTRIBUTION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- Percent ------------------- Percent
1994 1993 Change 1994 1993 Change
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,111 $14,921 - 5 $69,460 $73,038 - 5
Cost of Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . 6,559 7,612 - 14 35,407 40,618 - 13
Operations and Maintenance Expense . . . . . . . . . . . . . . . . 5,093 4,819 + 6 16,114 15,749 + 2
Depreciation, Depletion and Amortization . . . . . . . . . . . . . 1,919 1,873 + 2 5,818 5,595 + 4
- --------------------------------------------------------------------------------------------------------------------------------
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . $ 540 $ 617 - 12 $12,121 $11,076 + 9
================================================================================================================================
OPERATING DATA:
Degree Days (*) . . . . . . . . . . . . . . . . . . . . . . . . . . 851 794 + 7 6,313 6,122 + 3
Volumes (Bcf):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 3.6 + 6 20.4 19.4 + 5
Gas Transported . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 3.3 + 30 9.7 8.2 + 18
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 6.9 + 17 30.1 27.6 + 9
Margins ($ per Mcf):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.64 1.64 -- 1.51 1.51 --
Gas Transported . . . . . . . . . . . . . . . . . . . . . . . . . 0.31 0.35 - 11 0.34 0.37 - 8
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.93 1.03 - 10 1.13 1.17 - 3
Customers (end of period) . . . . . . . . . . . . . . . . . . . . . 89,285 87,344 + 2 89,285 87,344 + 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 nine month period ended September 30, 1994 improved from the
1993 period primarily as a result of higher non-power customer demand due to an
increase in customers for the period and slightly colder temperatures during
1994.
Margins ($ per Mcf) on volumes transported declined 11% and 8%,
respectively, for the three and nine month periods ended September 30, 1994 due
to the addition of a large transport customer during the second quarter of 1994
at a transportation fee approximately 51% lower than the average fee received
for all of ENSTAR Alaska's other transport customers. However,
-16-
<PAGE> 17
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
ALASKA TRANSMISSION AND DISTRIBUTION, continued
increases in volumes transported due to the addition of this customer,
representing approximately 50% and 34% of ENSTAR Alaska's transport volumes
for the 1994 quarter and nine months, more than offset declines in revenues
resulting from declines in average margins realized.
This segment's business is seasonal with approximately 65% of its
sales made in the first and fourth quarters of each year.
OTHER (INCOME) EXPENSE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- Percent ------------------- Percent
1994 1993 Change 1994 1993 Change
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General and Administrative . . . . . . . . . . . . . . . . . . . $ 1,709 $ 2,997 - 43 $ 8,754 $ 9,752 - 10
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . 14,243 8,835 + 61 37,790 27,190 + 39
Interest Income and Other . . . . . . . . . . . . . . . . . . . . (1,103) (3,908) - 72 (1,376) (4,593) - 70
- --------------------------------------------------------------------------------------------------------------------------------
$14,849 $ 7,924 + 87 $45,168 $32,349 + 40
================================================================================================================================
</TABLE>
General and administrative expenses decreased for the nine months
ended September 30, 1994 due to a decline in costs associated with three
compensation plans, one for outside directors, one for key managers and the
other for all Seagull employees, that are tied directly to the price of Seagull
Common Stock, partially offset by increases in costs related to potential
acquisitions which were not consummated. General and administrative expenses
decreased for the third quarter of 1994 compared to 1993 primarily due to the
decline in costs associated with the compensation plans discussed above, as
well as decreases in other payroll related expenses. The closing price of
Seagull Common Stock decreased 10% and 8% during the three month and nine month
periods of 1994, respectively, compared to increases of 13% and 97% for the
same periods of 1993.
Interest expense was higher in the 1994 periods compared to 1993 as a
result of an increase in the level of debt outstanding due primarily to new
debt incurred to finance the Seagull Canada Acquisition and an increase in the
overall market rates of interest. Seagull expects its interest costs will
continue to rise throughout the remainder of 1994 due to the increased level of
debt previously mentioned as well as additional increases in interest rates.
Interest income and other for the 1994 periods includes a pre-tax gain
of $833,000 relating to the sale of an offshore platform. Interest income and
other for the 1993 periods includes a pre-tax gain of approximately $3.7
million relating to two separate sales of non-strategic oil and gas producing
properties.
-17-
<PAGE> 18
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
INCOME TAXES
The decrease in income taxes for the three and nine months ended
September 30, 1994 was primarily a result of lower earnings before income taxes
for the periods.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for the 1994 and 1993 periods were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- Percent ------------------- Percent
1994 1993 Change 1994 1993 Change
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production:
Lease acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,887 $ 700 +312 $10,283 $ 2,694 +282
Exploration costs . . . . . . . . . . . . . . . . . . . . . . . . . . 10,249 4,465 +130 18,069 19,957 - 9
Development costs . . . . . . . . . . . . . . . . . . . . . . . . . . 22,951 18,930 + 21 58,411 45,892 + 27
- ----------------------------------------------------------------------------------------------------------------------------------
36,087 24,095 + 50 86,763 68,543 + 27
Pipeline and Marketing . . . . . . . . . . . . . . . . . . . . . . . . 313 852 - 63 901 1,503 - 40
Alaska Transmission and Distribution . . . . . . . . . . . . . . . . . 2,438 3,271 - 25 5,602 7,174 - 22
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877 423 +107 3,714 1,642 +126
- ----------------------------------------------------------------------------------------------------------------------------------
$39,715 $28,641 + 39 $96,980 $78,862 + 23
==================================================================================================================================
</TABLE>
Current plans for 1994 call for capital expenditures of approximately
$165 million, including about $150 million in exploration and production. Of
the $150 million, Seagull anticipates spending approximately $20 million for
lease acquisitions, $40 million for exploratory activities and $90 million for
development activities.
In May 1994, Seagull amended its existing revolving credit facility
(the "Revolver") with a group of major U. S. and international banks. The
facility was amended to, among other things, (i) increase the maximum
commitment from $475 million to $725 million, (ii) extend the maturity date to
December 31, 2000, (iii) adjust certain financial covenants relating to
dividend limitations and permitted leverage ratios and (iv) adjust the pricing
features of the credit facility.
The provisions of the Revolver limit the total amount of senior
indebtedness available to the Company (the "Borrowing Base"). The Borrowing
Base is based upon the value of the proved reserves of the Company's
exploration and production segment and the financial performance of the
Company's other two business segments as provided for under the Revolver. In
May 1994, the Borrowing Base was redetermined and the total amount of senior
indebtedness available to the Company was increased from $610 million to
-18-
<PAGE> 19
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES, continued
$625 million. The available commitment under the Revolver, up to the maximum of
$725 million, is subject to the Borrowing Base and is determined after
consideration of outstanding borrowings under Seagull's other senior debt
facilities. As of October 31, 1994, borrowings outstanding under the Revolver
were $145 million, leaving immediately available unused commitments of
approximately $205 million, net of outstanding letters of credit of $2.2
million, $100 million of borrowings outstanding under the Company's senior
notes, the nominated maximum borrowing availability of $160 million under the
Canadian Credit Agreement discussed below, and $12.4 million of borrowings
outstanding under Seagull's money market facilities.
In connection with the Seagull Canada Acquisition, Seagull Energy
Canada Ltd. ("Seagull Canada"), the indirect wholly owned subsidiary of Seagull
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 was also amended by the Company in May 1994 for items
similar to amendments (ii), (iii) and (iv) to the Revolver noted above.
In addition to the facilities discussed above, Seagull 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 Seagull'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.
-19-
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
*27.1 Financial Data Schedule
(b) Reports on Form 8-K:
There were no Reports on Form 8-K filed during the three months ended
September 30, 1994.
- ------------------
*Filed herewith
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGULL ENERGY CORPORATION
By: /s/ Robert W. Shower
----------------------------------
Robert W. Shower, Executive Vice
President and Chief Financial
Officer (Principal Financial
Officer)
Date: November 4, 1994
----------------------------------
By: /s/ Rodney W. Bridges
----------------------------------
Rodney W. Bridges, Vice President
and Controller (Principal
Accounting Officer)
Date: November 4 , 1994
----------------------------------
-21-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
*10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
*27.1 Financial Data Schedule
</TABLE>
- -------------------
*Filed herewith
<PAGE> 1
EXHIBIT 10.1
Approved May 19, 1994
SEAGULL ENERGY CORPORATION
1994
EXECUTIVE INCENTIVE PLAN
Background
The 1994 Executive Incentive Plan (the "Incentive Plan") for Seagull Energy
Corporation is designed to motivate key employees of the Company to achieve
tough, but realistic performance goals and to reward those employees that
perform at or above the expected level. The Incentive Plan defines
participants, award opportunities and performance goals for the 1994
performance year. It is, of course, based upon the 1994 Operating Plan (the
"Operating Plan") and is designed to maximize performance incentives, even
though a relatively large element of the Plan remains totally discretionary.
Participation
Approximately 134 key employees listed or identified in Exhibit I are or may
become participants in the Incentive Plan. They are officers or individuals
whose positions have been valued in the salary structure in and above Grade
Twelve. These are the persons responsible for the annual and longer-term
success of the Company.
Timing of Payments
50% of any Incentive Plan award is paid to the recipient early in the year
following the performance year, 25% in the next year and 25% in the third year.
In this case, the performance year is 1994. The award will be determined and
the first 50% increment paid in early 1995, and the two remaining installments
in early 1996 and 1997. The recipient must be an employee on the payment dates
in order to receive any of the respective payments.
Award Opportunities
Annual incentive targets are expressed as a percentage of total salary earned
during a given year and can increase to double the targeted amounts or decrease
to zero, relative to the achievement of predetermined performance goals and
subject to senior management and Board of Director discretion at year-end. The
Compensation Committee of the Board reserves the right to modify the
performance measures and award levels specified in the objective components of
the Incentive Plan if presently unforeseen circumstances should occur during
the year which invalidate any of the material assumptions that underlie the
Operating Plan, or in the opinion of the Compensation Committee, such
modifications are required to avoid a result that is inequitable to either the
Company or the Incentive Plan participants.
<PAGE> 2
Performance Measures
The performance measures for the Incentive Plan are summarized in Exhibit II.
Two performance criteria are included with the following weightings:
Pre-tax cash flow from operations 50% weight
Discretionary performance assessment 50% weight
The first component, pre-tax cash flow from operations ("PCFO"), is defined as
earnings before income taxes, plus operating and non- operating depreciation,
depletion and amortization, plus pre-tax incentive compensation expense, and is
based on actual corporate performance for the year as compared to the Company's
Operating Plan projection of PCFO.
The second component, discretionary performance assessment, will be determined
individually and subjectively. In making the assessment, two factors will be
considered:
1. The respective participant's individual job performance.
2. The Company's stock performance year-end 1993 to year-end 1994
compared to the average stock performance by a selected group of
"peer companies" over the same period.
Each performance component will be measured at year-end independently of the
other. At that time, the Chief Executive Officer will recommend specific
awards, subject to final approval of each element of the total awards by the
Compensation Committee and ultimately the Board of Directors.
Under the Incentive Plan, no awards will be paid under the pre-tax cash flow
from operations component if the Company's PCFO is less than $155,925,000.
Cost of the Plan with 134 participants (Target %)
Cost of the objective component of the Incentive Plan would be approximately
$1,390,000 if the targeted performance goal of $ 208,549,000 of PCFO is
achieved and all positions are filled and fully participating for the entire
year. The targeted performance goal is 7% higher than the Company's Operating
Plan projects. If the discretionary individual performance component was also
paid at the target rate, the total cost would be about $2,780,000 which is
approximately 1.33% of the $208,549,000 of PCFO which would be required to
achieve target performance.
Only if PCFO reached $253,378,000 would the maximum bonus be earned from the
objective component. In that event, the cost of the objective component alone
would be approximately $2,780,000 which is only about 1.1% of the $253,378,000
of PCFO that would be required to earn an award at that maximum level.
If performance was at the maximum levels for all Plan participants for both the
objective and subjective components of the Plan, the total cost would be
$5,560,000, which is about 2.19% of the $253,378,000 of PCFO that would be
required to earn objective awards at those maximum levels.
<PAGE> 3
EXECUTIVE INCENTIVE PLAN AWARD HISTORICAL DATA
<TABLE>
<CAPTION>
PLAN NUMBER OF AMOUNT PERCENT
YEAR PARTICIPANTS TOTAL COST BUDGETED PCFO OF PCFO
- ---- ------------ ---------- -------- ---- -------
<S> <C> <C> <C> <C> <C>
1994 134 2,780,000
1993 70 1,872,400 1,798,000 154,725,000 1.21
1992 54 2,187,690 74,278,000 2.95
1991 50 568,425 61,706,000 0.92
</TABLE>
EXHIBIT I
SEAGULL ENERGY CORPORATION
1994 EXECUTIVE INCENTIVE PLAN
PARTICIPANTS AND TARGETED AWARD OPPORTUNITY
<TABLE>
<CAPTION>
1994
INCENTIVE MAXIMUM
NAME POSITION TARGET* INCENTIVE*
- ---- -------- --------- ----------
<S> <C> <C>
Senior Officers
Galt Chairman, President & Chief Executive Officer 50% 100%
Elias Executive Vice President 45% 90%
Shower Executive Vice President & Chief Financial Officer 45% 90%
Goodpasture President, Seagull Pipeline Company 40% 80%
McConn President, Seagull Energy E&P Inc. 40% 80%
</TABLE>
* Expressed as a percent of total salary earned during a given year
NOTE: Information relating to participants other than the five most highly
compensated executive officers of the Company has been omitted.
Exhibit II
PERFORMANCE MEASURES
FOR THE 1994 EXECUTIVE INCENTIVE PLAN
SEAGULL ENERGY CORPORATION
Performance Weightings:
50% on pre-tax cash flow from operations
50% on subjective performance assessments at discretion of CEO,
Compensation Committee and Board of Directors
I. Pre-Tax Cash Flow From Operations ("PCFO") - 50%:
<PAGE> 4
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
Pre-Tax Cash Percentage of Percentage of PCFO Percentage of
Flow From Operating Plan Target Award Total Target Award
Operations (1) Projection (2) Earned (3) Earned (3)
- -------------- -------------- ------------------- ------------------
<S> <C> <C> <C>
155,925 80 0 0
165,670 85 5 2.5
175,415 90 15 7.5
185,161 95 30 15
194,906 100 60 30
204,651 105 90 45
208,549 107 100 50
214,397 110 120 60
224,142 115 140 70
233,887 120 160 80
243,633 125 180 90
253,378 130 200 100
</TABLE>
(1) Earnings before income taxes plus operating and non-operating depreciation,
depletion and amortization and also plus pre-tax incentive compensation expense
(dollars in thousands).
(2) If subsequent events over the course of the performance year invalidate any
of the basic assumptions in the Operating Plan, then the original Operating
Plan projections will be revised to conform the Operating Plan assumptions to
reality. The initial PCFO performance criteria for the Incentive Plan shown in
Column 1 will then be adjusted by applying the percentages shown in Column 2 to
the revised Operating Plan projection of PCFO.
(3) If, after the actual PCFO for the performance year is determined, it falls
within the ranges shown in Column 1, the exact incentive award percentages from
Columns 3 and 4 will be calculated by interpolation.
II. Discretionary Performance Assessment - 50%:
The discretionary performance assessment will be determined
individually and subjectively. In making that assessment, two factors
will be considered:
1. The respective participant's individual job performance, based
primarily on the extent to which individual and collective goals
and objectives established at the beginning of the year are
achieved.
2. The Company's stock performance year-end 1993 to year-end 1994
compared to the average stock performance by a selected group of
"peer companies" over the same period. The comparative
calculations will be done on a "total return" basis, weighted
for
<PAGE> 5
variances in beginning market capitalization and in all respects
consistent with the SEC proxy disclosure rules.
At year-end, the Chief Executive Officer will counsel with his direct
reports in completing individual performance assessments for each
participant and recommend specific awards, which will be subject to
final approval by the Compensation Committee and ultimately the Board of
Directors.
Maximum potential is 100% (1)
Target goal is 50% (1)
Minimum potential is 0% (1)
(1) Expressed as a percentage of the executive's targeted incentive
opportunity as defined in the Incentive Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 8,823
<SECURITIES> 0
<RECEIVABLES> 79,048
<ALLOWANCES> 0
<INVENTORY> 5,152
<CURRENT-ASSETS> 96,782
<PP&E> 1,555,942
<DEPRECIATION> 434,518
<TOTAL-ASSETS> 1,279,734
<CURRENT-LIABILITIES> 112,267
<BONDS> 0
<COMMON> 3,642
0
0
<OTHER-SE> 444,748
<TOTAL-LIABILITY-AND-EQUITY> 1,279,734
<SALES> 307,666
<TOTAL-REVENUES> 307,666
<CGS> 35,407
<TOTAL-COSTS> 252,173
<OTHER-EXPENSES> 7,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,790
<INCOME-PRETAX> 10,325
<INCOME-TAX> 1,120
<INCOME-CONTINUING> 9,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,205
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
