<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] 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: 0-9808
PLAINS RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2898764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1600 Smith Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 654-1414
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, par value $.10 per share American Stock Exchange
12% Senior Subordinated Notes due 1999 American Stock Exchange
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 the filing
requirements for the past 90 days.
Yes [x] No
------- -------
The aggregate value of the Common Stock held by non-affiliates of the registrant
(treating all executive officers and directors of the registrant, for this
purpose, as if they may be affiliates of the registrant) was approximately
$137,025,000 on February 26, 1996 (based on $8 3/4 per share, the last sale
price of the Common Stock as reported on the American Stock Exchange Composite
Tape on such date).
16,182,420 shares of the registrant's Common Stock were outstanding as of
February 26, 1996.
DOCUMENTS INCORPORATED BY REFERENCE. The information required in Part III of
this Annual Report on Form 10-K is incorporated by reference to the Registrant's
definitive proxy statement to be filed pursuant to Regulation 14A for the
Registrant's Annual Meeting of Stockholders.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
Plains Resources Inc. (the "Company") is an independent energy company
engaged in the acquisition, exploitation, development, exploration and
production of oil and natural gas and the marketing, transportation,
terminalling and storage of crude oil. The Company's upstream oil and natural
gas activities are focused in the Los Angeles Basin of California (the "LA
Basin"), the Sunniland Trend of South Florida (the "Sunniland Trend"), the
Illinois Basin and the Gulf Coast area of Louisiana. The Company's downstream
marketing activities are concentrated in Oklahoma, where it owns a two million
barrel, above ground crude oil terminalling and storage facility, Texas and the
Gulf Coast area of Louisiana. The Company's upstream operations contributed
approximately 90% of the Company's 1995 EBITDA proforma for the Illinois Basin
Acquisition, while the Company's downstream activities accounted for the
remainder. References to the Company in this Annual Report on Form 10-K (the
"Report") include Plains Resources Inc. and its subsidiaries, except as the
context may otherwise require./1/
The Company's business strategy is to increase its proved reserves and cash
flow by exploiting and producing oil and natural gas from its existing
properties, acquiring additional underdeveloped oil properties and exploring for
significant new sources of reserves. The Company concentrates its exploitation
efforts on mature but underdeveloped crude oil producing properties in areas
that meet the Company's targeted criteria. Generally, such properties were
previously owned by major integrated oil and gas companies or large independent
oil and gas companies. Management believes that it has developed a proven
record in acquiring and exploiting underdeveloped crude oil properties where it
believes substantial reserve additions and cash flow increases can be made
through improved production practices and recovery techniques and relatively low
risk development drilling. An integral component of the Company's exploitation
efforts is to increase unit operating margins, and therefore cash flow, by
reducing unit production expenses and increasing wellhead price realizations.
The Company also seeks to capitalize on downstream opportunities that complement
its oil producing activities. The Company's marketing of its crude oil
production takes advantage of the marketing expertise and economies of scale
attributable to its downstream activities. As part of its business strategy,
the Company periodically evaluates, and from time to time has elected to sell,
certain of its fully developed producing properties. Such sales enable the
Company to maintain financial flexibility, control overhead and redeploy the
sales proceeds to activities that have potentially higher financial returns.
During the five-year period ended December 31, 1995, the Company incurred
aggregate acquisition, exploration, development and exploitation costs of
approximately $287 million, resulting in proved oil and natural gas reserve
additions (including revisions of estimates but excluding production) of
approximately 112.8 million BOE, or $2.55 per BOE, through implementation of its
business strategy. See Item 2, "Properties--Oil and Natural Gas Reserves".
Approximately 82% of these expenditures were directed toward the acquisition,
exploitation and development of proved reserves while approximately 18% were
incurred on exploration activities.
On December 22, 1995, the Company acquired all of Marathon Oil Company's
("Marathon") upstream oil and gas assets in the Illinois Basin (the "Illinois
Basin Properties"). The acquisition of the Illinois Basin Properties (the
"Illinois Basin Acquisition") was effective as of November 1, 1995. As a result
of such acquisition,
- ----------------------
/(1)/ As used in this Report, "Mcf" means thousand cubic feet, "Bcf" means
billion cubic feet, "Bbl" means barrel, "MBbls" means thousand barrels,
"MMBbls" means million barrels, "Btus" means British Thermal Units,
"MBtus" means thousand Btus, "MMBtus" means million Btus, "BOE" means
barrels of oil equivalent, and "MMBOE" means million BOE. Natural gas is
converted to BOE using the ratio of six Mcf of natural gas to one Bbl of
crude oil, condensate or natural gas liquids. A "gross acre" is an acre
in which a working interest is owned. The number of "net acres" is the
sum of fractional working interests owned in gross acres. "Net" oil and
gas wells are obtained by multiplying "gross" oil and gas wells by the
Company's working interest in the applicable properties. "Present Value
of Proved Reserves" means the present value (discounted at 10%) of
estimated future net cash flows (before income taxes) of proved oil and
natural gas reserves based on product prices in effect on the date of
determination. "EBITDA" means earnings before interest, taxes,
depreciation, depletion and amortization.
1
<PAGE>
the Company added approximately 17.3 million barrels of oil to its proved
reserve base at an aggregate cost of approximately $51.5 million, or an average
of $2.98 per BOE ($0.50 per MCFE). The Company intends to aggressively exploit
these properties to evaluate additional reserve potential identified during its
acquisition analysis. In addition, the Company's exploitation plan for the
Illinois Basin Properties targets improving the unit gross margin by decreasing
unit production expenses and increasing price realizations as well as increasing
production volumes by conducting production enhancement activities similar to
those employed in its LA Basin Properties and Sunniland Trend Properties.
In order to manage its exposure to commodity price risk, the Company has
routinely hedged a portion of its crude oil production. For 1996, the Company
has committed an average of approximately 8,500 Bbls of oil per day to fixed
price arrangements that expire at various times throughout 1996. Such
arrangements represent approximately 55% of the Company's average daily oil
production for 1995 pro forma for the Illinois Basin Acquisition and partially
mitigate the adverse impact of potential oil price declines on the Company's
operating results.
The following table sets forth certain information with respect to the
Company's reserves over the last five years. Such reserve volumes and values
were determined under the method prescribed by the Securities and Exchange
Commission (the " Commission"), which requires the application of year-end oil
and natural gas prices for each year, held constant throughout the projected
reserve life. See Item 2, "Properties--Oil and Natural Gas Reserves" and Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993(1) 1994 1995
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Present Value of Proved Reserves....... $71,718 $155,360 $134,539 $229,371 $366,780
Proved Reserves
Crude oil and natural gas
liquids (Bbls)....................... 6,576 33,390 38,810 61,459 94,408
Natural gas (Mcf)..................... 42,898 39,861 49,397 51,009 43,110
Oil equivalent (BOE).................. 13,726 40,034 47,043 69,960 101,593
Reserve Replacement Ratio(2)........... 530% 1,100% 270% 620% 647%(3)
Reserve Replacement Cost per BOE(4).... $ 5.86 $ 2.35 $ 5.39 $ 1.49 $ 2.14
Total upstream capital costs incurred.. $32,256 $ 68,209 $ 61,769 $ 40,849 $84,012
Percentage of total upstream capital
costs attributable to:
Acquisition........................... 30% 56% 40% 48% 71%
Development........................... 23% 17% 43% 38% 27%
Exploration........................... 47% 27% 17% 14% 2%
West Texas Intermediate ("WTI") crude
oil posted price at December 31,....... $ 17.75 $ 18.00 $ 12.50 $ 16.00 $ 18.00
</TABLE>
- --------------------
(1) A large portion of the Company's reserve base is comprised of long-life oil
properties that are sensitive to low crude oil prices. During the fourth
quarter of 1993, crude oil prices declined significantly, with the posted
price for WTI crude oil ending the year at $12.50 per Bbl, the lowest year-
end oil price in the 13 years since U. S. crude oil prices were deregulated.
Such low prices had an adverse affect on the proved reserves and Present
Value of Proved Reserves at December 31, 1993, and led to a noncash charge
of $20 million related to a writedown of the capitalized costs of the
Company's proved oil and natural gas properties.
2
<PAGE>
(2) The Reserve Replacement Ratio is calculated by dividing (a) the sum of
reserves added during each respective year through purchases of reserves in
place, extensions, discoveries and other additions and the effects of
revisions, if any, ("Reserve Additions") by (b) each respective year's
production. Reserve information at each year end is based on reports
prepared by independent petroleum engineers.
(3) Pro forma as if the Illinois Basin Acquisition occurred on January 1, 1995.
(4) Reserve Replacement Cost per BOE for a year is calculated by dividing
capital expenditures for such year by such year's Reserve Additions.
ACQUISITION AND EXPLOITATION
Acquisition and Exploitation Strategy
The Company is continually engaged in the exploitation and development of
its existing property base and the evaluation and pursuit of additional
underdeveloped properties for acquisition. The Company focuses on mature but
underdeveloped producing crude oil properties in areas where the Company
believes substantial reserve additions and cash flow increases can be made
through relatively low-risk drilling, improved production practices and recovery
techniques and improved operating margins. Generally, the Company seeks to
increase production rates and improve a property's operating margin by reducing
unit production costs and enhancing the marketing arrangements of the oil
production.
Once the Company identifies a prospective property for acquisition, it
conducts a technical review of existing production and operating practices in an
effort to identify any previously unrecognized value. If the initial studies
indicate undeveloped potential, the various producing and potentially productive
formations in the area are mapped in detail. Historical production data is
evaluated to determine if additional wells or other capital expenditures appear
necessary to optimize the recovery of reserves from the property. Geologic and
engineering information and operating practices utilized by operators on
offsetting leases are analyzed to identify potential additional exploitation and
development opportunities. A market study is also performed analyzing product
markets, available pipeline connections, access to trading locations and
existing contractual arrangements with the goal of maximizing sales and profit
margins from the area. See "--Product Markets and Major Customers". A
comprehensive plan of exploitation is then prepared and used as a basis for the
Company's offer to purchase.
The Company typically seeks to acquire a majority interest in the
properties it has identified and to act as operator of those properties. The
Company has in the past and may in the future hedge a significant portion of the
acquired production, thereby partially mitigating product price volatility which
could have an adverse impact on exploitation opportunities. If the Company is
successful in purchasing such properties, it then implements its exploitation
plan by modifying production practices, realigning existing waterflood patterns,
drilling wells and performing workovers, recompletions and other production
enhancements. After the initial acquisition, the Company also seeks to increase
its interest in the properties through acquisitions of offsetting acreage,
farmout drilling arrangements and the purchase of minority interests in the
properties.
By modifying production practices, realigning existing waterflood patterns,
drilling wells and performing workovers, recompletions and other production
enhancements, the Company seeks to offset normal production declines, replace
its annual production volumes and expand its reserve base. The results of such
activities are reflected in additions and revisions to proved reserves. During
the four year period ending December 31, 1995, net additions and revisions to
proved reserves totaled 48.6 million BOE or approximately 300% of cumulative net
production for such period. Such reserves were added at an aggregate average
cost of $2.33 per BOE. This activity excludes reserves added as a result of the
Company's acquisition activities. Reserve additions related solely to the
Company's acquisition activities totaled 58.6 million BOE and were added at an
aggregate average cost of $2.41 per BOE.
The Company's properties in its three core areas represent approximately
96% of total reserves at December 31, 1995. Such properties were previously
owned and operated by major integrated oil and gas companies and are comprised
of underdeveloped crude oil properties believed by the Company to have
significant
3
<PAGE>
upside potential that can be evaluated through development and exploitation
activities. During 1996, the Company estimates it will spend approximately $40
million on the development and exploitation of its LA Basin, Sunniland Trend and
Illinois Basin Properties. Set forth below is a discussion of such properties:
Current Exploitation Projects
Los Angeles Basin Properties. Prior to its acquisition by the Company in
-----------------------------
May 1992, Stocker Resources, Inc. ("Stocker") was a sole purpose company formed
in 1990 to acquire substantially all of Chevron U.S.A.'s ("Chevron") producing
oil properties in the LA Basin. The aggregate purchase price paid by the
Company for Stocker was approximately $23 million and consisted of (i) $14
million cash; (ii) 400,000 shares of its common stock ("Common Stock") valued at
$6.8 million; (iii) warrants to purchase an aggregate 150,000 shares of Common
Stock valued at $.5 million; and (iv) associated transaction costs. Following
the initial acquisition, the Company expanded its holdings in this area by
acquiring additional interests within the existing fields. In late 1993, the
Company acquired all of Texaco Exploration and Production, Inc.'s ("Texaco")
interest in the Vickers Lease for approximately $5 million. The Vickers Lease
is located immediately adjacent to one of the Company's existing properties and
was consolidated into Stocker's existing operations. All of the Company's oil
properties in the LA Basin are collectively referred to in this Report as the
"LA Basin Properties". The LA Basin Properties consist of long-life reserves
discovered at various times between 1924 and 1966, and through December 31,
1995, the LA Basin Properties have produced over 400 million barrels of oil and
350 Bcf of natural gas. Since mid-1992, the Company has performed various
exploitation activities, including drilling additional wells, returning
previously marginal wells to economic production, optimizing waterflood
operations, improving artificial lift and facility equipment, reducing unit
production expenses and improving marketing margins. Through these acquisition
and exploitation activities, average daily production from this area, net to the
Company's interest, has increased from approximately 6,650 BOE per day in May
1992 to an average of 8,400 BOE per day during 1995.
The Company has expended approximately $64.4 million in direct acquisition,
development and exploitation capital on the LA Basin Properties. From the
effective dates of acquisition through December 31, 1995, net production from
such properties totaled 11.1 million BOE, generating cumulative net margin (oil
and gas revenue less production expenses) and proceeds from minor property sales
of approximately $78.9 million. Total estimated proved reserves attributable to
the LA Basin Properties have increased from 17.7 million BOE at initial
acquisition to approximately 60.6 million BOE at December 31, 1995. Estimated
future net revenues and the Present Value of Proved Reserves at December 31,
1995, were estimated at $483.9 million and $220.8 million, respectively. As a
result, the Company's aggregate reserve addition cost to date for the LA Basin
Properties is approximately $.90 per BOE. During 1995, the unit gross margin
for this area averaged $7.74 per BOE. During 1996, the Company estimates it
will spend approximately $16 million on the further development and exploitation
of the LA Basin Properties.
South Florida Sunniland Trend Properties. During the first quarter of
----------------------------------------
1993, the Company acquired all of the capital stock of Calumet Florida, Inc.
("CFI") for approximately $5 million. CFI was organized in February 1993 to
purchase and operate a 50% working interest in six producing fields located in
the Sunniland Trend previously owned and operated by Exxon Corporation
("Exxon"). During 1994, CFI acquired the remaining 50% working interest in the
Sunniland Trend Properties, increasing its working interest to approximately
100% and adding approximately five million barrels of oil to its proved reserve
base at the acquisition date. The Company's aggregate interest in such
properties is referred to in this Report as the "Sunniland Trend Properties".
The aggregate purchase price for the additional 50% interest was approximately
$13.6 million, including the issuance of a five year warrant valued at $2
million to purchase 750,000 shares of Common Stock at an exercise price of $6.00
per share. The Sunniland Trend was discovered by Exxon in 1943 and the
properties have produced approximately 88 million barrels of oil through
December 31, 1995. At the time of acquisition, production from the properties
was about 900 barrels of oil per day net to the Company. As a result of
exploitation activities designed primarily to repair failed wells and to
increase the fluid lift capacity of certain wells and the acquisition
4
<PAGE>
of the remaining 50% working interest, the Company's net production averaged
3,400 barrels of oil per day during 1995.
The Company has expended approximately $33.1 million in direct acquisition,
development and exploitation capital on the Sunniland Trend Properties. From
the effective dates of acquisition through December 31, 1995, net production
from such properties totaled 2.7 million BOE, generating cumulative net margin
of approximately $17 million. Total estimated proved reserves attributable to
the Sunniland Trend Properties have increased from approximately 5 million BOE
at initial acquisition to approximately 20 million BOE at December 31, 1995. At
December 31, 1995, estimated future net revenues and the Present Value of Proved
Reserves were estimated at $89 million and $72 million, respectively. As a
result, the Company's aggregate reserve addition cost to date for the Sunniland
Trend Properties is approximately $1.46 per BOE. During 1995, the unit gross
margin for this area averaged $5.88 per BOE. During 1996, the Company estimates
it will spend approximately $18 million on the further development and
exploitation of the Sunniland Trend Properties. See "-- Exploration -- Current
Exploration Projects -- South Florida Sunniland Trend".
Illinois Basin Properties. In December 1995, the Company acquired all of
-------------------------
Marathon's producing and nonproducing upstream oil and gas assets in the
Illinois Basin. This acquisition was effective as of November 1, 1995. As a
result of such acquisition, the Company added approximately 17.3 million barrels
of oil to its proved reserve base at an aggregate average cost of $2.98 per BOE.
The aggregate purchase price, including associated closing costs, was $51.5
million, comprised of 798,143 shares of the Company's common stock valued at
$6.5 million and $45.0 million cash. The majority of the cash portion was
funded with the proceeds of a $42 million bank facility (the "Illinois Basin
Acquisition Indebtedness"). The Illinois Basin Properties consist of long-life
oil reserves. The largest of the three fields was discovered in 1905 and has
produced over 400 million barrels of oil through December 31, 1995.
The Company intends to aggressively exploit these properties to evaluate
additional reserve potential identified during its acquisition analysis. The
Company's exploitation plan for the Illinois Basin Properties involves improving
the unit gross margin by decreasing unit production expenses and increasing
price realizations as well as increasing production volumes by conducting
production enhancement activities similar to those employed in its LA Basin
Properties and Sunniland Trend Properties. At December 31, 1995, estimated
proved reserve volumes totaled approximately 17.1 million BOE and estimated
future net revenues and the Present Value of Proved Reserves were estimated at
$122 million and $66 million, respectively. Production for the two month period
included in the Company's 1995 results totaled approximately 224,000 BOE. Under
Marathon's operations during 1995, the unit gross margin for this property
averaged $6.75 per BOE. During 1996, the Company estimates it will spend
approximately $6 million implementing its exploitation plan on the Illinois
Basin Properties.
The Company believes that its properties in its three core areas hold
potential for additional increases in production, reserves and cash flow.
However, there can be no assurance that such increases will be achieved.
The Company believes that attractive acquisition opportunities will
continue to be available as a result of sales of domestic oil properties by both
major and independent oil companies. While the Company is continuously
evaluating acquisition opportunities, there can be no assurance that any of
these efforts will be successful. Although the Company has historically
acquired producing properties located only in the continental United States, it
from time to time evaluates, and may in the future seek to acquire, properties
located outside the continental United States.
5
<PAGE>
EXPLORATION
Exploration Strategy
The Company seeks to complement its strategy of acquiring and exploiting
mature but underdeveloped oil properties by dedicating a substantially smaller
portion of its annual capital expenditures to higher risk but potentially higher
reward exploration opportunities. The Company focuses on exploration
opportunities that, if successful, could have a substantial positive impact on
production, cash flow and ultimately proved reserves. However, there can be no
assurance that any of its exploration projects will be successful.
In February 1996, the Company and 3DX Technologies, Inc. ("3DX") formed a
joint venture to pursue the Company's existing exploration projects and a five
year strategic alliance to jointly pursue new exploration opportunities that are
candidates for the application of 3-D seismic technology. The joint venture
covers exploration activities in the Sunniland Trend, the Illinois Basin and the
LA Basin as well as the Company's current 3-D seismic project at the Four Isle
Dome Field in Terrebonne Parish, Louisiana. 3DX will be responsible for the
geological and geophysical oversight and project technical management of such
projects. In connection with the joint venture, 3DX acquired 15% to 20% of the
Company's working interests in certain projects, excluding designated productive
areas within each field. 3DX will have the right to participate for up to 20%
in the Company's new exploration and exploitation projects.
Current Exploration Projects
South Florida Sunniland Trend. During 1995, the Company completed a multi-
------------------------------
year study of the exploration potential of the Sunniland Trend. Using recent
advancements in seismic technology, the Company has identified several prospects
that are analogous to the existing producing fields in this trend. The Company
also formed a long-term, 50/50 joint venture with Meridian Oil Company to
conduct exploration activities in the Sunniland Trend. As a result of the 3DX
joint venture, the Company's net share of this project may be reduced to 42% if
certain events occur. The Company is the operator of this joint venture and
intends to drill one exploratory well in this area during 1996. See "--
Acquisition and Exploitation--Current Exploitation Projects--South Florida
Sunniland Trend Properties".
Four Isle Dome. The Company, Phillips Petroleum Company ("Phillips") and
---------------
Nuevo Energy Company ("Nuevo") entered into an agreement to explore
approximately 20,000 acres in Terrebonne Parish, Louisiana currently held under
seismic option. During 1995, the joint venture conducted a 3-D seismic survey
covering approximately 52 square miles. The area, known as Four Isle Dome, was
discovered in 1934 and has produced to date over 540 Bcf of natural gas and 20
million Bbls of oil. The Company, Phillips and Nuevo each hold a 33.3% interest
in the project which is subject to a proportionate 25% reduction if the mineral
owner, Louisiana Land and Exploration ("LL&E"), elects to participate in a given
prospect. In such instance, the Company, Nuevo, Phillips and LL&E would each
hold a 25% working interest. As a result of the 3DX joint venture, the
Company's net share of this project was reduced to 27% (20% if LL&E
participates). The Company is the operator of the joint venture and intends to
drill up to two wells in this project during 1996.
1995 Domestic and International Exploration Activities. The Company's 1995
-------------------------------------------------------
exploration efforts were concentrated on the drilling of a well in its Miami Fee
prospect in Cameron Parish, Louisiana and the geophysical and geological work
necessary to prepare for drilling evaluations on the two projects discussed
above. The Company's drilling efforts in the Miami Fee prospect validated the
geophysical concept of the Miami Fee prospect, but did not result in a
discovery. Because of the disproportionate cost sharing arrangements entered
into with its partners, the Company did not incur any net cost in 1995 in the
drilling of this prospect. The Company's ownership in the Miami Fee prospect is
subject to the 3DX joint venture; however, no capital expenditures are planned
for this prospect in 1996.
6
<PAGE>
Since late 1991, the Company has focused its international efforts on
generating high-potential exploration opportunities that can be sold to larger
companies, retaining a small but meaningful carried interest in such high
potential opportunities. The Company has successfully implemented this
strategy, causing two high potential wells to be drilled in Peru; however, such
activities did not result in a discovery. The Company currently has interests
in two exploratory permits in Australia covering approximately 404,000 gross
(304,000 net) acres, one exploration license in New Caledonia covering 143,000
gross (10,725 net) acres and an exclusive exploration reconnaissance permit in
Pakistan covering 7.7 million net acres. In connection with its joint venture
and strategic alliance with 3DX, the Company has decided not to generate new
international exploration opportunities. In addition, during 1996 the Company
intends to wind up its current international exploration opportunities by
selling off a majority of its interest in these projects and retaining a carried
interest in any subsequent drilling activity or selling the international
subsidiary.
During 1996, the Company estimates it will spend approximately $5 million,
net of partner reimbursements, on exploration activities, primarily in Four Isle
Dome and the Sunniland Trend. While all drilling activities are subject to
numerous risks, the risks associated with exploration activities are
significantly greater than those associated with exploitation and development
activities. There can be no assurance that any of the Company's current
exploration projects will result in proved reserves or commercially viable oil
or natural gas production being obtained.
The Company has historically conducted a portion of its exploration
activities with outside partners. When deemed appropriate, the Company will
continue to solicit industry and financial partners to participate in
exploration projects on negotiated terms. The level of the Company's capital
expenditures for these projects, and its working and revenue interests, will
vary depending on the amount and terms of such outside participation.
DISPOSITION OF PROPERTIES
The Company periodically evaluates, and from time to time has elected to
sell, certain of its mature producing properties that it considers to be
nonstrategic or fully valued. Such sales enable the Company to maintain
financial flexibility, reduce overhead and redeploy the proceeds therefrom to
activities that the Company believes potentially have a higher financial return.
During 1995, the Company sold non-strategic oil and natural gas properties
located primarily in the Gulf Coast area of Texas and Louisiana for aggregate
proceeds of $7.4 million. As a result, approximately 96% of the Company's 1995
year-end proved reserve volumes and proved reserve value were associated with
its properties in the LA Basin, Sunniland Trend and Illinois Basin.
DOWNSTREAM ACTIVITIES
The Company's marketing effort entails purchasing crude oil from producers
and marketing it to the refining sector. The Company aggregates these volumes
at major crude oil interchanges and trading locations and is therefore able to
obtain higher prices for its own production while realizing profits on the
production purchased from others. The Company owns and operates a two million
barrel, above ground crude oil storage and terminalling facility in Cushing,
Oklahoma (the "Cushing Terminal"), the United States' largest inland crude oil
interchange and trading location. This facility enhances the competitive
marketing ability of the Company by enabling it to take crude oil from different
sources and make physical delivery of crude oil in Cushing, the NYMEX designated
delivery location. This facility also enables the Company to aggregate crude
oil volumes and to segregate, store, terminal and provide contract services for
its customers. The Company's downstream activities have expanded significantly
over the last four years, with gross margin increasing from $1.2 million in 1991
to $6.4 million in 1995. Based on additional capacity available at the Cushing
Terminal, the Company believes it can increase its downstream gross margin
without expending substantial additional capital.
Crude oil is purchased at the wellhead and transported by Company-owned
trucks or third-party transporters to a trading location where the Company sells
the crude oil to a refiner or other purchaser. The Company also purchases crude
oil in the spot market at trading locations. The Company's policy is to only
purchase crude oil for
7
<PAGE>
which it has a market to sell and to negotiate its sales contracts so that crude
oil price fluctuations do not affect the gross margin which it receives. The
crude oil marketing business is characterized by a large volume of transactions
with low margins. The Company has maintained a gross margin of approximately 2%
in its marketing activities for each of the years 1992 through 1995. The
Company also routinely analyzes opportunities for possible purchase or
construction of gathering and pipeline systems, processing and storage
facilities and various other related capital investment projects to enhance its
profitability in the markets in which it operates.
The Cushing Terminal was completed in December 1993. The facility consists
of two million barrels of above ground shell storage capacity. The Cushing
Terminal was built at a total cost of approximately $30.9 million which includes
the cost of land acquisition, engineering and environmental studies,
construction-phase interest, pipeline interconnects and an oversized manifold
and pumping system that was designed and constructed to accommodate expansion up
to an aggregate ten million barrels of storage capacity. The Company estimates
that its storage tanks have a useful life in excess of 60 years. The facility
is connected to major pipelines into and out of the Cushing interchange and can
operate at a daily throughput rate of approximately 800,000 Bbls.
Cushing is the largest wet barrel trading hub in the United States and the
delivery point for crude oil futures contracts traded on the NYMEX. The Cushing
Terminal has been designated by the NYMEX as an approved delivery location for
crude oil delivered under the NYMEX "light" sweet crude oil futures contract.
The Company's Cushing storage facility was constructed to capitalize on the
crude oil supply and demand imbalance in the Midwest caused by the continued
decline of traditional regional supplies, increasing imports and an inadequate
pipeline and terminal infrastructure. Based upon the Company's analysis of
existing storage facilities at Cushing and the anticipated increase in crude oil
volumes to be transported through Cushing, the Company believes that there will
be an increasing demand for additional storage capacity at Cushing. Because of
its initial investment in land, engineering and environmental studies, pipeline
interconnects and the manifold and pumping system, the cost to construct
incremental storage capacity is estimated at $7.50 to $8.00 per Bbl of shell
capacity. The Company generates revenue from the Cushing Terminal through a
combination of storage, reservation and throughput fees from customers such as
(i) refiners and gatherers seeking to segregate or custom blend crudes for
refining feedstocks, (ii) pipelines requiring segregated tankage for foreign
cargoes, (iii) traders who make or take delivery under the NYMEX contract, (iv)
producers seeking to increase their marketing alternatives and (v) contango
market crude oil trading activities.
The Company's upstream and downstream business segments focus on crude oil
as the primary product. As a result of inefficiencies inherent in the crude oil
market and the U.S. pipeline and transportation infrastructure, management
believes its competitive abilities are enhanced by the alternatives afforded it
by its proprietary access to the Cushing Terminal. Such alternatives include
the ability to take and make physical delivery of crude oil in Cushing, the
NYMEX designated delivery location. The Company's crude oil marketing expertise
further provides it with a competitive advantage in obtaining higher prices for
the Company's existing production and identifying potential crude oil price
enhancements for properties targeted for acquisition.
8
<PAGE>
OPERATING ACTIVITIES
The following table presents certain information with respect to the
Company's oil and natural gas producing, marketing, transportation and storage
activities during the three years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and natural gas........................ $ 57,507 $ 57,234 $ 64,080
Marketing, transportation and storage...... 128,186 199,239 339,826
Operating profits:
Oil and natural gas (1).................... $ 29,519 $ 30,122 $ 34,029
Marketing, transportation and storage (2).. 3,834 6,305 6,480
Identifiable assets:
Oil and natural gas........................ $180,209 $204,778 $271,248
Marketing, transportation and storage...... 56,458 62,126 80,798
</TABLE>
- -------------
(1) Consists of primarily oil and natural gas sales less production expenses.
(2) Consists of primarily marketing, transportation and storage sales less
purchases and transportation and storage expenses. Includes approximately
$337,000, $1.5 million and $121,000 during 1993, 1994 and 1995,
respectively, of operating profit attributed to contango market
transactions.
Operating profits as a percentage of sales are significantly lower for
the Company's marketing, transportation and storage activities than for its oil
and natural gas producing activities because the cost of oil and natural gas
purchased for resale is higher, as a percentage of sales price, than the
Company's cost of oil and natural gas produced. See "--Downstream Activities".
GENERAL
The Company was incorporated under the laws of the State of Delaware
in 1976. The Company's executive offices are located at 1600 Smith Street,
Suite 1500, Houston, Texas 77002, and its telephone number is (713) 654-1414.
PRODUCT MARKETS AND MAJOR CUSTOMERS
The revenues generated by the Company's operations are highly
dependent upon the prices of, and demand for, oil and natural gas.
Historically, the markets for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. The price received by the
Company for its oil and natural gas production and the level of such production
are subject to wide fluctuations and depend on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy (particularly the manufacturing sector), foreign imports, political
conditions in other oil-producing and natural gas-producing countries, the
actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of oil
and natural gas have had, and could have in the future, an adverse effect on the
carrying value of the Company's proved reserves and the Company's revenues,
profitability and cash flow.
In order to partially mitigate the adverse affects of crude oil price
volatility, the Company routinely commits a significant portion of its crude oil
production, its principal product, to fixed price contracts or other hedging
arrangements. To ensure a fixed price for future production, the Company may
sell a futures contract and
9
<PAGE>
thereafter either (i) make physical delivery of its product to comply with such
contract or (ii) buy a matching futures contract to unwind its futures position
and sell its production to a customer. These same techniques are also utilized
to manage price risk for certain production purchased from customers of Plains
Marketing & Transportation Inc. ("Plains Marketing"). Such contracts may expose
the Company to the risk of financial loss in certain circumstances, including
instances where production is less than expected, the Company's customers fail
to purchase or deliver the contracted quantities of oil or natural gas, or a
sudden, unexpected event materially impacts oil or natural gas prices.
At December 31, 1995, the Company's financial hedge arrangements
provided for a benchmark NYMEX WTI indexed average price for: (i) 11,000
barrels per day through March 31, 1996, at $18.07 per barrel; (ii) 10,000
barrels per day from April 1, 1996, through May 31, 1996, at $18.03 per barrel;
(iii) 9,500 barrels per day from June 1, 1996, through June 30, 1996, at $18.01
per barrel; (iv) 3,500 barrels per day from July 1, 1996, through December 31,
1996, at $17.48 per barrel; and (v) 1,500 barrels per day from January 1, 1997,
through June 30, 1997, at $17.23 per barrel. The Company has entered into
additional swap agreements which provide for a NYMEX WTI indexed ceiling price
of $17.63 per barrel and a floor price of $16.50 per barrel for 3,000 barrels
per day from July 1, 1996 through December 31, 1996. The above prices do not
reflect quality and location differentials attributable to the unique
characteristics of each core area's oil production. The Company's current crude
oil hedges do not expose the Company to various basis risk differentials that
exist in the crude oil market. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Substantially all of the Company's LA Basin crude oil production and all of
the Company's Sunniland Trend crude oil production is transported by two
pipelines owned by third parties. The inability of either one of these pipelines
to provide transportation services to the Company in the future could result in
involuntary curtailment of a significant portion of the Company's crude oil
production.
Certain of the Company's natural gas production has been in the past,
and may be in the future, curtailed from time to time depending on the quality
of the natural gas produced and transportation alternatives. In addition,
market, economic and regulatory factors, including issues regarding the quality
of certain of the Company's natural gas, may in the future adversely affect the
Company's ability to sell its natural gas production.
Before 1985, substantially all of the Company's natural gas production
was sold directly to pipeline companies which were responsible for resale and
transportation of the natural gas to end-users. Since that time, however, with
the adoption of various orders by the Federal Energy Regulatory Commission
("FERC") (see "--Regulation--Transportation and Sale of Natural Gas") and the
deregulation of natural gas pursuant to the Natural Gas Policy Act of 1978
("NGPA") and the Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol
Act"), the FERC has actively promoted competition in the nationwide market for
natural gas and has encouraged pipelines to significantly reduce their role as
merchants of natural gas and to make transportation services available on an
"open-access", nondiscriminatory basis. Since these regulatory initiatives were
begun, natural gas producers such as the Company have been able to sell their
natural gas supplies directly to utilities and other end-users.
In addition to the regulatory changes discussed above, deregulation of
natural gas prices under the NGPA and the Decontrol Act has increased
competition and volatility of natural gas prices. Since demand for natural gas
is generally highest during winter months, prices received for the Company's
natural gas are subject to seasonal variations and other fluctuations. All of
the Company's natural gas production is currently sold under various
arrangements at spot indexed prices. In certain instances, the Company enters
into financial arrangements to hedge its exposure to spot price fluctuations.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Phibro Division of Salomon Inc. ("Phibro") and Phibro Energy USA, Inc.,
accounted for 16% and 12%, respectively, of the Company's total revenue
(exclusive of interest and other income) during 1995. Customers accounting for
more than 10% of total revenue for 1994 and 1993 were as follows: 1994 --
Phibro -- 19% and
10
<PAGE>
Chevron -- 16%; 1993 -- Chevron -- 23%, Marathon -- 22% and Phibro --15%. No
other single purchaser of the Company's products accounted for as much as 10% of
total sales during 1995, 1994 or 1993. During 1995, 1994 and 1993, Chevron
accounted for 39%, 71% and 76% of the Company's oil and natural gas sales,
respectively. Additionally during 1995, Unocal and Scurlock Permian accounted
for approximately 28% and 19%, respectively, of the Company's oil and gas sales.
During 1995, Unocal was the purchaser of the Company's LA Basin oil production,
while Scurlock Permian was purchaser of oil production attributable to the
Sunniland Trend Properties. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
COMPETITION
Oil and Natural Gas Producing Activities
The Company's competitors include major integrated oil and natural gas
companies and numerous independent oil and natural gas companies, individuals
and drilling and income programs. Many of the Company's larger competitors
possess and employ financial and personnel resources substantially greater than
those available to the Company. Such companies are able to pay more for
productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In
addition, there is substantial competition for capital available for investment
in the oil and natural gas industry.
Downstream Activities
The Company faces intense competition in purchasing and marketing crude oil
and in the crude oil storage business. Its competitors include the major
integrated oil companies, their marketing affiliates and independent gatherers,
brokers and marketers of widely varying sizes, financial resources and
experience. Some of these competitors have capital resources many times greater
than the Company's and control substantially greater supplies of crude oil.
Although the Company believes that the environmental safeguards and operating
capabilities of the Cushing Terminal are superior to other existing facilities
in Cushing, the Company competes with larger companies that possess superior
financial resources and have an established business presence. Such advantages
could inhibit the development of the Company's business for the Cushing
Terminal.
REGULATION
The Company's operations are subject to extensive and continually
changing regulation, as legislation affecting the oil and natural gas industry
is under constant review for amendment and expansion. Many departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations binding on the oil and natural gas industry and its
individual participants. The failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and
natural gas industry increases the Company's cost of doing business and,
consequently, affects its profitability. However, the Company does not believe
that it is affected in a significantly different manner by these regulations
than are its competitors in the oil and natural gas industry. Due to the myriad
and complex federal and state statutes and regulations which may affect the
Company, directly or indirectly, the following discussion of certain statutes
and regulations should not be relied upon as an exhaustive review of all matters
affecting the Company's operations.
Transportation and Sale of Natural Gas
Prior to January 1, 1993, various aspects of the Company's natural gas
operations were subject to regulations by the FERC under the Natural Gas Act of
1938 (the "NGA") and the NGPA with respect to "first sales" of natural gas,
including price controls and certificate and abandonment authority regulations.
However, as
11
<PAGE>
a result of the enactment of the Decontrol Act, the remaining "first sales"
restrictions imposed by the NGA and the NGPA terminated on January 1, 1993.
The FERC regulates interstate natural gas pipeline transportation
rates and service conditions, which affect the marketing of gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. Since the latter part of 1985, the FERC has adopted policies
intended to make natural gas transportation more accessible to gas buyers and
sellers on an open and non-discriminatory basis. The FERC's most recent action
in this area, Order No. 636, reflected the FERC's finding that, under the then-
existing regulatory structure, interstate pipelines and other gas merchants,
including producers, did not compete on a "level playing field" in selling gas.
Order No. 636 instituted individual pipeline service restructuring proceedings,
designed specifically to "unbundle" those services (e.g., transportation, sales
and storage) provided by many interstate pipelines so that buyers of natural gas
may secure gas supplies and delivery services from the most economical source,
whether interstate pipelines or other parties. The FERC has issued final orders
in almost all restructuring proceedings, and has now commenced a series of
reviews of individual pipeline restructuring orders to determine whether
refinements are required regarding individual pipeline implementations of Order
No. 636. In addition the FERC has announced its intention to reexamine certain
of its transportation related policies, including the appropriate manner in
which interstate pipelines release transportation capacity under Order No. 636,
and has issued a new policy regarding the use of non-traditional methods of
setting rates for interstate gas pipelines in certain circumstances as
alternatives to cost of service based rates.
Although the FERC's actions, such as Order No. 636, do not regulate
gas producers such as the Company, these actions are intended to foster
increased competition within all phases of the natural gas industry. To date,
the FERC's pro-competition policies have not materially affected the Company's
business or operations. On a prospective basis, however, such orders may
substantially increase the burden on the producers and transporters to nominate
and deliver on a daily basis a specified volume of natural gas. Producers and
transporters which deliver deficient volumes or volumes in excess of such daily
nominations could be subject to additional charges by the pipeline carriers.
Numerous petitions seeking judicial review of Order No. 636 and the
individual pipeline restructuring orders are pending. It is not possible to
predict what, if any, effect the final restructuring rule will have on the
Company. The Company does not believe, however, that it will be affected any
differently than other gas producers and marketers with which it competes.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any
such proposals might become effective or their effect, if any, on the Company's
operations. The natural gas industry has historically been very heavily
regulated; thus there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future.
Transportation and Sale of Crude Oil
Sales of crude oil and condensate can be made by the Company at market
prices not subject at this time to price controls. The price that the Company
receives from the sale of these products is affected by the cost of transporting
the products to market. Commencing in October 1993, the FERC issued a series of
orders (Order Nos. 561 and 561-A) in which it revised its regulations governing
the rates that may be charged by oil pipelines. The new rules, which became
effective January 1, 1995, provide a simplified, generally applicable method for
regulating such rates by use of an index for setting rate ceilings. In certain
circumstances, the new rules permit oil pipelines to establish rates using
traditional cost of service and other methods of ratemaking. On October 28,
1994, the FERC issued two separate Orders (Nos. 571 and 572), which adopt
additional regulations governing rates that an oil pipeline may be authorized to
charge. Order No. 571 authorizes a pipeline to implement cost-of-service based
rates, provided it can demonstrate that there is a substantial divergence
between the actual costs experienced by the
12
<PAGE>
carrier and the indexed rate that the pipeline is directed to charge under Order
No. 561. In Order No. 572, the FERC adopted regulations that authorize a
pipeline to charge market-based rates, provided it can demonstrate that it lacks
significant market power in the market(s) in which it proposes to charge such
rates. Challenges to these various rules are the subject of pending court
appeals. The effect that these new rules may have on moving the Company's
liquid products to market cannot yet be determined.
Regulation of Production
The production of oil and natural gas is subject to regulation under a
wide range of federal and state statutes, rules, orders and regulations. State
and federal statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. Most states in which the
Company owns and operates properties have regulations governing conservation
matters, including provisions for the unitization or pooling of oil and natural
gas properties, the establishment of maximum rates of production from oil and
natural gas wells and the regulation of the spacing, plugging and abandonment of
wells. Many states also restrict production to the market demand for oil and
natural gas and several states have indicated interest in revising applicable
regulations. The effect of these regulations is to limit the amount of oil and
natural gas the Company can produce from its wells and to limit the number of
wells or the locations at which the Company can drill. Moreover, each state
generally imposes an ad valorem, production or severance tax with respect to
production and sale of crude oil, natural gas and gas liquids within its
jurisdiction.
Environmental Regulation
General. Various federal, state and local laws and regulations governing
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, affect the Company's operations and costs. In
particular, the Company's exploration, exploitation and production operations,
its activities in connection with storage and transportation of crude oil and
other liquid hydrocarbons and its use of facilities for treating, processing or
otherwise handling hydrocarbons and wastes therefrom are subject to stringent
environmental regulation. As with the industry generally, compliance with
existing and anticipated regulations increases the Company's overall cost of
business. Such areas affected include unit production expenses primarily related
to the control and limitation of air emissions and the disposal of produced
water, capital costs to drill exploration and development wells due to solids
control and capital costs to construct, maintain and upgrade equipment and
facilities. While these regulations affect the Company's capital expenditures
and earnings, the Company believes that such regulations do not affect its
competitive position in that the operations of its competitors that comply with
such regulations are similarly affected. Environmental regulations have
historically been subject to frequent change by regulatory authorities, and the
Company is unable to predict the ongoing cost to it of complying with these laws
and regulations or the future impact of such regulations on its operation. A
discharge of hydrocarbons or hazardous substances into the environment could, to
the extent such event is not insured, subject the Company to substantial
expense, including both the cost to comply with applicable regulations and
claims by neighboring landowners and other third parties for personal injury and
property damage.
A significant portion of the Miami Fee acreage is within the Sabine
National Wildlife Refuge (the "Refuge"), and operations therein are subject to
the National Wildlife Refuge Administration Act and the regulations promulgated
thereunder (the "Wildlife Refuge Act"). The Wildlife Refuge Act states that no
person may use, occupy, conduct any activity on or remove property from any area
located within a wildlife refuge unless a permit has been granted for such use,
occupation, conduct, activity or removal of property. Persons holding mineral
rights in wildlife refuge lands may obtain a Special Use Permit granted by the
Regional Director of the Fish and Wildlife Service for exploration, development
and production operations in compliance with regulations intended to protect
fish and wildlife in the refuge. The Regional Director is given broad
discretion and authority in granting Special Use Permits and may specify
additional requirements to ensure that the proposed activities are compatible
with the Wildlife Refuge Act.
13
<PAGE>
Although the Company obtained environmental studies on its properties
in the LA Basin, Sunniland Trend and Illinois Basin, and the Company believes
that such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for approximately 90
years, and current or future local, state and federal environmental laws and
regulations may require substantial expenditures to comply with such rules and
regulations. In December 1995, the Company negotiated an agreement with
Chevron, a prior owner of the LA Basin Properties, to remediate sections of the
properties impacted by prior drilling and production operations. Under this
agreement, Chevron agreed to investigate and potentially remediate specific
areas contaminated with volatile organic substances and heavy metals, and the
Company agreed to excavate and remediate crude oil contaminated soils. The
Company is obligated to construct and operate (for the next 15 years) two five-
acre bioremediation cells for crude oil contaminated soils designated for
excavation and treatment by Chevron. While the Company believes that it does
not have any material obligations for operations conducted prior to Stocker's
acquisition of the properties from Chevron, other than its obligation to plug
existing wells and those normally associated with customary oil field operations
of similarly situated properties (such as the Chevron agreement described
above), there can be no assurance that current or future local, state or federal
rules and regulations will not require it to spend material amounts to comply
with such rules and regulations or that any portion of such amounts will be
recoverable from Chevron, either under the December 1995 agreement or the
limited indemnity from Chevron contained in the original purchase agreement.
A portion of the Sunniland Trend Properties is located within the Big
Cypress National Preserve and the Company's operations therein are subject to
regulations administered by the National Park Service ("NPS"). Under such
regulations, a Master Plan of Operations has been approved by the Regional
Director of the NPS. The Master Plan of Operations is a comprehensive plan of
practices and procedures for the Company's drilling and production operations
designed to minimize the effect of such operations on the environment. The
Master Plan of Operations must be modified and permits must be secured from the
NPS for new wells which require the use of additional land for drilling
operations. The Master Plan of Operations also requires that the Company
restore the surface property affected by its drilling and production operations
upon cessation of these activities. The Company does not anticipate that
expenditures required to comply with such regulations will have a material
adverse effect on its current operations.
Water. The Oil Pollution Act ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
other statutes as they pertain to prevention and response to oil spills. The
OPA subjects owners of facilities to strict, joint and potentially unlimited
liability for removal costs and certain other consequences of an oil spill,
where such spill is into navigable waters, along shorelines or in the exclusive
economic zone. In the event of an oil spill into such waters, substantial
liabilities could be imposed upon the Company. States in which the Company
operates have also enacted similar laws. Regulations are currently being
developed under OPA and state laws that may also impose additional regulatory
burdens on the Company.
The FWPCA imposes restrictions and strict controls regarding the
discharge of produced waters and other oil and gas wastes into navigable waters.
Permits must be obtained to discharge pollutants to state and federal waters.
The FWPCA provides for civil, criminal and administrative penalties for any
unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the OPA, imposes substantial potential liability for
the costs of removal, remediation and damages. State laws for the control of
water pollution also provide varying civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum or its
derivatives into state waters. The EPA has promulgated regulations that require
many oil and gas production operations to obtain permits to discharge storm
water runoff. At some facilities, such as the Sunniland Trend Properties, the
Company eliminated this permit requirement by collecting all potentially
contaminated storm water and disposing of it through the Company's underground
injection control ("UIC") disposal wells. At other facilities, the Company has
applied for and obtained any necessary storm water discharge permits, and is
currently in substantial compliance with applicable permit conditions. The
Company believes that compliance with existing permits and compliance with
foreseeable new permit requirements will not have a material adverse effect on
the Company's financial condition or results of operations.
14
<PAGE>
Air Emissions. The operations of the Company are subject to the
Federal Clean Air Act and comparable state and local statutes. The Company
believes that its operations are in substantial compliance with such statutes in
all states in which they operate.
Amendments to the Federal Clean Air Act enacted in late 1990 require
or will require most industrial operations in the United States to incur capital
expenditures in order to meet air emission control standards developed by the
EPA and state environmental agencies. In particular, the Company's LA Basin
properties are located in an "extreme" non-attainment area for ozone. This
classification will force the local air quality regulatory authority, the South
Coast Air Quality Management District, to adopt stringent controls on all
emissions of nitrogen oxide and volatile organic compounds. As a result of
these future regulations, the Company may incur future capital expenditures to
reduce air emissions from the LA Basin production facilities. In addition, the
1990 Federal Clean Air Act Amendments include a new operating permit for major
sources ("Title V permits"), and several of the Company's facilities may require
permits under this new program. Although no assurances can be given, the
Company believes implementation of the 1990 Federal Clean Air Act Amendments
will not have a material adverse effect on the Company's financial condition or
results of operations.
Solid Waste. The Company generates non-hazardous solid wastes that
are subject to the requirements of the Federal Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes. The EPA is considering the
adoption of stricter disposal standards for non-hazardous wastes. RCRA also
governs the disposal of hazardous wastes. At present, the Company is not
required to comply with a substantial portion of the RCRA requirements because
the Company's operations generate minimal quantities of hazardous wastes.
However, it is anticipated that additional wastes, which could include wastes
currently generated during operations, will in the future be designated as
"hazardous wastes". Hazardous wastes are subject to more rigorous and costly
disposal requirements than are non-hazardous wastes. Such changes in the
regulations may result in additional capital expenditures or operating expenses
by the Company.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as "Superfund", imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons that contributed to the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the site and
companies that disposed or arranged for the disposal of the hazardous substances
found at the site. CERCLA also authorizes the EPA and, in some instances, third
parties to act in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. In the course of its ordinary operations, the Company may generate waste
that may fall within CERCLA's definition of a "hazardous substance". The
Company may be jointly and severally liable under CERCLA for all or part of the
costs required to clean up sites at which such wastes have been disposed.
The Company currently owns or leases, and has in the past owned or
leased, numerous properties that for many years have been used for the
exploration and production of oil and gas. Although the Company has utilized
operating and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by the Company or on or under other locations
where such wastes have been taken for disposal. In addition, many of these
properties have been operated by third parties whose treatment and disposal or
release of hydrocarbons or other wastes was not under the Company's control.
These properties and wastes disposed thereon may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, the Company could be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators), to clean up contaminated property
(including contaminated groundwater) or to perform remedial plugging operations
to prevent future contamination.
FEDERAL TAXATION
At December 31, 1995, the Company and its subsidiaries, which together
file a consolidated federal income tax return, had federal income tax net
operating loss ("NOL") carryforwards of approximately $164 million. Of
15
<PAGE>
that amount, approximately $23 million is subject to separate return limitation
year restrictions and may only be utilized to the extent certain subsidiaries
which generated the NOLs have taxable income. At December 31, 1995, the Company
had approximately $149 million of alternative minimum tax ("AMT") net operating
loss carryforwards available as a deduction against future AMT income. In
addition, the Company had approximately $.8 million of investment tax credit
carryforwards and $7 million of percentage depletion carryforwards at December
31, 1995. The NOL carryforwards expire from 1996 through 2010. The value of
these carryforwards depends on the ability of the Company to generate federal
taxable income. In addition, for AMT purposes, only 90% of AMT income in any
given year may be offset by AMT NOLs.
The ability of the Company to utilize NOL and investment tax credit
carryforwards to reduce future federal taxable income and federal income tax of
the Company is subject to various limitations under the Internal Revenue Code of
1986, as amended (the "Code"). The utilization of such carryforwards may be
limited upon the occurrence of certain ownership changes, including the issuance
or exercise of rights to acquire stock, the purchase or sale of stock by 5%
stockholders, as defined in Temporary Treasury Regulations, and the offering of
stock by the Company during any three-year period resulting in an aggregate
change of more than 50% ("Ownership Change") in the beneficial ownership of the
Company.
In the event of an Ownership Change, Section 382 of the Code imposes
an annual limitation on the amount of a corporation's taxable income that can be
offset by these carryforwards. The limitation is generally equal to the product
of (i) the fair market value of the equity of the Company multiplied by (ii) a
percentage approximately equivalent to the yield on long-term tax exempt bonds
during the month in which an Ownership Change occurs. In addition, the
limitation is increased if there are recognized built-in gains during any post-
change year, but only to the extent of any net unrealized built-in gains (as
defined in the Code) inherent in the assets sold. Under Final Treasury
Regulations issued by the Internal Revenue Service, the Company does not believe
that an Ownership Change has occurred as of December 31, 1995.
The Company does not expect to report any regular taxable income in the
near future because it expects to utilize its carryforwards and other tax
deductions and credits. However, there is no assurance that the Internal
Revenue Service will not challenge these carryforwards or their utilization.
OTHER BUSINESS MATTERS
The Company must continually acquire, explore for, develop or exploit
new oil and natural gas reserves to replace those produced or sold. Without
successful drilling, acquisition or exploitation operations, the Company's oil
and natural gas reserves and revenues will decline. Drilling activities are
subject to numerous risks, including the risk that no commercially viable oil or
natural gas production will be obtained. The decision to purchase, explore,
exploit or develop an interest or property will depend in part on the evaluation
of data obtained through geophysical and geological analyses and engineering
studies, the results of which are often inconclusive or subject to varying
interpretations. See Item 2, "Properties--Oil and Natural Gas Reserves". The
cost of drilling, completing and operating wells is often uncertain. Drilling
may be curtailed, delayed or canceled as a result of many factors, including
title problems, weather conditions, compliance with government permitting
requirements, shortages of or delays in obtaining equipment, reductions in
product prices or limitations in the market for products. The availability of a
ready market for the Company's oil and natural gas production also depends on a
number of factors, including the demand for and supply of oil and natural gas
and the proximity of natural gas reserves to pipelines or trucking and terminal
facilities. Natural gas wells may be shut in for lack of a market or due to
inadequacy or unavailability of natural gas pipeline or gathering system
capacity.
The Company's operations are subject to all of the risks normally
incident to the exploration for and the production of oil and natural gas,
including blowouts, cratering, oil spills and fires, each of which could result
in damage to or destruction of oil and natural gas wells, production facilities
or other property, or injury to persons. The Company's current and planned
drilling operations in the Sunniland Trend and Four Isle Dome involve increased
drilling risks of high pressures and mechanical difficulties, including stuck
pipe, collapsed casing and
16
<PAGE>
separated cable. The Company's operations in the LA Basin, including
transportation of crude oil by pipelines within the city of Los Angeles, are
especially susceptible to damage from earthquakes and involve increased risks of
personal injury, property damage and marketing interruptions because of the
population density of the area. Although the Company maintains insurance
coverage considered to be customary in the industry, it is not fully insured
against certain of these risks, including, in certain situations, earthquake
risk in the LA Basin, either because such insurance is not available or because
of high premium costs. The occurrence of a significant event that is not fully
insured against could have a material adverse effect on the Company's financial
position.
In order to manage its exposure to price risks in the marketing of its
oil and natural gas, the Company from time to time enters into fixed price
delivery contracts, financial swaps and oil and natural gas futures contracts as
hedging devices. To ensure a fixed price for future production, the Company may
sell a futures contract and thereafter either (i) make physical delivery of its
product to comply with such contract or (ii) buy a matching futures contract to
unwind its futures position and sell its production to a customer. These same
techniques are also utilized to manage price risk for certain production
purchased from customers of the Company's marketing subsidiary, Plains Marketing
& Transportation Inc. Such contracts may expose the Company to the risk of
financial loss in certain circumstances, including instances where production is
less than expected, the Company's customers fail to purchase or deliver the
contracted quantities of oil or natural gas, or a sudden, unexpected event
materially impacts oil or natural gas prices. Such contracts may also restrict
the ability of the Company to benefit from unexpected increases in oil and
natural gas prices.
TITLE TO PROPERTIES
The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens, including other mineral encumbrances and restrictions. The Company
does not believe that any of these burdens materially interferes with the use of
such properties in the operation of its business.
The Company believes that it has generally satisfactory title to or
rights in all of its producing properties. As is customary in the oil and
natural gas industry, minimal investigation of title is made at the time of
acquisition of undeveloped properties. Title investigation is made and title
opinions of local counsel are generally obtained only before commencement of
drilling operations.
EMPLOYEES
As of February 22, 1996, the Company had 202 full-time employees, none
of whom is represented by any labor union. Approximately 98 of such full-time
employees are field personnel involved in oil and natural gas producing
activities, trucking and transport activities and crude oil terminalling and
storage activities.
ITEM 2. PROPERTIES
The Company is an independent energy company engaged in the acquisition,
exploitation, development, exploration and production of oil and natural gas and
the marketing, transportation, terminalling and storage of crude oil. The
Company's upstream oil and natural gas activities are focused in the LA Basin of
California, the Sunniland Trend of South Florida, the Illinois Basin and the
Gulf Coast area of Louisiana. Its downstream marketing activities are
concentrated in Oklahoma, where it owns a two million barrel, above ground crude
oil terminalling and storage facility, Texas and the Gulf Coast area of
Louisiana. The Company's upstream operations contributed approximately 90% of
the Company's 1995 EBITDA proforma for the Illinois Basin Acquisition while the
Company's downstream activities accounted for the remainder. See Item 1,
"Business" for a discussion of the Company's exploration, acquisition,
development and exploitation activities and downstream businesses.
17
<PAGE>
OIL AND NATURAL GAS RESERVES
The following tables set forth certain information with respect to the
Company's reserves based upon reserve reports prepared by the independent
petroleum consulting firms of H.J. Gruy and Associates, Inc. with respect to the
LA Basin Properties, Netherland, Sewell & Associates, Inc. with respect to the
Sunniland Trend and other minor properties, and Ryder Scott Company with respect
to the Illinois Basin Properties. Such reserve volumes and values were
determined under the method prescribed by the Commission which requires the
application of year-end prices for each year, held constant throughout the
projected reserve life.
The following table sets forth the estimated quantities of proved and
proved developed reserves of crude oil (including condensate and natural gas
liquids) and natural gas owned by the Company as of December 31, 1993, 1994 and
1995 and the principal components of the changes in the quantities of reserves
for each of the years then ended.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993 1994 1995
------------------ ----------------- ------------------
OIL GAS OIL GAS OIL GAS
(BBL) (MCF) (BBL) (MCF) (BBL) (MCF)
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Beginning balance 33,390 39,861 38,810 49,397 61,459 51,009
Revisions of previous estimates (6,478) (7,753) 16,834 4,365 5,423 2,792
Extensions, discoveries, improved
recovery and other additions 3,712 6,250 4,362 1,182 15,489 1,730
Sale of reserves (92) (622) (16) (446) (1,227) (9,773)
Purchase of reserves in place 11,834 15,837 5,304 80 17,640 130
Production (3,556) (4,176) (3,835) (3,569) (4,376) (2,778)
------- ------- ------ ------- ------- ------
Ending balance 38,810 49,397 61,459 51,009 94,408 43,110
======= ======= ====== ======= ======= ======
PROVED DEVELOPED RESERVES
Beginning balance 24,296 20,555 30,646 28,436 48,978 30,869
======= ======= ====== ======= ======= ======
Ending balance 30,646 28,436 48,978 30,869 67,266 29,397
======= ======= ====== ======= ======= ======
</TABLE>
The following table sets forth the Present Value of Proved Reserves as of
December 31, 1993, 1994 and 1995.
<TABLE>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved developed $106,212 $191,578 $272,634
Proved undeveloped 28,327 37,793 94,146
-------- -------- --------
Total proved $134,539 $229,371 $366,780
======== ======== ========
</TABLE>
There are numerous uncertainties inherent in estimating quantities and
values of proved reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control of
the Company. Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil and natural gas that cannot be
measured in an exact manner, and the accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. Because all reserve estimates are to some degree
speculative, the quantities of oil and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. In addition, different reserve
engineers may make different estimates of reserve quantities and cash flows
based upon the same available data. Therefore, the Present Value of Proved
Reserves shown above represents estimates only and should not be construed as
the current market value of the estimated oil and natural gas reserves
attributable to the Company's properties. In this regard, the information set
forth in the preceding tables includes revisions of reserve estimates
attributable
18
<PAGE>
to proved properties included in the preceding year's estimates. Such revisions
reflect additional information from subsequent exploitation and development
activities, production history of the properties involved and any adjustments in
the projected economic life of such properties resulting from changes in product
prices.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the present value thereof
are made using oil and natural gas sales prices in effect as of the dates of
such estimates and are held constant throughout the life of the properties,
except where such guidelines permit alternate treatment, including the use of
fixed and determinable contractual price escalations. The crude oil price in
effect at December 31, 1995, is based on NYMEX spot price for WTI crude oil of
$19.55 per Bbl ($18.00 per Bbl WTI posted price) with variations therefrom based
on location and grade of crude oil. The Company has entered into crude oil
financial swap arrangements to fix the NYMEX WTI index price for a significant
portion of its crude oil production. These prices are included in the reserve
reports through the term of the arrangements. On December 31, 1995, these
arrangements provided for a NYMEX WTI indexed average price for: (i) 11,000
barrels per day through March 31, 1996, at $18.07 per barrel; (ii) 10,000
barrels per day from April 1, 1996, through May 31, 1996, at $18.03 per barrel;
(iii) 9,500 barrels per day from June 1, 1996, through June 30, 1996, at $18.01
per barrel; (iv) 3,500 barrels per day from July 1, 1996, through December 31,
1996, at $17.48 per barrel; and (v) 1,500 barrels per day from January 1, 1997,
through June 30, 1997, at $17.23 per barrel. The Company has entered into
additional swap arrangements which provide for a NYMEX WTI indexed ceiling price
of $17.63 per barrel and a floor price of $16.50 per barrel for 3,000 barrels
per day from July 1, 1996, through December 31, 1996. Location and quality
differentials attributable to the Company's properties are not included in the
foregoing prices. The crude oil swap agreements provide for monthly settlement
based on the differential between the contract price and the actual NYMEX WTI
crude oil price. The Company's current crude oil hedges do not expose the
Company to various basis risk differentials that exist in the crude oil market.
The overall average prices as of December 31, 1995, were $15.55 per Bbl of crude
oil, condensate and natural gas liquids and $1.05 per Mcf of natural gas. See
Item 1, "Business--Product Markets and Major Customers". Prices for natural gas
and, to a lesser extent, oil are subject to substantial seasonal fluctuations
and prices for each are subject to substantial fluctuations as a result of
numerous other factors.
Since December 31, 1994, the Company has not filed any estimates of total
proved net oil or natural gas reserves with any federal authority or agency
other than the Commission. See Note 15 to the Company's Consolidated Financial
Statements appearing elsewhere in this Report for certain additional information
concerning the proved reserves of the Company.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1995, the Company had working interests in 1,529 gross
(1,529 net) active oil wells and 48 gross (22 net) active natural gas wells.
These totals do not include the Company's royalty and overriding royalty
interests in approximately 135 gross (4 net) producing oil and natural gas
wells.
19
<PAGE>
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
DEVELOPED ACRES(1) UNDEVELOPED ACRES(2)(3)
------------------ --------------------------
GROSS NET GROSS NET(4)
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
California.................. 3,707 3,634 10 10
Florida(5).................. 12,502 12,502 86,935 77,385
Illinois.................... 15,887 13,885 33,653 15,416
Indiana..................... 1,155 854 2,562 1,216
Kansas...................... -- -- 50,193 39,421
Kentucky.................... -- -- 1,321 521
Louisiana(6)................ -- -- 19,511 10,653
Oklahoma.................... 640 88 -- --
Texas....................... -- -- 659 186
Utah........................ 14,551 7,276 -- --
------ ------ ------- -------
Total..................... 48,442 38,239 194,844 144,808
====== ====== ======= =======
</TABLE>
- -----------------
(1) Developed acres are acres spaced or assigned to productive wells.
(2) Undeveloped acres are acres on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage
contains proved reserves.
(3) Does not include: (i) approximately 84,000 gross (39,500 net) acres located
within Exploration Permit WA-246-P in the Northwest Territory of Australia;
(ii) approximately 320,000 gross (264,000 net) acres located within Block
AC/P14 in the Vulcan Sub-basin (Timor Sea) on the Northwest shelf of
Australia in which the Company holds exploration rights; (iii) approximately
143,000 gross (10,725 net) acres located within an exploration license
located in New Caledonia; or (iv) approximately 8 million gross (7.7 million
net) acres in Pakistan to which the Company holds exploration rights. See
Item 1, "Business--Exploration--Current Exploration Projects--1995 Domestic
and International Exploration Activities".
(4) Less than 5% of total net undeveloped acres are covered by leases that
expire in 1996 and 1997.
(5) Does not include approximately 8,500 gross (4,250 net) acres under seismic
option.
(6) Does not include approximately 20,000 gross (6,700 net) acres under seismic
option.
20
<PAGE>
DRILLING ACTIVITIES
Certain information with regard to the Company's drilling activities during
the years ended December 31, 1993, 1994 and 1995 is set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
------------ ----------- -----------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Oil.................... 0.00 0.00 0.00 0.00 0.00 0.00
Natural gas............ 0.00 0.00 0.00 0.00 0.00 0.00
Dry.................... 5.00 1.90 6.00 4.39 1.00 0.40
----- ----- ---- ---- ---- ----
Total.............. 5.00 1.90 6.00 4.39 1.00 0.40
===== ===== ==== ==== ==== ====
Development Wells:
Oil.................... 13.00 13.00 1.00 1.00 0.00 0.00
Natural gas............ 0.00 0.00 0.00 0.00 0.00 0.00
Dry.................... 2.00 1.80 0.00 0.00 1.00 0.50
----- ----- ---- ---- ---- ----
Total.............. 15.00 14.80 1.00 1.00 1.00 0.50
===== ===== ==== ==== ==== ====
Total Wells:
Producing.............. 13.00 13.00 1.00 1.00 0.00 0.00
Dry.................... 7.00 3.70 6.00 4.39 2.00 0.90
----- ----- ---- ---- ---- ----
Total.............. 20.00 16.70 7.00 5.39 2.00 0.90
===== ===== ==== ==== ==== ====
</TABLE>
At December 31, 1995, the Company was in the process of drilling 1
gross (1 net) developmental well. See Item 1, "Business--Acquisition and
Exploitation" and "--Productive Wells and Acreage" for additional information
regarding exploitation activities, including waterflood patterns, workovers and
recompletions.
PRODUCTION AND SALES
The following table presents certain information with respect to oil
and natural gas production attributable to the Company's properties, the revenue
derived from the sale of such production, average sales price received and
average production costs during the three years ended December 31, 1993, 1994
and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------ ------- -------
(IN THOUSANDS, EXCEPT UNIT PRICES)
<S> <C> <C> <C>
Production:
Crude oil and natural gas liquids (Bbls).. 3,556 3,835 4,376
Natural gas (Mcf)......................... 4,176 3,569 2,788
BOE....................................... 4,252 4,430 4,839
Revenue:
Crude oil and natural gas liquids......... $50,986 $52,331 $61,241
Natural gas............................... 6,521 4,903 2,839
------- ------- -------
Total.................................... $57,507 $57,234 $64,080
======= ======= =======
Average sales price:
Crude oil and natural gas liquids (Bbl)... $ 14.34 $ 13.65 $ 13.99
Natural gas (Mcf)......................... $ 1.56 $ 1.37 $ 1.02
Per BOE................................... $ 13.52 $ 12.92 $ 13.24
Production costs per BOE................... $ 6.65 $ 6.15 $ 6.25
</TABLE>
21
<PAGE>
CRUDE OIL STORAGE AND TERMINALLING FACILITY
In December 1993, the Company completed construction on the first phase of
the Cushing Terminal in Cushing, Oklahoma. The first phase of the facility
consists of two million barrels of shell storage capacity comprised of fourteen
100,000 barrel capacity tanks and four 150,000 barrel capacity tanks. See Item
1, "Business -- Downstream Activities".
OTHER FACILITIES
The Company currently leases offices containing approximately 46,000 square
feet in Houston, Texas.
ITEM 3. LEGAL PROCEEDINGS
On April 27, 1992, the Company and certain of its officers and directors
and a former director and officer were named as defendants in a lawsuit filed in
the United States District Court for the Southern District of Texas captioned
Judith Rubinstein and Howard Greenwald v. Collins, et al., C.A. No. H-92-1297.
The complaint brings a class action (the class period of which is October 23,
1991, through April 13, 1992) for, among other things, alleged violations of
Sections 10(b) and 20(a) of the Exchange Act and for state law fraud and
negligent misrepresentation, arising out of certain alleged misrepresentations
and omissions in the Company's disclosures regarding its onshore natural gas
exploration activities. The plaintiffs, who purport to have purchased their
Common Stock in open market transactions (300 and 375 shares, respectively),
contend the class is entitled to approximately $30 million for compensatory
damages and punitive damages in an unspecified amount. The Company filed a
motion to dismiss in July 1992. On August 24, 1992, the Court entered an Order
of Dismissal and a Final Judgment dismissing the plaintiffs' complaint for
failure to state a claim under the federal securities laws and/or under the
common law of the State of Texas. On September 10, 1992, the plaintiffs filed a
Notice of Appeal of the District Court's judgment with the United States Court
of Appeals for the Fifth Circuit (No. 92-2736). On May 5, 1994, the Fifth
Circuit Court ruled, among other things, that the plaintiffs had sufficiently
pleaded claims under the federal securities laws and under Texas common law and
reversed the trial court's dismissal and remanded the case to the trial court
for further proceedings.
On July 27, 1993, a second case similar to the Rubinstein case described in
the preceding paragraph was filed in the United States District Court for the
Southern District of Texas captioned Gloria Moroson v. Collins, et al., C.A. No.
H-93-2305, naming the Company and certain of its officers and directors and a
former director and officer as defendants. The complaint brings a class action
(the class period of which is May 11, 1992, through August 14, 1992) for, among
other things, alleged violations of Sections 10(b) and 20(a) of the Exchange Act
and for state law fraud and negligent misrepresentation, arising out of certain
alleged misrepresentations and omissions in the Company's disclosures regarding
its onshore natural gas exploration activities. The plaintiff, who purports to
have purchased 50 shares of Common Stock in an open market transaction, contends
the class is entitled to approximately $60 million for compensatory damages and
punitive damages in an unspecified amount. These amounts are alleged to be in
addition to the damages claimed in the Rubinstein case. In June 1994, the trial
court granted the Company's motion to consolidate the Rubinstein and Moroson
cases.
On February 20, 1996, the Court denied the Company's motion for summary
judgment in these two cases and set a trial date for May 8, 1996. The Company
expects the cases to go to trial before a jury on or about such date. Although
the Company believes these complaints to be without merit and intends to
vigorously defend these lawsuits, if the plaintiffs were awarded, and the
Company were ultimately required to pay, a substantial portion of the $90
million in compensatory damages sought by the plaintiffs, it would have a
material adverse effect on the Company.
On July 9, 1987, Exxon filed an interpleader action in the United States
District Court for the Middle District of Florida, Exxon Corporation v. E. W.
Adams, et al., Case Number 87-976-CIV-T-23-B. This action was
22
<PAGE>
filed by Exxon to interplead royalty funds as a result of a title controversy
between certain mineral owners in a field in Florida. One group of mineral
owners, John W. Hughes, et al. (the "Hughes Group"), filed a counterclaim
against Exxon alleging fraud, conspiracy, conversion of funds, declaratory
relief, federal and Florida RICO, breach of contract and accounting, as well as
challenging the validity of certain oil and natural gas leases owned by Exxon,
and seeking exemplary and treble damages. In March 1993, but effective November
1, 1992, Calumet, a wholly-owned subsidiary of the Company, acquired all of
Exxon's leases in the field affected by this lawsuit. In order to address those
counterclaims challenging the validity of certain oil and natural gas leases,
which constitute approximately 10% of the lands underlying this unitized field,
Calumet filed a motion to join Exxon as plaintiff in the subject lawsuit, which
was granted July 29, 1994. In August 1994, the Hughes Group amended its
counterclaim to add Calumet as a counter-defendant. No trial date has been set
in this case. Exxon and Calumet have filed a motion to dismiss the
counterclaims. The Court has not yet ruled on such motion. Calumet believes
the counterclaim challenging the validity of certain oil and natural gas leases
owned by Calumet to be without merit and intends to vigorously defend against
such claim.
The Company, in the ordinary course of business, is a claimant and/or a
defendant in various other legal proceedings in which its exposure, individually
and in the aggregate, is not considered material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this Report.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the executive officers of the Company is presented
below. All executive officers hold office until their successors are elected
and qualified.
Greg L. Armstrong, President and Chief Executive Officer Officer Since 1981
Mr. Armstrong, age 37, has been President, Chief Executive Officer and a
director of the Company since 1992. He was President and Chief Operating
Officer from October to December 1992, and Executive Vice President and Chief
Financial Officer from June to October 1992. He was Senior Vice President and
Chief Financial Officer from 1991 to June 1992, Vice President and Chief
Financial Officer from 1984 to 1991, Corporate Secretary from 1981 to 1988, and
Treasurer from 1984 to 1987.
William C. Egg, Jr., Senior Vice President Officer Since 1984
Mr. Egg, age 44, has been Senior Vice President of the Company since 1991.
He was Vice President-Corporate Development of the Company from 1984 to 1991 and
Special Assistant-Corporate Planning from 1982 to 1984.
Cynthia A. Feeback, Controller and
Principal Accounting Officer Officer Since 1993
Ms. Feeback, age 38, has been Controller and Principal Accounting Officer
of the Company since 1993. She was Controller of the Company from 1990 to 1993
and Accounting Manager from 1988 to 1990.
Phillip D. Kramer, Vice President, Chief Financial Officer
and Treasurer Officer Since 1987
Mr. Kramer, age 40, has been Vice President and Chief Financial Officer of
the Company since 1992. He was Vice President and Treasurer from 1988 to 1992,
Treasurer from 1987 to 1988, and Controller from 1983 to 1987.
23
<PAGE>
G. M. McCarroll, Vice President-Exploration and Land Officer Since 1989
Mr. McCarroll, age 38, became Vice President-Exploration and Land in
February 1996. He had been Vice President-Land of the Company since 1989,
except for the period of May through July 1991 when he was Vice President of a
land development company in Lafayette, Louisiana. From 1988 to 1989 he was a
consultant to the Company for acquisitions and land functions.
Michael R. Patterson, Vice President and General Counsel Officer Since 1985
Mr. Patterson, age 48, has been Vice President and General Counsel of the
Company since 1985 and Corporate Secretary since 1988.
Harry N. Pefanis, Senior Vice President Officer Since 1988
Mr. Pefanis, age 38, became Senior Vice President in February 1996. He had
been Vice President-Products Marketing of the Company since 1988. From 1987 to
1988 he was Manager of Products Marketing. From 1983 to 1987 he was Special
Assistant for Corporate Planning for the Company. Mr. Pefanis is also President
of Plains Marketing & Transportation Inc., a wholly-owned subsidiary of the
Company.
Mary O. Peters, Vice President - Administration and
Human Resources Officer Since 1991
Ms. Peters, age 47, has been Vice President-Administration and Human
Resources since 1991. She was Manager of Office Administration of the Company
from 1984 to 1991.
24
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's $.10 par value common stock ("Common Stock") is listed and
traded on the American Stock Exchange under the symbol "PLX." The number of
stockholders of record of the Common Stock as of February 26, 1996, was 1,622.
For the periods indicated below, the following table sets forth the range
of high and low closing sales prices for the Common Stock as reported on the
American Stock Exchange Composite Tape.
HIGH LOW
------ -------
1995:
1st Quarter................................ $ 7 5/8 $5 1/2
2nd Quarter................................ 9 3/4 7 5/8
3rd Quarter................................ 10 3/4 7 5/8
4th Quarter................................ 9 6 13/16
1994:
1st Quarter................................ $ 7 $5 3/8
2nd Quarter................................ 6 1/2 5 5/8
3rd Quarter................................ 7 7/8 5 3/4
4th Quarter................................ 6 3/4 5 3/8
The Company has not paid cash dividends on shares of the Common Stock
since the Company's inception and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. In addition, the Company is
prohibited by provisions of the indenture governing the issue of $100 million
12% Senior Subordinated Notes Due 1999 (the "12% Notes") and the Revolving
Credit Facility from paying dividends on the Common Stock.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information was derived
from, and is qualified by reference to, the Consolidated Financial Statements of
the Company, including the Notes thereto, appearing elsewhere in this Report.
The selected financial data should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto, and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Oil and natural gas sales $ 14,872 $ 38,400 $ 57,507 $ 57,234 $ 64,080
Marketing, transportation
and storage 64,434 93,838 128,186 199,239 339,826
Other 189 413 335 223 319
-------- -------- -------- --------- --------
Total revenue 79,495 132,651 186,028 256,696 404,225
-------- -------- -------- --------- --------
Costs and expenses:
Production expenses 3,466 19,329 28,285 27,220 30,256
Purchases, transportation
and storage 63,200 92,107 124,390 193,049 333,460
General and administrative 3,825 8,592 7,724 6,966 7,215
Depreciation, depletion
and amortization......... 18,581(1) 12,155 36,980 (2) 16,305 17,036
Interest expense 3,251 3,776 8,847 12,585 13,606
Provision for income taxes 45 -- -- -- --
-------- -------- -------- --------- --------
Total expenses 92,368 135,959 206,226 256,125 401,573
-------- -------- -------- --------- --------
Net income (loss) $(12,873)(1) $ (3,308) $(20,198)(2) $ 571 $ 2,652
======== ======== ======== ========= ========
Net income (loss) per
common and common
equivalent share.......... $ (1.59) $ (.32) $ (1.77) $ .04 $ .16
Weighted average number of
common and
common equivalent shares 8,142 10,536 11,438 11,625 15,981
OTHER FINANCIAL DATA:
Net cash provided by
operating activities..... $ 6,145 $ 11,435 $ 10,397 $ 18,369 $ 16,984
Cash flow from operations
(earnings before
depreciation,
depletion and
amortization) $ 5,708 $ 8,847 $ 16,782 $ 16,876 $ 19,688
EBITDA(3) $ 9,004 $ 12,623 $ 25,629 $ 29,461 $ 33,294
AS OF DECEMBER 31
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,388 $ 25,149 $ 4,862 (4) $ 2,791(4) $ 6,129
Working capital (deficit) (3,441) 13,065 (13,986) (4,465) (4,749)
Property and equipment,
net 78,176 144,692 191,985 217,602 280,538
Total assets 96,754 199,093 236,667 266,904 352,046
Long-term debt 42,173 100,000 141,600 149,600 205,089
Other long-term
liabilities 324 2,506 967 3,754 1,547
Redeemable preferred stock -- -- -- 20,937 --
Total stockholders'
equity, including
non-redeemable
preferred stock 34,135 63,333 44,997 46,462 77,029
</TABLE>
- ---------------
(1) Includes a noncash charge of approximately $11 million related to a
writedown of the capitalized costs of the Company's proved oil and natural
gas properties as a result of unusually low seasonal gas prices at June 30,
1991.
(2) A large portion of the Company's reserve base is comprised of long-life oil
properties that are sensitive to low crude oil prices. During the fourth
quarter of 1993, crude oil prices declined significantly, with the posted
price for WTI crude oil ending the year at $12.50 per Bbl, the lowest year-
end oil price in the 13 years since U.S. crude oil prices were deregulated.
Such low prices had an adverse affect on the quantities and Present Value of
Proved Reserves at December 31, 1993, and led to a noncash charge of $20
million related to a writedown of the capitalized costs of the Company's
proved oil and natural gas properties.
26
<PAGE>
(3) EBITDA means earnings before interest, taxes, depreciation, depletion and
amortization. EBITDA is commonly used by debt holders and financial
statement users as a measurement to determine the ability of an entity to
meet its interest obligations. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles ("GAAP") and is
not intended to be used in lieu of GAAP presentations of results of
operations and cash provided by operating activities.
(4) Includes restricted cash of $1.1 million and $1.5 million as of December 31,
1993 and 1994, respectively, attributable to compensating balance
requirements.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
For the three years ended December 31, 1995, the Company reported
significant increases in proved reserves, production and cash flow from oil and
natural gas producing activities. Such increases are primarily the result of
the acquisition and subsequent exploitation of its LA Basin and Sunniland Trend
Properties and the recent acquisition of the Illinois Basin Properties. These
three core areas are comprised primarily of crude oil properties and together
account for approximately 96% of the Company's year-end 1995 proved reserves.
See Item 1, "Business--Acquisition and Exploitation--Current Exploitation
Projects". See Note 9 to the accompanying Consolidated Financial Statements for
pro forma information giving effect to the acquisition of the Illinois Basin
Properties as if such transaction occurred on January 1, 1995.
RESULTS OF OPERATIONS
Three years ended December 31, 1995
During 1995 and 1994, the Company reported increases in total production,
upstream gross margin and downstream gross margin while decreasing per unit
general and administrative ("G&A") expenses. The Company reported net income of
$2.7 million on total revenue of $404.2 million for the year ended December 31,
1995. This compares with net income of $571,000 in 1994 and a net loss of $20.2
million in 1993. Total revenue for 1994 and 1993 was $256.7 million and $186.0
million, respectively. The 1993 loss included a $20 million noncash charge
related to the writedown of the net capitalized costs of the Company's proved
oil and gas properties due to unusually low oil prices. The Company follows the
full cost method of accounting which limits the net capitalized costs of proved
oil and gas properties to the present value (discounted at 10%) of estimated
future net cash flows after income taxes (the "Standardized Measure"). Due to
the low oil price at December 31, 1993, such costs exceeded the Standardized
Measure by approximately $20 million. At year-end 1995 and 1994, the
Standardized Measure of the Company's proved reserves exceeded the book carrying
cost by approximately $107.0 million and $54.0 million, respectively. However,
the Commission's full cost accounting rules do not allow the Company to
reinstate the $20.0 million book value written off in 1993.
EBITDA increased 13% in 1995 to $33.3 million from the $29.5 million
reported in 1994 and nearly 30% more than the $25.6 million reported in 1993.
Cash flow from operations (earnings before depreciation, depletion and
amortization) increased to $19.7 million in 1995, 17% above the $16.9 million
and $16.8 million reported for 1994 and 1993, respectively. Net cash provided
by operating activities was $17.0 million for the year ended December 31, 1995
as compared to $18.4 million for 1994 and $10.4 million in 1993. A large
portion of the increase in 1994 over 1993 was attributable to proceeds received
during 1994 from the sale of crude oil inventory that was purchased during 1993.
28
<PAGE>
The following table sets forth certain operating information of the Company
for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS, EXCEPT
PER UNIT DATA) (UNAUDITED)
<S> <C> <C> <C>
AVERAGE DAILY PRODUCTION VOLUMES
Barrels of oil:
LA Basin........................ 7.6 7.3 7.2
Sunniland Trend................. 3.4 2.7 1.3
Illinois Basin.................. 0.6 -- --
Other........................... 0.4 0.5 1.2
---- ---- ----
Total.......................... 12.0 10.5 9.7
==== ==== ====
Mcf of natural gas:
LA Basin........................ 4.5 4.5 5.0
Other........................... 3.1 5.3 6.4
---- ---- ----
Total.......................... 7.6 9.8 11.4
==== ==== ====
Barrels of oil equivalent:
LA Basin........................ 8.4 8.1 8.0
Sunniland Trend................. 3.4 2.7 1.3
Illinois Basin.................. 0.6 -- --
Other........................... 0.9 1.3 2.3
---- ---- ----
Total.......................... 13.3 12.1 11.6
==== ==== ====
AVERAGE SALES PRICE
Per barrel of oil................ $13.99 $13.65 $14.34
====== ====== ======
Per Mcf of natural gas........... $1.02 $1.37 $1.56
===== ===== =====
UNIT ECONOMICS
Average sales price per BOE...... $13.24 $12.92 $13.52
Production expenses per BOE...... 6.25 6.15 6.65
------ ------ ------
Gross margin per BOE............. 6.99 6.77 6.87
Upstream G&A expenses per BOE.... .99 1.04 1.34
------ ------ ------
Gross profit per BOE............. $ 6.00 $ 5.73 $ 5.53
====== ====== ======
</TABLE>
Oil and natural gas production volumes totaled 4.8 million BOE in 1995, a
9% increase over 1994's level of 4.4 million BOE and a 21% increase over the
1993 base level of 4.0 million BOE. The base level production for 1993 excludes
approximately 263,000 BOE associated with a marginal property disposed of in
late 1993 and not previously included in the Company's proved reserves. Oil
production increased by 14% to 4.4 million Bbls from 1994's level of 3.8 million
Bbls and 33% over the 1993 base level of 3.3 million Bbls. In 1992, the Company
increased its focus on mature but underdeveloped crude oil producing properties.
As a result of this increased focus on crude oil properties and normal
production declines in the Company's Gulf Coast properties, natural gas
production declined by 22% to 2.8 Bcf in 1995 as compared to 3.6 Bcf in 1994.
Natural gas production was 4.2 Bcf in 1993.
Primarily as a result of increased production volumes from the Company's
acquisition and exploitation activities, oil and natural gas revenues increased
to $64.1 million in 1995 as compared to $57.2 million in 1994 and $57.5 million
in 1993. The Company routinely seeks to manage its exposure to commodity prices
through the prudent use of hedges, primarily through long-term fixed price
arrangements or financial swaps. During the three years ended December 31,
1995, the majority of the Company's crude oil production was sold under such
arrangements. The average oil price received for the year ended December 31,
1995, which is an average of prices received under fixed and floating price
sales arrangements, was $13.99 per Bbl, approximately 3% more than the $13.65
per Bbl received in 1994 and 2% less than the $14.34 received in 1993. The
Company's average natural
29
<PAGE>
gas price received was $1.02 per Mcf during 1995, down 26% from the $1.37 per
Mcf received in 1994 and 35% below the $1.56 per Mcf received in 1993. The
Company's oil and natural gas production yields lower product prices than
benchmark NYMEX prices due to location and quality differentials. Financial
swap arrangements and futures transactions entered into by the Company to hedge
production are included in the foregoing prices. Such transactions had the
effect of decreasing the overall average price per BOE by $.19 in 1995 and
increasing the average price by $.16 and $.18 for 1994 and 1993, respectively.
During 1995, the Company's unit gross margin (gross margin per BOE) and unit
gross profit averaged $6.99 per BOE ($1.17 per MCFE) and $6.00 per BOE ($1.00
per MCFE), respectively.
Marketing, transportation, storage and terminalling activities generated
gross margin (total revenues less purchases, transportation and storage and
terminalling costs) of $6.4 million on total revenues of $339.8 million as
compared to 1994's gross margin of $6.2 million on total revenues of $199.2
million. Gross margin totaled $3.8 million on total revenues of $128.2 million
for 1993. The trend of increased revenues and associated gross margin is
reflective of increases in the quantity of crude oil marketed on behalf of other
producers and premium resale markets made available by the Cushing Terminal.
Gross margin for 1994 included approximately $1.5 million of income resulting
from the occurrence of a contango crude oil futures market generated principally
during the first half of the year when third party storage and terminalling
operations, the Company's fundamental downstream business activity, were
commencing. A contango crude oil futures market exists when the futures price
of a subsequent month exceeds the price of a prior month. Such market allows
the Company to simultaneously purchase and sell crude oil and lock-in a profit.
The Cushing Terminal provides the mechanism to capitalize on a contango market
due to the ability to receive, store and redeliver crude oil. The Company
expects its downstream activities to continue to increase.
During 1995, the Company continued its trend of reducing unit production
and unit G&A expenses on properties held throughout the year. Excluding the
fourth quarter impact of the Illinois Basin Acquisition, unit production
expenses decreased 3% to $5.97 per BOE as compared to $6.15 per BOE in 1994 and
were 10% below 1993's unit production expenses of $6.65 per BOE. These decreases
are attributable to improved operating and cost control practices implemented by
the Company and increased production volumes as well as to the disposition of
certain properties. Including the impact of the Illinois Basin Properties, unit
production expenses were $6.25 per BOE during 1995. For the two months of
operations included in 1995's results, unit production expenses for the Illinois
Basin Properties averaged $12.00 per BOE. The Illinois Basin Properties were
operated by Marathon during such period. An integral component of the Company's
plan of exploitation for this property is a significant reduction in unit
production expenses. The Company assumed operations from Marathon on January
1, 1996. Total production expenses increased 11% to $30.3 million in 1995 as
compared to $27.2 million in 1994. Total production expenses were $28.3 million
in 1993.
In the Company's upstream segment, unit G&A expenses decreased for the
third consecutive year totaling $.99 per BOE for 1995, down 5% as compared to
$1.04 per BOE in 1994 and 26% below the level in 1993 of $1.34 per BOE. These
reductions are directly attributable to the Company's ongoing cost reduction and
cost control efforts and increased production levels. Downstream G&A expenses
for 1995 and 1994 were relatively constant at $2.4 million for each period while
downstream G&A expenses for 1993 totaled approximately $2.0 million. The
increase in G&A expenses over the 1993 level was attributable to the continued
expansion of the Company's marketing and terminalling activities. Combined G&A
expenses for both the upstream and downstream activities totaled $7.2 million,
$7.0 million and $7.7 million in 1995, 1994 and 1993, respectively.
DD&A per BOE was approximately $3.02 in 1995 as compared to $3.17 in 1994
and $3.57 in 1993 (excluding the $20 million noncash writedown in 1993 in the
carrying costs of the Company's oil and natural gas properties). Primarily as a
result of increased production levels, total DD&A for the year ended December
31, 1995 was $17.0 million, up 4% as compared to $16.3 million in 1994 and
relatively constant with 1993's level of $17.0 million (excluding the noncash
writedown).
30
<PAGE>
Interest expense, net of capitalized interest, for 1995 increased to $13.6
million as compared to $12.6 million in 1994 and $8.8 million in 1993, primarily
due to higher borrowing levels related to the Company's acquisition,
exploitation, development and exploration activities. In addition, interest
capitalization decreased in 1994 following the completion of the Cushing
Terminal, resulting in a corresponding increase in interest expense for 1994.
During 1993, 1994 and 1995, the Company capitalized $4.3 million, $2.7 million
and $3.1 million of interest, respectively.
The Company has a deferred tax asset of approximately $18.3 million at
December 31, 1995. The realization of the tax asset is dependent on the
Company's ability to generate taxable earnings in future periods. A valuation
allowance for such amount has been recorded to reflect the estimated amount of
the deferred tax asset which may not be realized due to the expiration of a
portion of the Company's tax net operating loss ("NOL") and tax credit
carryforwards. Future realization of the tax asset will be affected by recent
additions to the Company's oil and gas reserves and the resulting increases in
anticipated future income. Management is currently reassessing the ability to
realize a portion of such asset based on these reserve additions.
Although the Company recorded net income for 1995 and 1994, no provision
for income taxes was reflected but rather the valuation allowance discussed
above was adjusted.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
The Company has historically relied on working capital generated by cash
flow from operating activities, various types of debt financing and proceeds
from the sale of preferred and common stock to finance its capital expenditures.
The Company believes that it has the available capital resources to fund its
obligations and planned capital expenditures. The Company currently estimates
that its 1996 capital expenditures excluding acquisitions will aggregate
approximately $48 million, approximately $40 million of which will be spent on
exploitation and development activities, $5 million of which will be spent on
exploration activities and the remaining $3 million of which will be spent on
other capital projects, primarily to expand downstream activities. A substantial
portion of these planned capital expenditures are discretionary and actual
expenditures may vary based on crude oil and natural gas prices, results from
geological and geophysical studies and drilling operations. In addition, the
Company intends to continue to pursue the acquisition of underdeveloped
producing properties.
The Company has a $75 million revolving credit facility (the "Revolving
Credit Facility") with a group of five banks (the "Lenders"). In December 1995,
the Revolving Credit Facility and borrowing base thereunder was increased to $75
million from $65 million. The Revolving Credit Facility is secured by the oil
and natural gas properties of the Company and is guaranteed by all of the
Company's subsidiaries other than PMCT, Inc. ("PMCT"), which guarantees are
secured by all of the oil and natural gas properties of the Company and its
subsidiaries (except Plains Illinois Inc. ("Plains Illinois"), the subsidiary
which holds the Illinois Basin Properties) and the stock of all guaranteeing
subsidiaries. The Cushing Terminal is not pledged as security for any of the
Company's debt. The Revolving Credit Facility is subject to borrowing base
availability as determined from time to time by the Lenders in good faith, in
the exercise of the Lenders' sole discretion, and in accordance with customary
practices and standards in effect from time to time for oil and natural gas
loans to borrowers similar to the Company. Such borrowing base may be affected
from time to time by the performance of the Company's oil and natural gas
properties and changes in oil and natural gas prices. The Company incurs a
commitment fee of 1/2% per annum on the unused portion of the borrowing base.
The Revolving Credit Facility converts to a term loan on October 1, 1997, with a
final maturity of April 1, 1998. Indebtedness of up to $65 million under the
Revolving Credit Facility bears interest at the option of the Company at (i)
LIBOR plus 2% or (ii) the higher of the Base Rate plus 5/8% and the federal
funds rate plus 1-1/8%. Indebtedness in excess of $65 million under the
Revolving Credit Facility bears interest at an additional 1/2% through December
31, 1996, and an additional 1% thereafter. At December 31, 1995, outstanding
borrowings under the Revolving Credit Facility were $56 million. An additional
$1 million was reserved against the issuance of a standby letter of credit.
31
<PAGE>
Plains Illinois established the Illinois Basin Acquisition Indebtedness to
fund the acquisition of the Illinois Basin Properties. The Illinois Basin
Acquisition Indebtedness has a final maturity of December 22, 1999, with monthly
payments of interest and principal required from 85% of Field Level Net
Revenues. Field Level Net Revenues are defined as revenues derived from the
sale of production from the Illinois Basin Properties less a predefined amount
of production expenses equal to the Company's original projections of such
expenses or actual production expenses, whichever are less, on a monthly basis.
The Illinois Basin Acquisition Indebtedness bears interest at LIBOR plus 2%
through September 30, 1996, and LIBOR plus 3%, thereafter. The Company has
entered into a one year interest rate swap agreement with INCC, one of the
lending banks, to fix the LIBOR portion of the interest rate at 5.35%.
The Illinois Basin Acquisition Indebtedness is secured by a first lien on
the Illinois Basin Properties and is guaranteed by the Company. The Illinois
Basin Acquisition Indebtedness contains covenants which, among other things
prohibit (i) Plains Illinois from making certain loans and investments and (ii)
the incurrence of additional indebtedness by Plains Illinois.
The Company intends to sell privately $150 million in principal amount of
senior subordinated notes due 2006 (the "Notes"). The Company anticipates that
such sale (the "Offering"), if consummated, would be completed in March 1996.
The net proceeds to the Company from the sale of the Notes are estimated to be
$145.8 million after deducting expenses of the transaction. An aggregate $106
million of such net proceeds will be used to redeem all of the 12% Notes at 106%
of the $100 million principal amount outstanding. The remaining $39.8 million
together with an additional $2.2 million to be borrowed under the Company's
Revolving Credit Facility will be used to retire the Illinois Basin Acquisition
Indebtedness.
As of February 26, 1996, the Company had $58 million outstanding under the
Revolving Credit Facility and approximately $42 million outstanding under the
Illinois Basin Acquisition Indebtedness. Subsequent to the Offering and in order
to fully retire the Illinois Basin Acquisition Indebtedness, the Company will
increase the amount outstanding under the Revolving Credit Facility by $2.2
million. After the Offering, and in accordance with a commitment letter from
INCC, the Company intends to increase the Revolving Credit Facility to $125
million, to secure the Revolving Credit Facility with all of the Company's oil
and natural gas properties and to cause all of the Company's principal
subsidiaries to guarantee the Revolving Credit Facility. As so modified, the
Revolving Credit Facility will bear interest at LIBOR plus 1.75% per annum, will
convert to a term loan two years after the date of modification and will be
repayable in equal quarterly installments for five years following the
conversion to a term loan. Final maturity of the Revolving Credit Facility will
be seven years after the date of modification.
During 1995, the Company's marketing subsidiary established an $80 million
uncommitted secured demand transactional line of credit (the "Transactional
Facility") with three banks. The purpose of the Transactional Facility is to
provide standby letters of credit to support the purchase of crude oil for
resale and borrowings to finance crude oil inventory which has been hedged
against future price risk. The Transactional Facility is secured by all of the
assets of the marketing subsidiary and is guaranteed by the Company. The
Company's guarantee is secured by a $1 million standby letter of credit issued
on behalf of the Company. At December 31, 1995, approximately $49.1 million in
letters of credit were outstanding under the Transactional Facility.
PMCT has established a $20 million sublimit (the "Sublimit") within the
Transactional Facility for standby letters of credit and borrowings to finance
crude oil purchased in connection with operations at the Company's crude oil
terminal and storage facility in Cushing, Oklahoma. Under the terms of the
Sublimit, all purchases of crude oil inventory financed are required to be
hedged against future price risk on terms acceptable to the lenders. Standby
letters of credit and borrowings under the Sublimit are secured by all of the
assets of PMCT and are recourse only to the subsidiary. At December 31, 1995,
no letters of credit or borrowings were outstanding under the Sublimit. Letters
of credit under the Transactional Facility are issued for up to seventy day
periods and bear fees of 1.5% per annum. Borrowings incur interest at the
option of the borrower at (i) the Base Rate plus 5/8% or (ii) LIBOR plus 2%.
All financings under the Transactional Facility, which expires in August 1996,
are at the discretion of the lenders. Aggregate cash borrowings by both
subsidiaries are limited to $20 million.
On May 25, 1995, all outstanding shares of the Company's Series C
Cumulative Convertible Preferred Stock (the "Series C Preferred Stock"),
including accrued dividends, were converted into approximately 3.6 million
32
<PAGE>
shares of Common Stock. The Series C Preferred Stock was sold in a private
placement for net proceeds of approximately $20 million in 1994. Proceeds of
the placement were used to retire an $11.5 million bridge loan, incurred to
acquire an approximate 50% working interest in the Sunniland Trend Properties in
1994, to fund exploitation of such properties and to reduce the amount
outstanding on the Revolving Credit Facility.
At December 31, 1995, the Company had a working capital deficit of
approximately $4.7 million compared to a deficit of $4.5 million at December 31,
1994. The Company has historically operated with a working capital deficit due
primarily to ongoing capital expenditures that have been financed through cash
flow and the Revolving Credit Facility.
Changing Oil and Natural Gas Prices
The Company is heavily dependent on crude oil prices which have
historically been volatile. Although the Company has routinely hedged a
substantial portion of its crude oil production and intends to continue this
practice, future crude oil price declines would have a negative impact on the
Company's overall results, and therefore its liquidity. Furthermore, low crude
oil prices could affect the Company's ability to raise capital on terms
favorable to the Company. For 1996, the Company has committed an average of
approximately 8,500 Bbls of oil per day to fixed price arrangements that expire
at various times throughout 1996. Such arrangements represent approximately 55%
of the Company's average daily oil production for 1995 pro forma for the
Illinois Basin Acquisition and partially mitigate the adverse impact of
potential oil price declines on the Company's operating results. The Company
enters into hedging arrangements which provide for settlement based on index
prices that correlate directly to that being received for its physical delivery
of its crude oil production. Accordingly, the Company's current crude oil hedges
do not expose the Company to various basis risk differentials that exist in the
crude oil market. Management intends to continue to maintain hedging
arrangements for a significant portion of its production. Such contracts may
expose the Company to the risk of financial loss in certain circumstances. See
Item 1, "Business--Product Markets and Major Customers".
Investing Activities
Net cash flows used in investing activities were $64.4 million, $40.2
million and $76.5 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Included in such amounts are payments, net of cash received from
property sales and reimbursements from partners, for acquisition, exploration
and development costs of $63.9 million, $39.6 million and $52.8 million for the
same periods, respectively. Such payments for 1995 include $45.0 million related
to the cash portion of the acquisition of the Illinois Basin Properties and for
1994 include approximately $12.4 million related to the cash portion of the
acquisition of the Sunniland Trend Properties. The Company expended $1.1
million, $2.1 million and $23.6 million in 1995, 1994 and 1993, respectively,
for other property additions, primarily attributable to the Cushing Terminal
which was completed in December 1993. The total cost of the Cushing Terminal,
including land acquisition, engineering and environmental studies, construction-
phase interest, pipeline interconnects and an oversized manifold and pumping
system that was designed and constructed to accommodate ten million barrels of
storage, was approximately $30.9 million.
Financing Activities
Net cash provided by financing activities amounted to $52.3 million, $19.3
million and $44.7 million for 1995, 1994, and 1993, respectively. Aggregate
proceeds from long-term borrowings for these same years were $83.6 million,
$70.0 million and $72.2 million, respectively, while payments of long-term debt
were $30.7 million, $60.5 million and $36.6 million for the respective periods.
The Illinois Basin Acquisition Indebtedness of $42 million is included in
aggregate proceeds for 1995. Remaining long-term debt activity is primarily
related to advances received and payments made on the Revolving Credit Facility.
Financing activities during 1994 and 1993 include net payments and receipts from
short-term borrowings of $9.6 million related to the Transactional Facility.
Such amounts were borrowed to finance the purchase of crude oil inventory in
1993 which was sold in 1994. Financing activities include proceeds from the
sale of capital stock of $869,000, $20.6 million and $803,000 in
33
<PAGE>
1995, 1994 and 1993, respectively. The 1994 proceeds were primarily from the
issuance of the Series C Preferred Stock.
Commitments
Under the amended terms of the asset purchase agreement between Stocker and
Chevron, commencing with the year beginning January 1, 2000, and each year
thereafter, Stocker is required to plug and abandon 20% of the then remaining
inactive wells, which currently aggregate approximately 270. To the extent the
Company elects not to plug and abandon the number of required wells, the Company
is required to escrow an amount equal to the greater of $25,000 per well or the
actual average plugging cost per well in order to provide for the future
plugging and abandonment of such wells. In addition, Stocker is required to
expend a minimum of $600,000 per year in each of the ten years beginning January
1, 1996, and $300,000 per year in each of the succeeding five years to remediate
oil contaminated soil from existing well sites, provided there are remaining
sites to be remediated. In the event Stocker does not expend the required
amounts during a calendar year, Stocker is required to contribute an amount
equal to 125% of the actual shortfall to an escrow account. Stocker may
withdraw amounts from such escrow account to the extent it expends excess
amounts in a future year.
Although the Company obtained environmental studies on its properties in
the LA Basin, Sunniland Trend and Illinois Basin and the Company believes that
such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for approximately 90
years, and current or future local, state and federal environmental laws and
regulations may require substantial expenditures to comply with such rules and
regulations. In connection with the purchase of the LA Basin Properties, Stocker
received a limited indemnity from Chevron for certain conditions if they violate
applicable local, state and federal environmental laws and regulation in effect
on the date of such agreement. While the Company believes that it does not have
any material obligations for operations conducted prior to Stocker's acquisition
of the properties from Chevron, other than its obligation to plug existing wells
and those normally associated with customary oil field operations of similarly
situated properties, there can be no assurance that current or future local,
state or federal rules and regulations will not require it to spend material
amounts to comply with such rules and regulations or that any portion of such
amounts will be recoverable under the Chevron indemnity.
Consistent with normal industry practices, substantially all of the
Company's oil and natural gas leases require that, upon termination of economic
production, the working interest owners plug and abandon non-producing
wellbores, remove tanks, production equipment and flow lines and restore the
wellsite. The Company has estimated that the costs to perform these tasks is
approximately $14 million, net of salvage value and other considerations. Such
estimated costs are amortized to expense through the unit-of-production method
as a component of accumulated depreciation, depletion and amortization. Results
from operations for 1995, 1994 and 1993 include $1.0 million, $1.1 million and
$1.8 million, respectively, of expense associated with these estimated future
costs. For valuation and realization purposes of the affected oil and natural
gas properties, these estimated future costs are also deducted from estimated
future gross revenues to arrive at the estimated future net revenues and the
Standardized Measure disclosed in the accompanying Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be provided in this item is included in the
Consolidated Financial Statements of the Company, including the Notes thereto,
attached hereto as pages F-1 to F-22 and such information is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure with the
Company's independent accountants.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company will be included in the
proxy statement for the 1996 Annual Meeting of Stockholders (the "Proxy
Statement") to be filed within 120 days after December 31, 1995, and is
incorporated herein by reference. Information with respect to the Company's
executive officers is presented in Part I, Item 4 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information, if any, regarding beneficial ownership of the Common Stock
will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions will
be included in the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on Page F-1 hereof.
(2) EXHIBITS
2(a) - Purchase and Sale Agreement dated October 31, 1995, between
Marathon and Crete, as amended by that certain Amendment
dated December 4, 1995, among Marathon, Plains Resources
Inc. and Plains Illinois Inc. (incorporated by reference to
Exhibit 2.1 to Form 8-K dated January 4, 1996.)
2(b) - Credit Agreement dated December 22, 1995, between Plains
Illinois Inc. and Internationale Nederlanden (U.S.) Capital
Corporation (incorporated by reference to Exhibit 2.2 to
Form 8-K dated January 4, 1996.)
35
<PAGE>
3(a) - Second Restated Certificate of Incorporation of the Company.
3(b) - Bylaws of the Company, as amended to date (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4(a) - Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4 to the Company's Form S-1
Registration Statement (Reg. No. 33-33986)).
4(b) - Form of Indenture dated as of October 1, 1992, between the
Company and Ameritrust Texas National Association, as the
Trustee (incorporated by reference to Exhibit 4 to
Amendment No. 3 to Form S-3 Registration statement (Reg.
No. 33-50572)).
4(c) - Purchase Agreement for Stock Warrant dated May 16, 1994,
between Plains Resources Inc. and Legacy Resources, Co.,
L.P. (incorporated by reference to Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994).
10(a) - Second Amended and Restated Credit Agreement dated as of
February 11, 1994, between Internationale Nederlanden
(U.S.) Capital Corporation (incorporated by reference to
Exhibit (10a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993) (the "Second Restated
Credit Agreement").
10(b)* - Employment Agreement dated as of March 1, 1993, between the
Company and Greg L. Armstrong (incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10(c)* - The Company's 1991 Management Options (incorporated by
reference to Exhibit 4.1 to the Company's S-8 Registration
Statement (Reg. No. 33-43788)).
10(d)* - The Company's 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 4.3 to the Company's S-8 Registration
Statement (Reg. No. 33-48610)).
10(e)* - The Company's 401(K) Plan (incorporated by reference to
Exhibit 10(i) to the Company's Form S-1 Registration
Statement (Reg. No. 33-43859)).
10(f) - Restructure Agreement dated February 25, 1991, among The
Aetna Casualty and Surety Company, Aetna Life Insurance
Company and the Company (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10(g) - Amended and Restated Agreement of Limited Partnership of
Plains Gulf Coast Limited Partnership dated February 25,
1991, (incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
10(h) - First Amendment to Second Restated Credit Agreement dated
as of September 15, 1994.
36
<PAGE>
(incorporated by reference to Exhibit 10(k) to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1994).
10(i) - Second Amendment to Second Amended and Restated Credit
Agreement dated as of January 25, 1995, (incorporated by
reference to Exhibit 10(k) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10(j) - Third Amendment to Second Restated Credit Agreement dated
as of June 12, 1995, (incorporated by reference to Exhibit
10(l) to the Company's Quarterly Report on Form 10-Q for
the calendar quarter ended June 30, 1995).
10(k) - Fourth Amendment to Second Restated Credit Agreement dated
as of August 22, 1995, (incorporated by reference to
Exhibit 10(m) to the Company's Quarterly Report on Form 10-
Q for the calendar quarter ended September 30, 1995).
10(l) - Fifth Amendment to the Second Restated Credit Agreement
dated as of December 20, 1995.
10(m) - Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated as of August 23, 1995, between
Plains Marketing & Transportation Inc. and Internationale
Nederlanden (U.S.) Capital Corporation.
10(n) - Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated as of August 23, 1995 between PMCT
Inc. and Internationale Nederlanden (U.S.) Capital
Corporation.
11(a) - Statement regarding computation of per share earnings for
the year ended December 31, 1995.
11(b) - Statement regarding computation of per share earnings for
the year ended December 31, 1994.
11(c) - Statement regarding computation of per share earnings for
the year ended December 31, 1993.
21 - Subsidiaries of the Company.
23 - Consent of Price Waterhouse LLP.
27 - Financial Data Schedule.
*A management contract or compensation plan.
______________
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated December 22,
1995, as amended by Amendment No. 1 thereto on Form 8-K/A reporting
under Item 2 thereof the acquisition of the Illinois Basin Properties.
Such Current Report included the following financial statements:
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants
Statement of Revenues and Direct Operating Expenses for the years
ended December 31, 1992, 1993, and 1994, and the nine month
periods ended September 30, 1994 and 1995
Notes to Statement of Revenues and Direct Operating Expenses
37
<PAGE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1995
Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1994
Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1995
Notes to Pro Forma Condensed Consolidated Financial Statements
38
<PAGE>
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.
PLAINS RESOURCES INC.
Date: March 4, 1996 By: /s/ Phillip D. Kramer
--------------------------------------------
Phillip D. Kramer, Vice President and
Chief Financial Officer (Principal Financial
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.
Date: March 4, 1996 By: /s/ Greg L. Armstrong
--------------------------------------------
Greg L. Armstrong, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 4, 1996 By: /s/ Robert A. Bezuch
--------------------------------------------
Robert A. Bezuch, Director
Date: March 4, 1996 By: /s/ Tom H. Delimitros
--------------------------------------------
Tom H. Delimitros, Director
Date: March 4, 1996 By: /s/ Cynthia A. Feeback
--------------------------------------------
Cynthia A. Feeback, Controller and Principal
Accounting Officer (Principal Accounting
Officer)
Date: March 4, 1996 By: /s/ William M. Hitchcock
--------------------------------------------
William M. Hitchcock, Director
39
<PAGE>
Date: March 4, 1996 By: /s/ Phillip D. Kramer
--------------------------------------------
Phillip D. Kramer, Vice President and Chief
Financial Officer (Principal Financial
Officer)
Date: March 4, 1996 By: /s/ Dan M. Krausse
--------------------------------------------
Dan M. Krausse, Chairman of the Board and
Director
Date: March 4, 1996 By: /s/ John H. Lollar
--------------------------------------------
John H. Lollar, Director
Date: March 4, 1996 By: /s/ D. Irving Obrow
--------------------------------------------
D. Irving Obrow, Director
Date: March 4, 1996 By: /s/ Robert V. Sinnott
--------------------------------------------
Robert V. Sinnott, Director
Date: March 4, 1996 By: /s/ J. Taft Symonds
--------------------------------------------
J. Taft Symonds, Director
The Annual Report to Stockholders of the Company for the year ended
December 31, 1995, and the proxy statement relating to the annual meeting of
stockholders will be furnished to stockholders subsequent to the filing of this
Annual Report on Form 10-K. Such documents have not been mailed to stockholders
as of the date of this report.
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Plains Resources Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Plains
Resources Inc. and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 22, 1996
F-2
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,129 $ 1,291
Restricted cash -- 1,500
Accounts receivable 51,632 32,306
Inventory 5,120 5,525
Prepaids and other 751 1,064
--------- ---------
Total current assets 63,632 41,686
--------- ---------
PROPERTY AND EQUIPMENT
Oil and natural gas properties - full cost method:
Subject to amortization 328,712 265,123
Not subject to amortization 48,795 35,779
Downstream assets, primarily crude oil terminal and storage facility 32,788 32,266
Other property and equipment 7,789 6,090
--------- ---------
418,084 339,258
Less allowance for depreciation, depletion and amortization (137,546) (121,656)
--------- ---------
280,538 217,602
--------- ---------
OTHER ASSETS 7,876 7,616
--------- ---------
$ 352,046 $ 266,904
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 56,573 $ 36,282
Interest payable 3,977 3,617
Royalties payable and drilling advances 6,364 4,702
Notes payable and other current obligations 1,467 1,550
--------- ---------
Total current liabilities 68,381 46,151
BANK DEBT 98,000 45,100
SUBORDINATED DEBT 100,000 100,000
OTHER LONG-TERM DEBT 7,089 4,500
OTHER LONG-TERM LIABILITIES 1,547 3,754
--------- ---------
275,017 199,505
--------- ---------
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK,
STATED AT LIQUIDATION PREFERENCE -- 20,937
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
NON-REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER STOCKHOLDERS' EQUITY
Preferred stock, stated at liquidation preference -- 481
Common stock, $.10 par value, 50,000,000 shares authorized; issued and
outstanding 16,178,670 shares at December 31, 1995, and 11,593,457
shares at December 31, 1994 1,618 1,159
Additional paid-in capital 118,090 89,274
Accumulated deficit (42,679) (44,452)
--------- ---------
77,029 46,462
--------- ---------
$ 352,046 $ 266,904
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
REVENUE
Oil and natural gas sales $ 64,080 $ 57,234 $ 57,507
Marketing, transportation and storage 339,826 199,239 128,186
Interest and other income 319 223 335
-------- -------- --------
404,225 256,696 186,028
-------- -------- --------
EXPENSES
Production expenses 30,256 27,220 28,285
Purchases, transportation and storage 333,460 193,049 124,390
General and administrative 7,215 6,966 7,724
Depreciation, depletion and amortization 17,036 16,305 16,980
Reduction of carrying cost of oil and natural gas properties -- -- 20,000
Interest expense 13,606 12,585 8,847
-------- -------- --------
401,573 256,125 206,226
-------- -------- --------
NET INCOME (LOSS) $ 2,652 $ 571 $(20,198)
======== ======== ========
Net income (loss) per common
and common equivalent share $.16 $.04 $(1.77)
======== ======== ========
Weighted average number of common
and common equivalent shares 15,981 11,625 11,438
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 2,652 $ 571 $(20,198)
Items not affecting cash flows from
operating activities:
Depreciation, depletion and amortization 17,036 16,305 16,980
Reduction of carrying cost of oil and natural gas properties -- -- 20,000
Change in assets and liabilities resulting from operating activities:
Accounts receivable (18,598) (17,578) 2,010
Inventory 405 8,050 (12,486)
Prepaids and other 106 (115) 389
Accounts payable and other current liabilities 14,133 11,119 1,231
Interest payable 347 503 357
Royalties payable 903 (486) 2,114
-------- -------- --------
Net cash provided by operating activities 16,984 18,369 10,397
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received for the sale of oil and gas properties 7,355 314 --
Payment for acquisition, exploration and development costs (71,250) (39,885) (52,826)
Payment for additions to other property and assets (1,120) (2,130) (23,625)
Proceeds from escrow account 617 1,543 --
-------- -------- --------
Net cash used in investing activities (64,398) (40,158) (76,451)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 83,550 70,000 72,166
Proceeds from short-term debt -- 10,576 12,682
Proceeds from sale of capital stock, options and warrants 869 20,641 803
Principal payments of long-term debt (30,650) (60,500) (36,566)
Principal payments of short-term debt -- (20,214) (3,044)
Payment of other long-term liabilities (2,080) (136) (83)
Other 563 (1,070) (1,270)
-------- -------- --------
Net cash provided by financing activities 52,252 19,297 44,688
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,838 (2,492) (21,366)
Cash and cash equivalents, beginning of year 1,291 3,783 25,149
-------- -------- --------
Cash and cash equivalents, end of year $ 6,129 $ 1,291 $ 3,783
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
$1.30 CUMULATIVE ADDITIONAL
CONVERTIBLE PAID-IN ACCUMULATED
PREFERRED STOCK COMMON STOCK CAPITAL DEFICIT
-------------------------------------------- ----------- -----------
SHARES AMOUNT SHARES AMOUNT
--------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 48,770 $ 488 11,211,513 $1,121 $ 85,189 $(23,465)
Conversion of $1.30 Cumulative
Convertible Preferred Stock (700) (7) 620 2 6 --
Capital stock issued in
connection with an acquisition -- -- 215,137 21 1,111 --
Capital stock issued upon exercise of
options and other -- -- 139,743 13 905 --
Dividends on $1.30 Cumulative
Convertible Preferred Stock -- -- -- -- -- (189)
Net loss for the year -- -- -- -- -- (20,198)
-------- ------ ---------- ------ -------- --------
BALANCE AT DECEMBER 31, 1993 48,070 481 11,567,013 1,157 87,211 (43,852)
Warrant issued in connection
with an acquisition -- -- -- -- 2,000 --
Preferred stock dividends -- -- -- -- -- (1,171)
Capital stock issued upon exercise
of options and other -- -- 26,444 2 63 --
Net income for the year -- -- -- -- -- 571
-------- ------ ---------- ------ -------- --------
BALANCE AT DECEMBER 31, 1994 48,070 481 11,593,457 1,159 89,274 (44,452)
Preferred stock dividends -- -- -- -- -- (879)
Redemption of $1.30 Cumulative
Convertible Preferred Stock (48,070) (481) -- -- -- --
Conversion of Preferred Stock -- -- 3,628,125 363 21,406 --
Issuance of common stock in
connection with an acquisition -- -- 798,143 80 6,447 --
Capital stock issued upon exercise
of options and other -- -- 158,945 16 963 --
Net income for the year -- -- -- -- -- 2,652
-------- ------ ---------- ------ -------- --------
BALANCE AT DECEMBER 31, 1995 -- $ -- 16,178,670 $1,618 $118,090 $(42,679)
======== ====== ========== ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
- -----------------------------
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Plains
Resources Inc. (the "Company"), and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to the prior year statements to conform with
the current year presentation.
The Company is an independent energy company engaged in the acquisition,
exploitation, development, exploration and production of oil and natural gas and
the marketing, transportation,terminalling and storage of crude oil. The
Company's upstream oil and natural gas activities are focused in the Los Angeles
Basin of California (the "LA Basin"), the Sunniland Trend of South Florida (the
"Sunniland Trend"), the Illinois Basin and the Gulf Coast area of Louisiana.
Its downstream marketing activities are concentrated in Oklahoma, where it owns
a two million barrel, above ground crude oil terminalling and storage facility
(the "Cushing Terminal"), Texas and the Gulf Coast area of Louisiana.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all demand deposits and funds invested
in highly liquid instruments.
INVENTORY
Crude oil inventory is carried at the lower of cost, as adjusted for
deferred hedging gains and losses, or market value using an average cost method.
Materials and supplies inventory is stated at the lower of cost or market with
cost determined on a first-in, first-out method.
OIL AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting whereby all costs
associated with property acquisition, exploration and development activities are
capitalized. Such costs include internal general and administrative costs such
as payroll and related benefits and costs directly attributable to employees
engaged in acquisition, exploration and development activities. General and
administrative costs associated with production, operations, marketing and
general corporate activities are expensed as incurred. These capitalized costs
along with the Company's estimate of future development and abandonment costs,
net of salvage values and other considerations, are amortized to expense by the
unit-of-production method using engineers' estimates of unrecovered proved oil
and natural gas reserves. The costs of unproved properties are excluded from
amortization until the properties are evaluated. Interest is capitalized on oil
and natural gas properties not subject to amortization and in the process of
development. Proceeds from the sale of properties are accounted for as
reductions to capitalized costs unless such sales involve a significant change
in the relationship between costs and the estimated value of proved reserves, in
which case a gain or loss is recognized.
Unamortized costs of proved properties are subject to a ceiling which
limits such costs to the estimated present value of oil and natural gas reserves
reduced by future operating expenses, development expenditures and abandonment
costs (net of salvage values), and income taxes (the "Standardized Measure")
(see Note 15).
F-7
<PAGE>
OTHER PROPERTY AND EQUIPMENT
Other property and equipment is recorded at cost. Acquisitions, renewals,
and betterments are capitalized; maintenance and repairs are expensed.
Depreciation on the Cushing Terminal is provided using the straight-line method
over an estimated useful life of forty years; other property and equipment is
also depreciated using the straight-line method over estimated useful lives of
three to seven years. Approximately $1.6 million of interest was capitalized
during 1993 in connection with the construction of the Cushing Terminal.
DEBT ISSUE COSTS
Costs incurred in connection with the issuance of long-term debt are
capitalized and amortized using the straight-line method over the term of the
related debt. Debt issue costs, net of accumulated amortization, as of December
31, 1995 and 1994, in the amount of $3.4 million and $4.2 million, respectively,
are included in "Other Assets" in the accompanying Consolidated Balance Sheets.
FEDERAL AND STATE INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
MARKETING AND TRANSPORTATION
The Company's marketing activities are conducted through its wholly-owned
subsidiary, Plains Marketing & Transportation Inc. ("Plains Marketing"). Plains
Marketing markets principally crude oil of third party producers as well as
crude oil and natural gas produced by the Company. Marketing and transportation
revenue is accrued at the time title to the product sold transfers to the
purchaser and purchases are accrued at the time title to the product purchased
transfers to Plains Marketing. The Company's policy is to only purchase crude
oil for which it has a market to sell and to negotiate its sales contracts so
that fluctuations in prices do not affect the gross margin which it receives.
HEDGING
The Company periodically uses certain instruments to hedge its exposure to
price fluctuations on oil and natural gas transactions. Recognized gains and
losses on hedge contracts are reported as a component of the related
transaction. Results for hedging transactions are reflected in oil and natural
gas sales to the extent related to the Company's oil and natural gas production
and in marketing, transportation and storage revenues to the extent related to
such activities. The Company has entered into an interest rate swap to manage
the interest rate exposure on certain of its long-term debt. The amount to be
paid or received from the interest rate swap is charged or credited to interest
expense over the term of the swap.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation". As permitted
by SFAS 123, the Company plans to continue to retain its current method of
accounting for stock compensation and adopt the disclosure of this Statement in
1996.
F-8
<PAGE>
NOTE 2 -- INVENTORY
- -------------------
Inventory consists of the following:
DECEMBER 31,
----------------
1995 1994
------ ------
(in thousands)
Crude oil $2,884 $3,901
Materials and supplies 2,236 1,624
------ ------
$5,120 $5,525
====== ======
Substantially all of the crude oil inventory at December 31, 1995 and 1994,
except for minor amounts of working inventory, was hedged with New York
Mercantile Exchange ("NYMEX") futures contracts or short-term physical delivery
contracts. Deferred gains or losses from inventory hedges are included as part
of the inventory cost and recognized when the related inventory is sold.
NOTE 3 -- LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1995 1994
-------- --------
(in thousands)
Revolving Credit Facility, bearing interest
at weighted average interest rates of
8.2% and 7.9%, at December 31, 1995
and 1994, respectively $ 56,000 $ 45,100
Illinois Basin Acquisition Indebtedness,
bearing interest at 7.35%
at December 31, 1995 42,000 --
12% Senior Subordinated Notes due 1999 100,000 100,000
Other long-term debt 8,533 6,000
-------- --------
Total long-term debt $206,533 $151,100
Less current maturities (1,444) (1,500)
-------- --------
$205,089 $149,600
======== ========
REVOLVING CREDIT FACILITY
The Company maintains a revolving credit facility (the "Revolving Credit
Facility") with a group of five banks (collectively the "Lenders"). In December
1995, the total credit commitment and borrowing base under the Revolving Credit
Facility was increased to $75 million from $65 million. The Revolving Credit
Facility is guaranteed by all of the Company's subsidiaries other than PMCT,
Inc. ("PMCT") and such guarantees are secured by all of the Company's oil and
natural gas properties (except Plains Illinois Inc. ("Plains Illinois")) and the
stock of such subsidiaries. The Cushing Terminal is not pledged as security for
any of the Company's debt. The Revolving Credit Facility is subject to
borrowing base availability as determined from time to time by the Lenders in
good faith, in the exercise of the Lenders' sole discretion, and in accordance
with customary practices and standards in effect from time to time for oil and
natural gas loans to borrowers similar to the Company. Such borrowing base may
be affected from time to time by the performance of the Company's oil and
natural gas properties and changes in oil and natural gas prices. The Company
incurs a commitment fee of 1/2% per annum on the unused portion of the borrowing
base.
The Revolving Credit Facility, as amended, consists of a $75 million
revolving credit loan which matures on October 1, 1997, at which time the credit
commitment reduces by an amount equal to one-third of the then outstanding
principal amount of the revolving credit loan. The remaining outstanding
balance converts to a term loan which is repayable in equal installments due on
January 1, 1998, and April 1, 1998. The Revolving Credit Facility bears
interest at the option of the Company at (i) LIBOR plus 2% or (ii) the higher of
the Base Rate (as defined in the Revolving Credit Facility) plus 5/8% or the
federal funds rate plus 1 1/8%. Borrowings in excess of $65 million bear
interest at an additional 1/2% through December 31, 1996, and an additional 1%
thereafter.
The Revolving Credit Facility contains covenants which, among other things,
restrict the payment of cash dividends, limit the amount of consolidated debt,
limit the Company's ability to make certain loans and investments, and provide
that the Company must maintain a specified relationship between current assets
and current liabilities.
F-9
<PAGE>
ILLINOIS BASIN ACQUISITION INDEBTEDNESS
On December 22, 1995, Plains Illinois, a wholly owned subsidiary of the
Company, acquired, effective November 1, 1995, all of the upstream oil and gas
assets of Marathon Oil Company ("Marathon") in the Illinois Basin (the "Illinois
Basin Properties"). The aggregate purchase price was approximately $51.5
million including associated transaction costs, of which approximately $6.5
million was paid for by the issuance of 798,143 shares of the Company's common
stock (the "Common Stock") and the remaining $45 million was paid in cash. The
cash portion of the purchase price was financed through a combination of
advances under the Revolving Credit Facility and a four year $42 million credit
facility (the "Illinois Basin Acquisition Indebtedness") under a credit
agreement between Plains Illinois and three banks.
The Illinois Basin Acquisition Indebtedness consists of a $42 million four-
year term loan with a final maturity on December 22, 1999. Monthly payments of
interest and principal are required from 85% of Field Level Net Revenues, as
defined in the Illinois Basin Acquisition Indebtedness. Field Level Net
Revenues are defined as revenues derived from the sale of production from the
Illinois Basin Properties less a predefined amount of production expense equal
to the Company's original projections of such expenses, or actual production
expense, whichever is less, on a monthly basis. The Illinois Basin Acquisition
Indebtedness bears interest at LIBOR plus 2% through September 30, 1996, and
LIBOR plus 3%, thereafter. The Company has entered into a one year interest
rate swap agreement with one of the lending banks to fix the LIBOR portion of
the interest rate at 5.35%.
The Illinois Basin Acquisition Indebtedness is secured by a first lien on
the Illinois Basin Properties and contains covenants which, among other things
prohibit (i) Plains Illinois from making certain loans and investments, and (ii)
additional indebtedness by Plains Illinois.
12% SENIOR SUBORDINATED NOTES DUE 1999
On October 2, 1992, the Company sold at par $100 million of 12% Senior
Subordinated Notes (the "12% Notes") due October 1, 1999. The 12% Notes are
redeemable, at the option of the Company, at 106% of the principal amount
through October 1, 1996, and thereafter at prices declining annually to 100% of
principal at October 1, 1998, plus accrued and unpaid interest to the date of
redemption. A sinking fund payment of $50 million calculated to retire 50% of
the issue is due October 1, 1998. The indenture under which the 12% Notes were
issued (the "Indenture") contains, among other things, limitations on additional
borrowings in excess of certain amounts and limitations on Restricted Payments,
as defined in the Indenture, including cash dividends on the Common Stock. In
the event of a change of control, as defined in the Indenture, the Company will
be required to make an offer to repurchase the 12% Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. The 12% Notes are unsecured general obligations of the Company and
are subordinated in right of payment to all existing and future senior
indebtedness of the Company. The 12% Notes are guaranteed by all of the
Company's principal subsidiaries, with the exception of PMCT, a wholly-owned,
sole purpose subsidiary of the Company (see Note 4), and PLX Crude Lines Inc.
("PLX Crude"). Such guarantees may be released under certain circumstances.
OTHER LONG-TERM DEBT
Included in other long-term debt at December 31, 1995 is (i) $4.6 million
related to the 1995 acquisition of a production payment burdening certain of the
Company's LA Basin properties and (ii) $3.9 million related to the 1991 purchase
of a portion of the limited partners' interest in a partnership in which the
Company is the general partner. Such amounts have maturities of approximately
$1.4 million in 1996, $2 million in 1997 and 1998, and approximately $500,000
per year in each of the years 1999 through 2004.
The aggregate amount of maturities of all long-term indebtedness for the
next five years is: 1996 - $1.4 million, 1997 - $2 million, 1998 - $108
million, 1999 - $92.5 million and 2000 - $.5 million.
NOTE 4 -- UNCOMMITTED SECURED TRANSACTIONAL GUIDANCE FACILITY
- -------------------------------------------------------------
During 1995, Plains Marketing established an $80 million Uncommitted
Secured Demand Transactional Line of Credit (the "Transactional Facility") with
three banks. The purpose of the Transactional Facility is to provide standby
letters of credit to support the purchase of crude oil for resale and borrowings
to finance crude oil inventory which has been hedged against future price risk.
The Transactional Facility is secured by all of the assets of Plains
F-10
<PAGE>
Marketing and is guaranteed by the Company. The Company's guarantee is secured
by a $1 million standby letter of credit issued on behalf of the Company under
the Revolving Credit Facility. At December 31, 1995, approximately $49.1
million in letters of credit were outstanding under the Transactional Facility.
PMCT, a wholly owned subsidiary of the Company, has established a $20
million sublimit (the "Sublimit") within the Transactional Facility for standby
letters of credit and borrowings to finance crude oil purchased in connection
with operations at the Cushing Terminal. Under the terms of the Sublimit, all
purchases of crude oil inventory financed are required to be hedged against
future price risk on terms acceptable to the lenders. Standby letters of credit
and borrowings under the Sublimit are secured by all of the assets of PMCT and
are recourse only to PMCT. At December 31, 1995, no letters of credit or
borrowings were outstanding under the Sublimit.
Letters of credit under the Transactional Facility are generally issued for
up to seventy day periods and bear fees of 1.5% per annum. Borrowings incur
interest at the option of the borrower at (i) the Base Rate, as defined, plus
5/8% or (ii) LIBOR plus 2%. All financings under the Transactional Facility,
which expires in August 1996, are at the discretion of the lenders. Aggregate
cash borrowings by both subsidiaries are limited to $20 million.
NOTE 5 -- CAPITAL STOCK
- -----------------------
The Company has authorized capital stock consisting of 50,000,000 shares of
Common Stock, $.10 par value, and 2,000,000 shares of preferred stock, $1.00 par
value. At December 31, 1995, there were 16,178,670 shares of Common Stock
issued and outstanding and no shares of preferred stock outstanding.
STOCK WARRANTS
At December 31, 1995, the Company had warrants outstanding which entitle
the holders thereof to purchase an aggregate 950,000 shares of Common Stock.
Per share exercise prices for the warrants are as follows: 100,000 shares at
$9.25; 100,000 shares at $7.50 and 750,000 shares at $6.00. These warrants
expire at various times from 1997 to 2000.
$1.30 PREFERRED STOCK
On October 31, 1995, all outstanding shares of the Company's $1.30
Cumulative Convertible Preferred Stock (the "$1.30 Preferred Stock") were
redeemed for $10 per share plus unpaid and accrued dividends of $.0325 per
share. The Company paid a total of $496,000, including unpaid dividends, to
redeem the $1.30 Preferred Stock.
REDEEMABLE PREFERRED STOCK
In July 1994, the Company sold in a private placement 200,000 shares of its
Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock")
for net proceeds of approximately $20 million. On January 2, 1995, the Company
paid a dividend on the Series C Preferred Stock for the period of July 14, 1994,
through December 31, 1994. The dividend amount of approximately $937,000 was
paid by issuing 9,370 additional shares of the Series C Preferred Stock. On May
25, 1995, all 209,370 outstanding shares of the Series C Preferred Stock,
including accrued dividends, were converted into approximately 3.6 million
shares of Common Stock. As a result of this conversion and the redemption of
the $1.30 Preferred Stock, all outstanding preferred stock has been eliminated.
Proceeds from the Series C Preferred Stock were used to repay the $11.5
million bridge loan incurred to finance the acquisition of a 50% working
interest in six producing oil fields in the Sunniland Trend of South Florida
(the "Sunniland Trend Properties") (see Note 9), to fund the exploitation of
such properties and to reduce the amount outstanding on the Revolving Credit
Facility.
F-11
<PAGE>
STOCK OPTIONS
Stock option transactions for 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,518,991 $5.00 to $15.63 1,641,971 $5.00 to $15.63
Granted 365,250 $6.25 --
Exercised (146,945) $5.00 to $6.75 (19,188) $5.00
Canceled or expired (9,493) $5.25 to $6.75 (103,792) $5.00 to $10.50
--------- ---------
Outstanding at end of year 1,727,803 $5.00 to $15.63 1,518,991 $5.00 to $15.63
========= =========
Exercisable at end of year 1,233,216 $5.00 to $15.63 1,201,767 $5.00 to $15.63
========= =========
</TABLE>
The Company has options outstanding under its 1992 Stock Incentive Plan,
under which a maximum of 1.1 million shares of Common Stock were reserved for
issuance, and options outstanding outside of the plan which were granted in 1991
to certain officers and employees and a director. Generally, terms of the
options provide for an exercise price of not less than market at date of grant,
a pro rata vesting period of two to four years and an exercise period of six to
ten years.
NOTE 6 -- EARNINGS PER SHARE
- ----------------------------
Primary earnings per share is based on the weighted average number of
common and common equivalent shares of Common Stock outstanding. Common
equivalent shares include employee stock options and warrants when dilutive.
Fully diluted earnings per share is based on the weighted average number of
common and common equivalent shares in addition to all other convertible
securities, when dilutive. The assumed conversion of these securities was not
dilutive for all periods presented and, accordingly, is not reflected herein.
For purposes of the earnings per share calculation, Common Stock issued upon the
conversion of the Series C Preferred Stock is included in the weighted average
number of shares outstanding effective January 1, 1995. Additionally, 1994
earnings per share includes the dilutive effect of additional shares of Series C
Preferred Stock issued in 1995 as payment of 1994 accrued dividends (See Note
5).
NOTE 7 -- INCOME TAXES
- ----------------------
The Company's deferred income tax assets (liabilities) at December 31, 1995
and 1994 consist of the tax effect of income tax carryforwards and differences
related to the timing of recognition of certain acquisition, exploration, and
development costs for financial and tax reporting as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 988 $ 1,035
Percentage depletion carryforward 2,380 2,380
Net operating loss ("NOL") carryforwards 55,798 46,120
-------- --------
59,166 49,535
Deferred tax liabilities:
Acquisition, exploration and development costs (40,871) (28,975)
-------- --------
Net deferred tax asset 18,295 20,560
Valuation allowance (18,295) (20,560)
-------- --------
$ -- $ --
======== ========
</TABLE>
The realization of the deferred tax asset is dependent on the Company's
ability to generate taxable earnings in future periods. A valuation allowance
for $18.3 million has been recorded at December 31, 1995, to reflect the
estimated amount of the deferred tax asset which may not be realized due to the
expiration of a portion of the NOL's and tax credit carryforwards. The net
change in the current year deferred tax asset and related valuation allowance
was a decrease of $2.3 million. The decrease was primarily attributable to the
expiration of certain NOL carryforwards.
F-12
<PAGE>
Future realization of the tax asset will be affected by recent additions to
the Company's oil and natural gas reserves and the resulting increases in
anticipated future income. Management is currently reassessing the ability to
realize a portion of such asset based on these reserve additions.
At December 31, 1995, the Company had carryforwards of approximately $164.1
million of regular tax NOL's, $7.0 million of statutory depletion, $.8 million
of investment tax credit ("ITC") and $.2 million of alternative minimum tax
("AMT") credit. Of these amounts, utilization of approximately $22.9 million of
the NOL carryforwards and $.5 million of the ITC carryforward is limited to
certain companies within the consolidated group. At December 31, 1995, the
Company had approximately $149.4 million of AMT NOL carryforwards available as a
deduction against future AMT income. The NOL carryforwards expire from 1996
through 2010.
Set forth below is a reconciliation between the income tax provision
computed at the United States statutory rate on income before income taxes and
the income tax provision per the accompanying Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- ------
<S> <C> <C>
(in thousands)
U.S. federal income tax provision at statutory rate $ 902 $ 194
Utilization of tax attributes previously included (902) (194)
in allowance and other ----- -----
$ -- $ --
====== =====
</TABLE>
Although the Company recorded net income for the year 1995 and 1994, no
provision for income taxes was reflected but rather the valuation allowance
discussed above was adjusted.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change of greater than 50% of the beneficial ownership of the Company within a
three-year period (an "Ownership Change") will place an annual limitation on the
Company's ability to utilize its existing tax carryforwards. Under Final
Treasury Regulations issued by the Internal Revenue Service, the Company does
not believe that an Ownership Change has occurred as of December 31, 1995.
NOTE 8 -- RELATED PARTY TRANSACTIONS
- ------------------------------------
In April 1993, the Company purchased certain oil and natural gas properties
and associated participation rights from an officer and two directors, one of
which is also an officer, for approximately $1.4 million. The purchase price
consisted of 215,137 restricted shares of Common Stock, valued at approximately
$1.1 million, and the assumption of approximately $255,000 of net liabilities.
NOTE 9 -- ACQUISITIONS AND DISPOSITIONS
- ---------------------------------------
As further discussed in Note 3, effective November 1, 1995, the Company
purchased the Illinois Basin Properties for approximately $51.5 millon. The
Illinois Basin Properties include three Marathon operated oil fields, various
nonoperated producing properties and all of Marathon's oil and natural gas
mineral interests, surface fee and undeveloped leasehold within the Illinois
Basin as well as Marathon's geological, geophysical and engineering database for
the entire region. At the acquisition date, the Illinois Basin Properties added
approximately 17.3 million barrels to the Company's proved oil reserves.
The following unaudited information reflects pro forma results of
operations as if the acquisition occurred on January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Revenue (in thousands) $404,225 $426,294
Net income (in thousands) $ 2,652 $ 9,589
Net income per common and common equivalent share $ 0.16 $ 0.57
</TABLE>
F-13
<PAGE>
In December 1995, Stocker Resources Inc. ("Stocker"), a wholly-owned
subsidiary of the Company, acquired from Chevron U.S.A. ("Chevron") a production
payment burdening certain of Stocker's LA Basin properties. The production
payment had a face amount of approximately $30 million and was accounted for in
prior periods as an overriding royalty interest. Stocker also acquired a
fifteen year term mineral interest in certain of its LA Basin properties and
approximately ten acres of surface fee lands in Los Angeles County. These
assets were acquired in connection with a settlement agreement resolving certain
outstanding issues between Chevron and Stocker. In return for the conveyance of
the foregoing assets, Stocker agreed to forgive certain amounts due it, dismiss
existing lawsuits related to such claims and issue to Chevron a ten year note
for $4.6 million. The settlement also provides for a modification of Stocker's
existing contractual obligations to Chevron to plug inactive wells, provided
that Stocker continue its present activities to remediate oil contaminated soil
from existing wellsites on an accelerated basis, and for the Company to
guarantee the performance of such obligations.
During 1995, the Company sold certain non-strategic oil and natural gas
properties located primarily in the Gulf Coast area of Texas and Louisiana for
net proceeds of approximately $7.4 million.
During the first quarter of 1993, the Company acquired all of the
outstanding capital stock of Calumet Florida, Inc. ("CFI") for approximately $5
million, including transaction costs. CFI, organized in February 1993, owned
and operated a 50% working interest in the Sunniland Trend Properties which it
acquired from Exxon just prior to its acquisition by the Company. The Company
funded the acquisition primarily through the Revolving Credit Facility.
During 1994, CFI acquired the remaining 50% working interest in the
Sunniland Trend Properties, increasing its working interest to approximately
100% and adding approximately five million barrels of oil to its proved reserve
base at the acquisition date. Operating results from the additional 50%
interest in the Sunniland Trend Properties are included in the accompanying
financial statements effective May 1, 1994. The aggregate purchase price,
including acquisition costs, was approximately $13.6 million including the
issuance of a five year warrant to purchase 750,000 shares of Common Stock at an
exercise price of $6.00 per share. The acquisition was initially financed by an
$11.5 million bridge loan which was repaid in July 1994 with proceeds from the
sale of the Series C Preferred Stock (see Note 5).
In October 1993, the Company purchased an average 46% nonoperated working
interest in certain natural gas properties for approximately $2.7 million. The
acquisition consisted of 47 producing wells and surrounding acreage located in
the San Arroyo Field in northeastern Utah. At the acquisition date, these
properties added approximately 14 billion cubic feet of natural gas to the
Company's proved reserves. The Company funded the acquisition primarily through
the Revolving Credit Facility.
In late 1993, the Company acquired all of Texaco Exploration and Production
Inc.'s interest in the Vickers lease, which is located immediately adjacent to
one of the Company's existing LA Basin fields, for approximately $5 million.
In connection with Stocker's acquisition of certain of the LA Basin
properties from Chevron in 1990 (the "Stocker Properties"), numerous disputes
arose regarding each party's obligations under the purchase and sale agreement
governing such transaction. These disputes included, among other things, the
financial responsibility for a 2.8% nonoperating working interest in a high
volume but marginal property. In December 1993, the parties entered into a
partial settlement under which Chevron agreed to terminate an agreement with
respect to such property and to assume financial responsibility therefor. Set
forth below is a summary of the pro forma impact of this termination on selected
items for the year ended December 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993
---------------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS, EXCEPT UNIT PRICES)
<S> <C> <C>
Production volumes, BOE 4,252 3,989
Production expense per BOE $ 6.65 $ 6.24
Net loss $(20,198) $(20,198)
</TABLE>
F-14
<PAGE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
Minimum commitments in connection with office space and computer and
trucking equipment leased by the Company are: 1996 - $1 million; 1997 through
1999 - $.9 million annually; thereafter - $.8 million. Rental payments made
under the terms of similar arrangements totaled approximately $1.2 million in
each of the three years ended December 31, 1995, 1994 and 1993.
In connection with its crude oil marketing, Plains Marketing provides
certain purchasers and transporters with irrevocable standby letters of credit
to secure the Company's obligation for the purchase of crude oil (See Note 4).
Generally, these letters of credit are issued for up to seventy day periods and
are terminated upon completion of each transaction. At December 31, 1995,
Plains Marketing had outstanding letters of credit of approximately $49.1
million. Such letters of credit are secured by the crude oil inventory and
accounts receivable of Plains Marketing and are guaranteed by the Company. To
date, no amounts have been drawn on such letters of credit issued by the
Company.
Under the amended terms of the asset purchase agreement between Stocker and
Chevron, commencing with the year beginning January 1, 2000, and each year
thereafter, Stocker is required to plug and abandon 20% of the then remaining
inactive wells, which currently aggregate approximately 270. To the extent the
Company elects not to plug and abandon the number of required wells, the Company
is required to escrow an amount equal to the greater of $25,000 per well or the
actual average plugging cost per well in order to provide for the future
plugging and abandonment of such wells. In addition, Stocker is required to
expend a minimum of $600,000 per year in each of the ten years beginning January
1, 1996, and $300,000 per year in each of the succeeding five years to remediate
oil contaminated soil from existing well sites, provided there are remaining
sites to be remediated. In the event Stocker does not expend the required
amounts during a calendar year, Stocker is required to contribute an amount
equal to 125% of the actual shortfall to an escrow account. Stocker may
withdraw amounts from such escrow account to the extent it expends excess
amounts in a future year.
Although the Company obtained environmental studies on its properties in
the LA Basin, Sunniland Trend and Illinois Basin and the Company believes that
such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for more than 90 years,
and current or future local, state and federal environmental laws and
regulations may require substantial expenditures to comply with such rules and
regulations. In connection with the purchase of the Stocker Properties, Stocker
received a limited indemnity from Chevron for certain conditions if they violate
applicable local, state and federal environmental laws and regulations in effect
on the date of such agreement. While the Company believes that it does not have
any material obligations for operations conducted prior to Stocker's acquisition
of the properties from Chevron, other than its obligation to plug existing wells
and those normally associated with customary oil field operations of similarly
situated properties, there can be no assurance that current or future local,
state or federal rules and regulations will not require it to spend material
amounts to comply with such rules and regulations or that any portion of such
amounts will be recoverable under the Chevron indemnity.
Consistent with normal industry practices, substantially all of the
Company's oil and natural gas leases require that, upon termination of economic
production, the working interest owners plug and abandon non-producing
wellbores, remove tanks, production equipment and flow lines and restore the
wellsite. The Company has estimated that the costs to perform these tasks is
approximately $14 million, net of salvage value and other considerations. Such
estimated costs are amortized to expense through the unit-of-production method
as a component of accumulated depreciation, depletion and amortization ("DD&A").
Results from operations for 1995, 1994 and 1993 include $1 million, $1.1 million
and $1.8 million, respectively, of expense associated with these estimated
future costs. For valuation and realization purposes of the affected oil and
natural gas properties, these estimated future costs are also deducted from
estimated future gross revenues to arrive at the estimated future net revenues
and the Standardized Measure disclosed in Note 15.
As is common within the industry, the Company has entered into various
commitments and operating agreements related to exploration and the development
of and production from certain proved oil and natural gas properties. It is
management's belief that such commitments will be met without a material adverse
effect on the Company's financial position.
F-15
<PAGE>
The Company and certain of its subsidiaries are the general partners of
various limited partnerships. Accordingly, the Company and its subsidiaries as
general partner have unlimited liability with respect to the operations of the
partnerships.
NOTE 11 -- LITIGATION
- ---------------------
On April 27, 1992, the Company and certain of its officers and directors
and a former director and officer were named as defendants in a lawsuit filed in
the United States District Court for the Southern District of Texas captioned
Judith Rubinstein and Howard Greenwald v. Collins, et al., C.A. No. H-92-1297.
The complaint brings a class action (the class period of which is October 23,
1991, through April 13, 1992) for, among other things, alleged violations of
Sections 10(b) and 20(a) of the Exchange Act and for state law fraud and
negligent misrepresentation, arising out of certain alleged misrepresentations
and omissions in the Company's disclosures regarding its onshore natural gas
exploration activities. The plaintiffs, who purport to have purchased their
Common Stock in open market transactions (300 and 375 shares, respectively),
contend the class is entitled to approximately $30 million for compensatory
damages and punitive damages in an unspecified amount. The Company filed a
motion to dismiss in July 1992. On August 24, 1992, the Court entered an Order
of Dismissal and a Final Judgment dismissing the plaintiffs' complaint for
failure to state a claim under the federal securities laws and/or under the
common law of the State of Texas. On September 10, 1992, the plaintiffs filed a
Notice of Appeal of the District Court's judgment with the United States Court
of Appeals for the Fifth Circuit (No. 92-2736). On May 5, 1994, the Fifth
Circuit Court ruled, among other things, that the plaintiffs had sufficiently
pleaded claims under the federal securities laws and under Texas common law and
reversed the trial court's dismissal and remanded the case to the trial court
for further proceedings.
On July 27, 1993, a second case similar to the Rubinstein case described in
the preceding paragraph was filed in the United States District Court for the
Southern District of Texas captioned Gloria Moroson v. Collins, et al., C.A. No.
H-93-2305, naming the Company and certain of its officers and directors and a
former director and officer as defendants. The complaint brings a class action
(the class period of which is May 11, 1992, through August 14, 1992) for, among
other things, alleged violations of Sections 10(b) and 20(a) of the Exchange Act
and for state law fraud and negligent misrepresentation, arising out of certain
alleged misrepresentations and omissions in the Company's disclosures regarding
its onshore natural gas exploration activities. The plaintiff, who purports to
have purchased 50 shares of Common Stock in an open market transaction, contends
the class is entitled to approximately $60 million for compensatory damages and
punitive damages in an unspecified amount. These amounts are alleged to be in
addition to the damages claimed in the Rubinstein case. In June 1994, the trial
court granted the Company's motion to consolidate the Rubinstein and Moroson
cases.
On February 20, 1996, the Court denied the Company's motion for summary
judgment in these two cases and set a trial date for May 8, 1996. The Company
expects the cases to go to trial before a jury on or or about such date.
Although the Company believes these complaints to be without merit and intends
to vigorously defend these lawsuits, if the plaintiffs were awarded, and the
Company were ultimately required to pay, a substantial portion of the $90
million in compensatory damages sought by the plaintiffs, it would have a
material adverse effect on the Company.
On July 9, 1987, Exxon filed an interpleader action in the United States
District Court for the Middle District of Florida, Exxon Corporation v. E. W.
Adams, et al., Case Number 87-976-CIV-T-23-B. This action was filed by Exxon to
interplead royalty funds as a result of a title controversy between certain
mineral owners in a field in Florida. One group of mineral owners, John W.
Hughes, et al. (the "Hughes Group"), filed a counterclaim against Exxon alleging
fraud, conspiracy, conversion of funds, declaratory relief, federal and Florida
RICO, breach of contract and accounting, as well as challenging the validity of
certain oil and natural gas leases owned by Exxon, and seeking exemplary and
treble damages. In March 1993, but effective November 1, 1992, CFI, a wholly-
owned subsidiary of the Company, acquired all of Exxon's leases in the field
affected by this lawsuit. In order to address those counterclaims challenging
the validity of certain oil and natural gas leases, which constitute
approximately 10% of the lands underlying this unitized field, CFI filed a
motion to join Exxon as plaintiff in the subject lawsuit, which was granted July
29, 1994. In August 1994, the Hughes Group amended its counterclaim to add CFI
as a counter-defendant. No trial date has been set in this case. Exxon and CFI
have filed a motion to dismiss the counterclaims. The Court has not yet ruled on
such motion. CFI believes the counterclaim challenging the validity of certain
oil and natural gas leases owned by CFI to be without merit and intends to
vigorously defend against such claim.
F-16
<PAGE>
The Company, in the ordinary course of business, is a claimant and/or a
defendant in various other legal proceedings in which its exposure, individually
and in the aggregate, is not considered material to the consolidated financial
statements.
NOTE 12 -- MAJOR CUSTOMERS
- --------------------------
Phibro Division of Salomon Inc. ("Phibro") and Phibro Energy USA, Inc.,
accounted for 16% and 12%, respectively, of the Company's total revenue
(exclusive of interest and other income) during 1995. Customers accounting for
more than 10% of total revenue for 1994 and 1993 were as follows: 1994 --
Phibro -- 19% and Chevron -- 16%; 1993 -- Chevron -- 23%, Marathon -- 22% and
Phibro --15%. No other single purchaser of the Company's products accounted for
as much as 10% of total sales during 1995, 1994 and 1993. During 1995, 1994 and
1993, Chevron accounted for 39%, 71% and 76% of the Company's oil and natural
gas sales, respectively. Additionally during 1995, Unocal and Scurlock Permian
Corporation accounted for approximately 28% and 19%, respectively, of the
Company's oil and natural gas sales. During 1995, Unocal was the purchaser of
the Company's LA Basin oil production, while Scurlock Permian Corporation was
purchaser of oil production attributable to the Sunniland Trend Properties.
NOTE 13 -- FINANCIAL INSTRUMENTS
- --------------------------------
DERIVATIVES
The Company has only limited involvement with derivative financial
instruments, as defined in SFAS No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" and does not use them for
trading purposes. The Company's principle objective is to hedge exposure to
price volatility on crude oil and natural gas. These arrangements expose the
Company to credit risk (as to counterparties) and to risk of adverse price
movements in certain cases where the Company's production is less than expected.
The Company has entered into crude oil financial swap arrangements to fix
the NYMEX WTI index price for a significant portion of its crude oil production.
On December 31, 1995, these arrangements provided for a NYMEX WTI indexed
average price for: (i) 11,000 barrels per day through March 31, 1996, at $18.07
per barrel; (ii) 10,000 barrels per day from April 1, 1996, through May 31,
1996, at $18.03 per barrel; (iii) 9,500 barrels per day from June 1, 1996,
through June 30, 1996, at $18.01 per barrel; (iv) 3,500 barrels per day from
July 1, 1996, through December 31, 1996, at $17.48 per barrel; and (v) 1,500
barrels per day from January 1, 1997, through June 30, 1997, at $17.23 per
barrel. The Company has entered into additional swap arrangements which provide
for a NYMEX WTI indexed ceiling price of $17.63 per barrel and a floor price of
$16.50 per barrel for 3,000 barrels per day from July 1, 1996, through December
31, 1996. Location and quality differentials attributable to the Company's
properties are not included in the foregoing prices. The crude oil swap
agreements provide for monthly settlement based on the differential between the
contract price and the actual NYMEX WTI crude oil price. The arrangements do
not expose the Company to any basis risk. Gains or losses on the crude oil
swaps are recognized in the month of related production and are included in oil
and natural gas sales.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company's accounts receivable are primarily from purchasers of oil and natural
gas products and exploration and production companies which own interests in
properties operated by the Company. This industry concentration has the
potential to impact the Company's overall exposure to credit risk, either
positively or negatively, in that the customers may be similarly affected by
changes in economic, industry or other conditions. The Company generally
requires letters of credit for receivables from customers which are not
considered investment grade, unless the credit risk can otherwise be mitigated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies
F-17
<PAGE>
described below. Considerable judgement is required in interpreting market data
to develop the estimates of fair value. The use of different market assumptions
or valuation methodologies may have a material effect on the estimated fair
value amounts.
The carrying values of items comprising current assets and current
liabilities approximate fair values due to the short-term maturities of these
instruments. Crude oil futures contracts permit settlement by delivery of the
crude oil and, therefore, are not financial instruments, as defined. The
carrying amounts and fair values of the Company's other financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994
------------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES:
Bank debt $ 98,000 $ 98,000 $ 45,100 $45,100
Subordinated debt 100,000 105,250 100,000 99,000
Other long-term debt (see Note 3) 8,533 8,624 4,500 3,873
SERIES C PREFERRED STOCK -- -- 20,937 20,937
OFF BALANCE SHEET FINANCIAL
INFORMATION:
Unrealized loss on crude oil
swap agreements -- (5,438) -- (1,204)
</TABLE>
The carrying value of bank debt approximates its fair value as interest
rates are variable, based on prevailing market rates. The fair value of
subordinated debt was based on quoted market prices. Other long-term debt was
valued by discounting the future payments using the Company's incremental
borrowing rate. The fair value of the Series C Preferred Stock is estimated to
be its liquidation value at December 31, 1994. The fair value of the crude oil
swap agreements is the estimated amount that the Company would pay or receive as
if the agreements had terminated at December 31, 1995 and 1994, based on the
closing prices for NYMEX futures contracts on such dates.
NOTE 14 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------------------
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest (net of amount
capitalized) $13,259 $12,082 $ 8,489
======= ======= =======
Noncash investing and financing activities:
Series C Preferred Stock Dividends $ -- $ 937 $ --
======= ======= =======
Conversion of Series C Preferred $21,769 $ -- $ --
======= ======= =======
Detail of properties acquired for other than
cash:
Fair value of acquired assets $56,100 $13,600 $ 7,387
Debt issued and liabilities assumed (4,600) -- (6,255)
Capital stock and warrants issued (6,527) (1,250) (1,132)
------- ------- -------
Cash paid $44,973 $12,350 $ --
======= ======= =======
</TABLE>
F-18
<PAGE>
NOTE 15 -- OIL AND NATURAL GAS ACTIVITIES
- -----------------------------------------
COSTS INCURRED
The Company's oil and natural gas acquisition, exploration and development
activities are primarily conducted in the United States. The following table
summarizes the costs incurred in connection therewith during the last three
years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Property acquisition costs:
Unproved properties $18,136 $ 6,150 $ 4,800
Proved properties 41,194 13,222 19,659
Exploration costs 2,001 5,907 10,524
Development costs 22,681 15,570 26,786
------- ------- -------
$84,012 $40,849 $61,769
======= ======= =======
</TABLE>
CAPITALIZED COSTS
The following table presents the aggregate capitalized costs subject to
amortization relating to the Company's oil and natural gas acquisition,
exploration and development activities, and the aggregate related DD&A.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Proved properties $ 328,712 $ 265,123
Accumulated DD&A (131,063) (116,430)
--------- ---------
$ 197,649 $ 148,693
========= =========
</TABLE>
Under full cost accounting rules, to the extent that the Standardized
Measure of the proved reserves (as described below) is less than the amount of
net capitalized costs of proved properties, a write-down is required. The
capitalized costs of the Company's proved oil and natural gas properties
exceeded the Standardized Measure by approximately $20 million at year-end 1993
due to low crude oil prices and accordingly, the capitalized costs were written
down by such amount. The DD&A rate per equivalent unit of production excluding
the write-down was $3.02, $3.17 and $3.57 for the three years ended December 31,
1995, 1994 and 1993, respectively. The DD&A rate per equivalent unit of
production for 1993 including the noncash writedown of the recorded cost of the
Company's oil and natural gas properties was $8.27.
COSTS NOT SUBJECT TO AMORTIZATION
The following table summarizes the categories of costs which comprise the
amount of unproved properties not subject to amortization.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Acquisition costs $35,550 $23,830
Exploration costs 5,075 5,470
Capitalized interest 8,170 6,479
------- -------
$48,795 $35,779
======= =======
</TABLE>
Unproved properties not subject to amortization at December 31, 1995,
consist mainly of lease costs and seismic data related to unproved areas. The
Company will continue to evaluate these properties over the lease terms;
however, the timing of the ultimate evaluation and disposition of a significant
portion of the properties has not been determined. Costs associated with
seismic data and all other costs will become subject to amortization as the
prospects to which they relate are evaluated. Approximately 37%, 16% and 24% of
the balance in unproved properties at December 31, 1995, related to additions
made in 1995, 1994, and 1993, respectively.
F-19
<PAGE>
During 1995, 1994 and 1993, the Company capitalized $3.1 million, $2.7
million and $2.7 million, respectively, of interest related to costs of unproved
property in the process of development.
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The following information summarizes the Company's net proved reserves of
oil (including condensate and natural gas liquids) and natural gas and the
present values thereof for the three years ended December 31, 1995. The
following reserve information is based upon reports of the independent
petroleum consulting firms of H.J. Gruy and Company with respect to the LA Basin
properties, Netherland, Sewell & Associates, Inc. with respect to the Sunniland
Trend Properties and other minor properties and Ryder Scott Company with respect
to the Illinois Basin Properties. The estimates are in accordance with
regulations prescribed by the Securities and Exchange Commission (the "SEC").
In management's opinion, the reserve estimates presented herein, in
accordance with generally accepted engineering and evaluation principles
consistently applied, are believed to be reasonable. However, there are
numerous uncertainties inherent in estimating quantities and values of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating the recovery from underground
accumulations of oil and natural gas that cannot be measured in an exact manner,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Because all reserve estimates are to some degree speculative, the quantities of
oil and natural gas that are ultimately recovered, production and operating
costs, the amount and timing of future development expenditures and future oil
and natural gas sales prices may all differ from those assumed in these
estimates. In addition, different reserve engineers may make different
estimates of reserve quantities and cash flows based upon the same available
data. Therefore, the Standardized Measure shown below represents estimates only
and should not be construed as the current market value of the estimated oil and
natural gas reserves attributable to the Company's properties. In this regard,
the information set forth in the following tables includes revisions of reserve
estimates attributable to proved properties included in the preceding year's
estimates. Such revisions reflect additional information from subsequent
exploitation and development activities, production history of the properties
involved and any adjustments in the projected economic life of such properties
resulting from changes in product prices.
ESTIMATED QUANTITIES OF OIL AND NATURAL GAS RESERVES (UNAUDITED)
The following table sets forth certain data pertaining to the Company's
proved and proved developed reserves for the three years ended December 31,
1995.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
OIL GAS OIL GAS OIL GAS
(BBL) (MCF) (BBL) (MCF) (BBL) (MCF)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
PROVED RESERVES
Beginning balance 61,459 51,009 38,810 49,397 33,390 39,861
Revisions of previous estimates 5,423 2,792 16,834 4,365 (6,478) (7,753)
Extensions, discoveries, improved
recovery and other additions 15,489 1,730 4,362 1,182 3,712 6,250
Sale of reserves in-place (1,227) (9,773) (16) (446) (92) (622)
Purchase of reserves in place 17,640 130 5,304 80 11,834 15,837
Production (4,376) (2,778) (3,835) (3,569) (3,556) (4,176)
------ ------ ------ ------ ------ ------
Ending balance 94,408 43,110 61,459 51,009 38,810 49,397
====== ====== ====== ====== ====== ======
PROVED DEVELOPED RESERVES
Beginning balance 48,978 30,869 30,646 28,436 24,296 20,555
====== ====== ====== ====== ====== ======
Ending balance 67,266 29,397 48,978 30,869 30,646 28,436
====== ====== ====== ====== ====== ======
</TABLE>
F-20
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
The standardized measure of discounted future net cash flows relating to
proved oil and natural gas reserves is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994 1993
------------ ---------- ----------
(in thousands)
<S> <C> <C> <C>
Future cash inflows $1,513,145 $ 894,434 $ 497,942
Future development costs (107,995) (62,695) (44,644)
Future production expense (692,009) (414,741) (221,814)
---------- --------- ---------
Future net cash flows
(before income taxes) 713,141 416,998 231,484
Discounted at 10% per year (346,361) (187,627) (96,945)
---------- --------- ---------
Standardized measure of
discounted future net cash 366,780 229,371 134,539
flows (before income taxes)
Discounted future income (61,939) (26,427) (4,050)
tax expense ---------- --------- ---------
Standardized measure of $ 304,841 $ 202,944 $ 130,489
discounted future net cash flows ========== ========= =========
</TABLE>
The standardized measure of discounted future net cash flows (discounted at
10%) from production of proved reserves was developed as follows:
1. An estimate was made of the quantity of proved reserves and the future
periods in which they are expected to be produced based on year-end
economic conditions.
2. In accordance with SEC guidelines, the engineers' estimates of future net
revenues from the Company's properties and the present value thereof are
made using oil and natural gas sales prices in effect as of the dates of
such estimates and are held constant throughout the life of the properties,
except where such guidelines permit alternate treatment, including the use
of fixed and determinable contractual price escalations. The crude oil
price in effect at December 31, 1995, is based on the price for NYMEX WTI
crude oil of $19.55 per barrel ($18 per barrel WTI posted price) with
variations therefrom based on location and grade of crude oil. The Company
has entered into financial swap arrangements to fix the price on a
significant portion of its crude oil production. These prices are included
in the reserve reports through the term of the arrangements (See Note 13).
The overall average prices as of December 31, 1995, were $15.55 per barrel
of crude oil, condensate and natural gas liquids and $1.05 per Mcf of
natural gas.
3. The future gross revenue streams were reduced by estimated future operating
costs (including production and ad valorem taxes) and future development
and abandonment costs, all of which were based on current costs.
4. SFAS No. 69 requires the Company further to reduce these estimates by an
amount equal to the present value of estimated income taxes which might be
payable by the Company in future years to arrive at the Standardized
Measure. Future income taxes were calculated by applying the statutory
federal income tax rate to pretax future net cash flows, net of the tax
basis of the properties involved and utilization of available tax
carryforwards.
F-21
<PAGE>
The principal sources of changes in the standardized measure of future net
cash flows for the three years ended December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
---------- ---------------- ---------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $202,944 $130,489 $141,171
Sales, net of production expenses (33,824) (30,014) (29,222)
Net change in sales and transfer
prices, net of production expenses 26,968 29,840 (74,123)
Changes in estimated future
development costs (3,228) (9,477) (3,188)
Extensions, discoveries and improved
recovery, net of costs 59,050 14,928 14,305
Previously estimated development
costs incurred during the year 3,136 2,995 23,935
Purchase of reserves in-place 64,214 16,919 40,569
Sales of reserves in-place (11,381) (426) (1,139)
Revision of quantity estimates 24,533 71,188 (20,636)
Accretion of discount 22,937 13,454 15,536
Net change in income taxes (35,512) (22,377) 10,139
Changes in estimated timing of
production and other (14,996) (14,575) 13,142
-------- -------- --------
Balance, end of year $304,841 $202,944 $130,489
======== ======== ========
</TABLE>
NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------
Selected quarterly financial data:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $93,647 $ 95,256 $103,607 $111,715
Operating profits $ 9,500 $ 10,312 $ 9,744 $ 10,953
Net income $ 319 $ 914 $ 483 $ 936
Net income per share
Primary $ .03(1) $ .06 $ .03 $ .06
Assuming full dilution $ .02 $ .06 $ .03 $ .06
</TABLE>
<TABLE>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
--------- -------- ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $50,584 $ 67,198 $ 66,224 $ 72,690
Operating profits $ 7,741 $ 9,947 $ 9,066 $ 9,673
Net income (loss) $(1,178) $ 750 $ 209 $ 790
Net income (loss) per share
Primary $ (.10) $ .06 $ .02(2) $ .07(2)
Assuming full dilution $ (.10) $ .06 $ .01(2) $ .05(2)
</TABLE>
- -------------------------
(1) Earnings per share for the quarter ended March 31,1995, has been restated
to reflect the satisfaction of accrued dividends on the Series C Preferred
Stock through the conversion of such series into Common Stock on May 25,
1995 (see Note 6).
(2) Earnings per share for the quarters ended September 30, 1994, and December
31, 1994, have been restated to eliminate accrued dividends on the Series C
Preferred Stock of $433,000 and $504,000 for the respective quarters. Such
dividends were paid in additional shares of such stock on January 2, 1995
(See Note 5).
F-22
<PAGE>
EXHIBIT 3.A
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
PLAINS RESOURCES INC.
---------------------
The undersigned, being the President and Secretary of Plains Resources Inc.
(the "Corporation") a corporation organized and existing under the laws of the
State of Delaware, do hereby state and certify that: (i) the name of the
Corporation is Plains Resources Inc.; (ii) the Corporation was originally
incorporated under the name of Alifin Resources Inc. under the original
Certificate of Incorporation filed with the Secretary of State of Delaware on
September 10, 1976; (iii) on November 9, 1995, the Board of Directors of the
Corporation duly adopted this Second Restated Certificate of Incorporation
without a vote of stockholders in accordance with the provisions of Section 245
of the General Corporation Law of the State of Delaware; (iv) this Second
Restated Certificate of Incorporation only restates and integrates and does not
further amend the provisions of the Corporation's Certificate of Incorporation
as heretofore amended or supplemented, and there is no discrepancy between those
provisions and the provisions of this Second Restated Certificate of
Incorporation; and (v) the text of the Certificate of Incorporation of the
Corporation as heretofore amended or supplemented is hereby restated to read in
full, as follows:
"SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
PLAINS RESOURCES INC.
---------------------
FIRST: The name of the Corporation is PLAINS RESOURCES INC.
- -----
SECOND: The address of its registered office in the State of Delaware is 1013
- ------
Centre Road, Wilmington, Delaware 19805, County of Newcastle. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted is:
- -----
To engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall have
- ------
authority to issue is 52,000,000 shares, of which 50,000,000 shall be shares of
common stock of a par value of $.10 per share and 2,000,000 shall be shares of
preferred stock of a par value of $1.00 per share.
The Board of Directors is expressly authorized at any time, and from time
to time, to provide for the issuance of shares of preferred stock in one or more
series, with such voting powers, full or limited or without voting powers, and
with such designations, preferences and relative, participating, option or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in this Certificate of Incorporation, or any amendment thereto,
including (but without limiting the generality of the foregoing) the following:
<PAGE>
(i) the designation of and number of shares constituting such series;
(ii)the dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes
or on any other series of any other class or classes of capital stock, and
whether such dividends shall be cumulative or noncumulative;
(iii)whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to such redemption, the times, prices
and other terms and conditions of such redemption;
(iv)the terms and amounts of any sinking fund provided for the purchase or
redemption of the shares of such series;
(v)the extent, if any, to which the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes
or of any other series of any class or classes of capital stock of the
Corporation, and, if provision be made for conversion or exchange, the
time, prices, rates, adjustments, and other terms and conditions of such
conversion or exchange;
(vi)the extent, if any, to which the holders of the shares of such series
shall be entitled to vote as a class or otherwise with respect to the
election of directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any additional
preferred stock; and
(viii)the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the Corporation.
FIFTH: The Corporation is to have perpetual existence.
- -----
SIXTH: In furtherance and not in limitation of the powers conferred by statute,
- -----
the Board of Directors is expressly authorized:
To make, alter or repeal the Bylaws of the Corporation;
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation;
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
2
<PAGE>
By resolution passed by a majority of the whole Board, to designate one or
more committees, each committee to consist of two or more of the directors
of the Corporation, which, to the extent provided in the resolution or in
the Bylaws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Such committee or committees shall have
such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by
the written consent of the holders of a majority of the voting stock issued
and outstanding, to sell, lease or exchange all of the property and assets
of the Corporation, including its good will and its corporate franchises,
upon such terms and conditions and for such consideration, which may be in
whole or in part shares of stock in, and/or other securities of, any other
corporation or corporations, as its Board of Directors shall deem expedient
and for the best interests of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
- -------
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stock holders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: Meetings of stockholders may be held within or without the State of
- ------
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation. Elections of directors
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
3
<PAGE>
NINTH: The Corporation reserves the right to amend, alter, change or repeal any
- -----
provisions contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
TENTH: No director shall be personally liable to the Corporation or its
- -----
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (a) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) pursuant to Section 174 of the Delaware General
Corporation Law, or (d) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article TENTH
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
The Corporation shall indemnify to the full extent authorized or permitted
by law any person made, or threatened to be made, a party to any action, suit or
proceeding (whether civil, criminal or otherwise) by reason of fact that he, his
testator or intestate, is or was a director or officer of the Corporation or by
reason of the fact that such director or officer, at the request of the
Corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity.
Nothing contained herein shall affect any rights to indemnification to which
employees other than directors and officers may be entitled by law. The rights
to indemnification set forth in this Article TENTH shall not be exclusive of any
other rights to which any person may be entitled under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, contract, vote of
stockholders or disinterested directors or otherwise.
ELEVENTH: Notwithstanding any other provisions of this Certificate of
- --------
Incorporation or the Bylaws of the Corporation to the contrary, no action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without a
meeting of such stockholders, except (a) any action which may be taken solely
upon the vote or consent of holders of preferred stock, or any series thereof,
or (b) any action taken upon the signing of a consent in writing, setting forth
the action so taken, by all the stockholders of the Corporation entitled to vote
thereon.
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation to the contrary (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote of the
holders of eighty percent (80%) or more of the outstanding shares of Voting
Stock, voting together as a single class, shall be required to amend or repeal,
or adopt any provisions inconsistent with this Article ELEVENTH. The term
"Voting Stock" shall mean all capital stock which by its terms may be voted on
all matters submitted to the stockholders of the Corporation, generally.
4
<PAGE>
TWELFTH: Subject to the rights which any class or series of stock having a
- -------
preference over the common stock as to dividends or upon liquidation may have
with respect to directors elected by such class or series, a director may be
removed from office, without cause, only by the affirmative vote of the holders
of eighty percent (80%) or more of the outstanding shares of Voting Stock
entitled to vote for the election of such director. The term "Voting Stock"
shall mean all capital stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation, generally.
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation to the contrary (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote of the
holders of eighty percent (80%) or more of the outstanding shares of Voting
Stock, voting together as a single class, shall be required to amend or repeal,
or adopt any provisions inconsistent with this Article TWELFTH."
IN WITNESS WHEREOF, we the undersigned have signed this certificate this
24th day of January, 1996.
/s/ Greg L. Armstrong
-----------------------------------
Greg L. Armstrong
President
ATTEST:
By: /s/ Michael R. Patterson
----------------------------------
Michael R. Patterson
Secretary
5
<PAGE>
EXHIBIT 10.L
FIFTH AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of the 20th day of December, 1995, by and among PLAINS
---------
RESOURCES INC., a Delaware corporation (the "Company"), INTERNATIONALE
-------
NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent ("Agent"), and the Lenders
-----
under the Original Agreement (as defined herein).
W I T N E S S E T H:
WHEREAS, the Company, Agent and Lenders entered into that certain Second
Amended and Restated Credit Agreement dated as of February 11, 1994, as amended
by that certain First Amendment to Second Amended and Restated Credit Agreement
dated as of September 15, 1994, that certain Second Amendment to Second Amended
and Restated Credit Agreement dated as of January 25, 1995, that certain Third
Amendment to Second Amended and Restated Credit Agreement dated as of June 12,
1995 and that certain Fourth Amendment to Second Amended and Restated Credit
Agreement dated as of August 22, 1995 (as amended, including any schedules
thereto, the "Original Agreement") for the purposes and consideration therein
------------------
expressed, pursuant to which Lenders became obligated to make loans to the
Company as therein provided; and
WHEREAS, the Company, Agent and Lenders desire to amend the Original
Agreement for the purposes described herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Lenders to the Company, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. -- Definitions and References
--------------------------
(S) 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.
"Amendment" means this Fifth Amendment to Second Amended and Restated
---------
Credit Agreement.
"Amendment Documents" means this Amendment, the Renewal Notes, and the
-------------------
Mortgage Amendments.
"Credit Agreement" means the Original Agreement as amended hereby.
----------------
-1-
<PAGE>
"Mortgage Amendments" has the meaning set forth in Section 3.1(iv)(A).
-------------------
"Original Mortgage" means that certain Deed of Trust, Mortgage, Assignment,
-----------------
Security Agreement and Fixture Filing dated February 11, 1994 by Calumet
Florida, Inc., Stocker Resources, L.P., the Company and Plains Resources
Utah Inc. in favor of Agent for the benefit of Lenders, as amended by that
certain First Amendment to Deed of Trust, Mortgage, Assignment, Security
Agreement and Fixture Filing dated November 1, 1994, that certain Second
Amendment to Deed of Trust, Mortgage, Assignment, Security Agreement and
Fixture Filing dated February 6, 1995 and that certain Third Amendment to
Deed of Trust, Mortgage, Assignment, Security Agreement and Fixture Filing
dated June 12, 1995.
"Original Notes" means the "Notes" referred to and defined as such in the
--------------
Original Agreement.
"Renewal Notes" has the meaning given it in Section 3.1(iii).
-------------
ARTICLE II. -- Amendments
----------
(s) 2.1 Definitions. The definitions of "Applicable Margin",
-----------
"Commitment", "Revolving Credit Termination Date" and "Subsidiary" set forth in
Section 1.01 of the Original Agreement are hereby amended in their entirety to
read as follows:
"Applicable Margin" shall mean (i) with respect to Base Rate Loans five-
-----------------
eighths percent (0.625%) per annum and (ii) with respect to Eurodollar
Loans, two percent (2%) per annum; provided, at any time that the aggregate
--------
principal amount of the Loans exceeds $65,000,000, the "Applicable Margin"
-----------------
on that portion of the Loans constituting such excess shall be increased by
(a) one-half percent (0.5%) per annum through and including December 31,
1996 and (b) one percent (1%) per annum thereafter.
"Commitment" shall mean the obligation of Lenders to make Loans in an
----------
aggregate amount at any one time outstanding up to but not exceeding
$75,000,000, as the same may be reduced at any time or from time to time
pursuant to Sections 2.03(a), (b) or (c).
"Revolving Credit Termination Date" shall mean the earlier of (a) October
---------------------------------
1, 1997 and (b) the date on which the Commitment is reduced to zero or
terminated pursuant to Section 2.03 hereof.
"Subsidiary" shall mean, for any Person, any corporation or other entity of
----------
which at least a majority of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions of
such corporation or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes
of such corporation or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
-2-
<PAGE>
indirectly owned or controlled by such Person or one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person; provided that the term "Subsidiary" shall not include any of the
-------- ----------
Partnerships other than any Partnership of which all of the partnership
interests are owned, directly or indirectly, by the Company and/or any of
its Subsidiaries; provided further, that the term "Subsidiary" shall not,
---------------- ----------
for the Company, include Plains Illinois for purposes of (i) the
representations and warranties set forth in Sections 8.12 and 8.18, and
(ii) the covenants set forth in Sections 9.04, 9.05, 9.07 through 9.10,
9.20, 9.25, 9.26 and 9.32. "Wholly-Owned Subsidiary" shall mean any such
-----------------------
corporation or other entity of which all of such securities or other
ownership interests (other than, in the case of a corporation, directors'
qualifying shares) are so owned or controlled.
Section 1.01 of the Original Agreement is hereby amended by adding the
following definitions of "Adjusted Borrowing Base", "Plains Illinois", "Plains
Illinois Bridge Facility" and "Support Letter of Credit":
"Adjusted Borrowing Base" shall mean, at any time, an amount equal to (i)
-----------------------
the Borrowing Base in effect at such time minus (ii) the aggregate amount
-----
at such time that Lenders might be called upon to advance under the Support
Letter of Credit.
"Plains Illinois" shall mean Plains Illinois Inc., a Delaware corporation
---------------
and a Wholly-Owned Subsidiary of the Company.
"Plains Illinois Bridge Facility" shall mean the secured line of credit
-------------------------------
facility, in an aggregate amount not to exceed $42,000,000, dated on or
about December 22, 1995, among Plains Illinois, INCC, individually and as
agent, and the lenders named therein, together with the security documents
and other documents and agreements executed in connection therewith.
"Support Letter of Credit" shall mean that certain Letter of Credit No.
------------------------
672917 dated August 23, 1995, issued by INCC for the benefit of The First
National Bank of Boston, as agent, for the account of the Company, in the
face amount of $1,000,000, expiring June 30, 1996, as from time to time
extended, which secures a guaranty by the Company of the Indebtedness of
Plains Marketing and its Wholly-Owned Subsidiaries under the Bank of
Boston/ING Capital Facility.
(S) 2.2 Adjusted Borrowing Base. The references to "Borrowing Base" in
-----------------------
Sections 2.01, 2.04, 2.07(b) and 7.02(iii), the last such reference in Section
9.15(b)(iv), and the last such reference in Section 9.26(d), are hereby amended
to refer instead to "Adjusted Borrowing Base".
(S) 2.3 Changes of Commitment. The first sentence of Section 2.03(a) of
---------------------
the Original Agreement is hereby amended in its entirety to read as follows:
2.03 Changes of Commitment. (a) The Commitment shall be reduced on
---------------------
October 1, 1997 by an amount equal to one-third of the outstanding
principal amount of the Revolving Credit Loans as of such date.
-3-
<PAGE>
(S) 2.4 Repayment of Term Loans. Section 3.01(b) of the Original
-----------------------
Agreement is hereby amended in its entirety to read as follows:
(b) The Company will repay the principal of the Term Loans in two
installments payable on each Quarterly Date beginning January 1, 1998, with
the final installment being due and payable on or before April 1, 1998.
Each such installment shall be equal to one-half of the original principal
amount of the Term Loans as of the Revolving Credit Termination Date. In
any event all unpaid principal and interest shall be due and payable in
full on the final maturity of April 1, 1998. As set forth in Section
2.07(c), all optional and mandatory prepayments made on the Term Loans
shall be applied to the scheduled installments in inverse order of their
maturity.
(S) 2.5 Transactions with Plains Illinois. Section 9 of the Original
---------------------------------
Agreement is hereby amended by adding the following Section 9.37:
9.37 Transactions with Plains Illinois . Notwithstanding the limitations
----------------------------------
set forth in Section 9.10, the Company may make investments in, and loans,
advances and other extensions of credit to Plains Illinois as follows: (x)
overhead which may be allocable by the Company to Plains Illinois for which
Plains Illinois has no obligation of reimbursement, (y) without limitation,
common stock of the Company and amounts not to exceed the net proceeds of
any issuance or sale of such common stock of the Company, and (z) up to an
aggregate amount of $7,850,000 in cash or other Property of the Company
(excluding any investments described in clause (x) above), or any
combination thereof (valued at the fair market value thereof as determined
by the Board of Directors of the Company), other than Oil and Gas
Properties subject to the Security Documents. Except as otherwise
permitted in this Section 9.37, the Company shall not, and shall not permit
any of its Subsidiaries to (i) Guarantee any Indebtedness or other
obligations of Plains Illinois (including, without limitation the Plains
Illinois Bridge Facility), (ii) enter into any transaction with Plains
Illinois except for services and other transactions provided by the Company
or its Subsidiaries in the ordinary course of their respective businesses
on an arms length basis on terms not less favorable to the Company and its
Subsidiaries than similar transactions with unaffiliated third parties,
(iii) grant or permit any Lien on any of its Property to secure any
Indebtedness or other obligations of Plains Illinois (including, without
limitation the Plains Illinois Bridge Facility), (iv) transfer any Property
to Plains Illinois, except as pursuant to an arms length transaction
permitted under clause (ii), or (v) make any Investment in Plains Illinois.
Plains Illinois shall not (A) engage in any line of business other than the
exploration for, and development, acquisition, production, processing,
marketing, storage and transportation of Hydrocarbons and other related
energy and natural resources business, and such other businesses as are
reasonably necessary or desirable to facilitate the conduct and operations
of the foregoing businesses, or (B) declare and make any Dividend Payment,
but excluding (1) dividends payable solely in its shares of capital stock
and (2) to the extent permitted under the Plains Illinois Bridge Facility,
dividends to the Company. Plains Illinois shall at all times be a Wholly-
Owned Subsidiary.
-4-
<PAGE>
(S) 2.6 Events of Default. Section 10 of the Original Agreement is hereby
-----------------
amended by adding the following subsection (l):
(l) (i) Plains Illinois shall default in the payment when due of any
principal of or interest on any of its Indebtedness in excess of $100,000
in the aggregate, or any event specified in any note, agreement, indenture
or other document evidencing or relating to any such Indebtedness shall
occur if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity, and (ii) Majority Lenders shall have notified
the Company in writing that in the judgment of Majority Lenders, such
default could reasonably be expected to have a Material Adverse Effect.
(s) 2.7 Support Letter of Credit. (a) The Company and Lenders hereby
------------------------
acknowledge and agree that (i) INCC, in its capacity as Agent, issued the
Support Letter of Credit for the account of the Company pursuant to the Credit
Agreement, (ii) the reimbursement obligations of the Company relating to the
Support Letter of Credit constitute Obligations under the Credit Agreement,
(iii) such Obligations are secured by the Security Documents, including without
limitation the Subsidiary Guarantees, and (iv) the Support Letter of Credit and
any related applications and agreements executed in connection therewith are
Basic Documents under the Credit Agreement.
(b) Upon the honoring by Agent of any draft or demand under the Support
Letter of Credit, such payment shall constitute a loan by Agent to the Company.
The Company hereby promises to pay to Agent, or to Agent's order, immediately on
demand, the full amount of such Obligation, together with interest thereon at
the Post-Default Rate. The Company may request Lenders to make Revolving Credit
Loans to the Company in the amount of such draft or demand, which Revolving
Credit Loans may be made concurrently with Agent's payment of such draft or
demand and shall be immediately used by Agent to repay the amount of the
resulting Obligation. Such request by the Company shall comply in all respects
with the provisions of the Credit Agreement.
(c) Agent irrevocably agrees to grant and hereby grants to each Lender, and
each Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from Agent, on the terms and conditions hereinafter stated and for
such Lender's own account and risk an undivided interest equal to such Lender's
Percentage Share of Agent's obligations and rights under the Support Letter of
Credit and the amount of each draft or demand paid by Agent thereunder. Each
Lender unconditionally and irrevocably agrees with Agent that, if any such draft
or demand is paid for which Agent is not reimbursed in full by the Company in
accordance with the terms hereof and the other Basic Documents, such Lender
shall (in all circumstances and without set-off or counterclaim) pay to Agent on
demand, in immediately available funds at Agent's address for notices hereunder,
such Lender's Percentage Share of such draft or demand (or any portion thereof
which has not been reimbursed by the Company). Each Lender's obligation to make
such payment to Agent is irrevocable and unconditional. If any amount required
to be paid by any Lender to Agent hereunder is paid
-5-
<PAGE>
within three Business Days after the due date, Agent shall in addition to such
amount be entitled to recover from such Lender, on demand, interest thereon
calculated from such due date at the Base Rate. If any amount required to be
paid by any Lender to Agent hereunder is not paid within three Business Days
after the due date, Agent shall in addition to such amount be entitled to
recover from such Lender, on demand, interest thereon calculated from such due
date at the Post-Default Rate. Whenever Agent receives payment of any Lender's
Percentage Share of any such draft of demand, if Agent thereafter receives any
payment thereof or any payment of interest thereon (whether directly from the
Company or otherwise, and excluding only interest for any period prior to
Agent's demand that such Lender make such payment of its Percentage Share),
Agent will distribute to such Lender its Percentage Share of the amounts so
received by Agent; provided, however, that if any such payment must thereafter
-------- -------
be returned by Agent, such Lender shall return to Agent the portion thereof
previously distributed to such Lender. A written advice setting forth in
reasonable detail the amounts owing hereunder, submitted by Agent to Borrower or
any Lender from time to time, shall be conclusive, absent manifest error, as to
the amounts thereof.
(d) In consideration of each Lender's acceptance and purchase from Agent of
an undivided interest equal to such Lender's Percentage Share of Agent's
obligations and rights under the Support Letter of Credit as set forth above,
Agent hereby agrees to pay to each Lender for such Lender's account such
Lender's Percentage Share of the quarterly letter of credit fee paid by Borrower
to Agent in connection with the Support Letter of Credit.
(S) 2.8 Borrowing Base. Lenders hereby designate the Borrowing Base as
--------------
$75,000,000, effective for the period beginning on the date hereof, and
continuing until but not including the next date as of which the Borrowing Base
is redetermined.
(S) 2.9 Waiver and Consent. The Company proposes to purchase a production
------------------
payment override owned by Chevron USA, Inc. and in connection therewith incur
Indebtedness of up to $4,600,000. The incurrence of such Indebtedness is
prohibited under Section 9.09 of the Credit Agreement. Subject to the
conditions and limitations set forth hereinbelow, Lenders hereby consent to, and
waive any Default or Event of Default occurring as a result of, the incurrence
of up to $4,600,000 of Indebtedness in connection with such purchase of such
production payment override.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when (i) Agent shall have received, at
Agent's office, a counterpart of this Amendment executed and delivered by the
Company and each Lender, (ii) the Company shall have paid to Agent for the
account of each Lender according to its Percentage Share a facility increase fee
in the aggregate amount of $50,000, (iii) the Company shall have issued and
delivered to each Lender a promissory note with appropriate insertions in the
form attached hereto as Exhibit A payable to the order of such Lender on or
before April 1, 1998 (collectively, the "Renewal Notes"), duly executed on
-------------
behalf of the Company, dated the date hereof, and expressly renewing, extending
and increasing, but not novating or extinguishing, such Lender's Original Note,
and (iv) Agent shall have additionally received all of the following documents,
each document (unless otherwise
-6-
<PAGE>
indicated) being dated the date of receipt thereof by Agent, duly authorized,
executed and delivered, and in form and substance satisfactory to Agent:
(A) Mortgage Amendments. A Fourth Amendment to Deed of Trust, Mortgage,
-------------------
Assignment, Security Agreement and Fixture Filing among Calumet Florida,
Inc., Stocker Resources, L.P., the Company and Agent, for the benefit of
Lenders, amending the Original Mortgage, and a First Amendment to Mortgage,
Assignment, Security Agreement and Fixture Filing between the Company and
Agent, for the benefit of Lenders, amending that certain Mortgage,
Assignment, Security Agreement and Fixture Filing dated March 20, 1995 by
the Company in favor of Agent, for the benefit of Lenders (collectively,
the "Mortgage Amendments").
-------------------
(B) Opinions of Counsel for the Company. A written opinion of (I) Michael
-----------------------------------
Patterson, Esq., counsel for the Company, dated as of the date of this
Amendment, addressed to Agent and Lenders, to the effect that the Amendment
Documents have been duly authorized, executed and delivered by the Company
and the Subsidiary Guarantors, and (II) Fulbright & Jaworski, L.L.P.,
counsel for the Company, dated as of the date of this Amendment, addressed
to Agent and Lenders, to the effect that the Credit Agreement and the Notes
constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms (subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and similar
laws and to general principles of equity) and that the New York choice of
law provisions contained therein are enforceable under Texas law.
(C) Officer's Certificate. A certificate of a duly authorized officer of
---------------------
the Company to the effect that all of the representations and warranties
set forth in Article IV hereof are true and correct at and as of the date
thereof.
(D) Supporting Documents. (I) A certificate of the Secretary of the
--------------------
Company dated the date of this Amendment certifying that attached thereto
is a true and complete copy of resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and
performance of the Amendment Documents and certifying the names and true
signatures of the officers of the Company authorized to sign the Amendment
Documents and (II) such supporting documents as Agent may reasonably
request.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of the Company. In order to
---------------------------------------------
induce Agent and Lenders to enter into this Amendment, the Company represents
and warrants to Agent and Lenders that:
(a) The representations and warranties contained in Section 8 of the
Original Agreement, are true and correct at and as of the time of the
effectiveness hereof, subject to the amendment of certain of the Schedules
to the Credit Agreement as attached hereto.
-7-
<PAGE>
(b) The Company and the Subsidiaries are duly authorized to execute and
deliver this Amendment and the other Amendment Documents to the extent a
party thereto, and the Company is and will continue to be duly authorized
to borrow and perform its obligations under the Credit Agreement. The
Company and the Subsidiaries have duly taken all corporate action necessary
to authorize the execution and delivery of this Amendment and the other
Amendment Documents, to the extent a party thereto, and to authorize the
performance of their respective obligations thereunder.
(c) The execution and delivery by the Company and the Subsidiaries of this
Amendment and the other Amendment Documents, to the extent a party thereto,
the performance by the Company and the Subsidiaries of their respective
obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict
with any provision of law, statute, rule or regulation or of the
certificate or articles of incorporation and bylaws of the Company or any
Subsidiary, or of any material agreement, judgment, license, order or
permit applicable to or binding upon the Company or any Subsidiary, or
result in the creation of any lien, charge or encumbrance upon any assets
or properties of the Company or any Subsidiary, except in favor of Agent
for the benefit of Lenders. Except for those which have been duly
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by the Company or any Subsidiary of this Amendment
or any other Amendment Document, to the extent a party thereto, or to
consummate the transactions contemplated hereby and thereby.
(d) When this Amendment and the other Amendment Documents have been duly
executed and delivered, each of the Basic Documents, as amended by this
Amendment and the other Amendment Documents, will be a legal and binding
instrument and agreement of the Company and the Subsidiaries, to the extent
a party thereto, enforceable in accordance with its terms, (subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency and similar
laws applicable to creditors' rights generally and to general principles of
equity).
ARTICLE V. -- Miscellaneous
-------------
(S) 5.1. Ratification of Agreements. The Original Agreement, as hereby
--------------------------
amended, is hereby ratified and confirmed in all respects. The Basic Documents,
as they may be amended or affected by this Amendment and/or the other Amendment
Documents, are hereby ratified and confirmed in all respects. Any reference to
the Credit Agreement in any Basic Document shall be deemed to refer to this
Amendment also. The execution, delivery and effectiveness of this Amendment and
the other Amendment Documents shall not, except as expressly provided herein or
therein, operate as a waiver of any right, power or remedy of Agent or any
Lender under the Credit Agreement or any other Basic Document nor constitute a
waiver of any provision of the Credit Agreement or any other Basic Document.
(S) 5.2. Ratification of Security Documents. The Company, Agent and
----------------------------------
Lenders each acknowledge and agree that any and all indebtedness, liabilities or
obligations arising under
-8-
<PAGE>
or in connection with the Notes are Obligations and is secured indebtedness
under, and is secured by, each and every Security Document to which the Company
is a party. The Company hereby re-pledges, re-grants and re-assigns a security
interest in and lien on every asset of the Company described as collateral in
any Security Document.
(S) 5.3. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of the Company herein and in the other Amendment
Documents shall survive the execution and delivery of this Amendment and the
other Amendment Documents and the performance hereof and thereof, including
without limitation the making or granting of each Loan, and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by the Company
or any Subsidiary hereunder, under the other Amendment Documents or under the
Credit Agreement to Agent or any Lender shall be deemed to constitute
representations and warranties by, or agreements and covenants of, the Company
under this Amendment and under the Credit Agreement.
(S) 5.4. Basic Documents. This Amendment and each of the other Amendment
---------------
Documents is a Basic Document, and all provisions in the Credit Agreement
pertaining to Basic Documents apply hereto and thereto.
(S) 5.5. GOVERNING LAW. THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS
-------- ----------------------------------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
- ------------------------------------------------------------------------------
NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL
- -----------------------------------------------------------------------
RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND PERFORMANCE.
- -----------------------------------------------------------
(S) 5.6. Counterparts. This Amendment and each of the other Amendment
------------
Documents may be separately executed in counterparts and by the different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment or Amendment Document, as the
case may be.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
PLAINS RESOURCES INC.
By:/s/ Phillip D. Kramer
Phillip D. Kramer
Vice President and Chief Financial Officer
-9-
<PAGE>
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION, individually as a Lender and as Agent
By:/s/ Robi Artman-Hodge
Robi Artman-Hodge, Managing Director
THE FIRST NATIONAL BANK OF BOSTON, Lender
By:/s/ George W. Passela
George W. Passela, Managing Director
DEN NORSKE BANK AS, Lender
By:
Name: /s/ Charles E. Hall
Title: First Vice President
By:
Name: /s/ Nils Fykse
Title: Vice President
FIRST INTERSTATE BANK OF TEXAS, N.A., Lender
By:/s/ John A. Fields
John A. Fields, Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Lender
By:/s/ Gary K. Wright
Gary K. Wright, Executive Vice President
-10-
<PAGE>
CONSENT AND AGREEMENT
---------------------
Each of the undersigned Subsidiary Guarantors hereby consents to the
provisions of this Amendment and the transactions contemplated herein and hereby
(i) acknowledge and agree that any and all indebtedness, liabilities or
obligations arising under or in connection with the Notes and the Renewal Notes
are Obligations and are secured indebtedness under, and is secured by, each and
every Security Document to which it is a party, (ii) re-pledges, re-grants and
re-assigns a security interest in and lien on all of its assets described as
collateral in any Security Document and (iii) ratifies and confirms its Amended
and Restated Guaranty dated February 11, 1994 made by it for the benefit of
Agent and Lenders, expressly acknowledges and agrees that such Subsidiary
Guarantor guarantees all indebtedness, liabilities and obligations arising under
or in connection with the Notes and the Renewal Notes pursuant to the terms of
such Amended and Restated Guaranty, and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in full force and
effect.
CALUMET FLORIDA, INC.
a Delaware corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
PLAINS LIQUIDS TRANSPORT INC.,
a Delaware corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
PLAINS MARKETING & TRANSPORTATION INC.,
a Delaware corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
PLAINS RESOURCES INTERNATIONAL INC.,
a Delaware corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
-11-
<PAGE>
PLAINS TERMINAL & TRANSFER CORPORATION,
a Delaware corporation
By:/s/Phillip D. Kramer
Phillip D. Kramer, Vice President
PRI PRODUCING INC.,
a Delaware corporation
By:/s/ Phllip D. Kramer
Phillip D. Kramer, Vice President
PLX CRUDE LINES INC.,
a Delaware corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
STOCKER RESOURCES, INC.,
a California corporation
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
STOCKER RESOURCES, L.P.,
a California limited partnership
By: Stocker Resources, Inc.,
its General Partner
By:/s/ Phillip D. Kramer
Phillip D. Kramer, Vice President
-12-
<PAGE>
EXHIBIT 10.M
August 23, 1995
Plains Marketing & Transportation Inc.
1600 Smith Street
Houston, TX 77002
Re: Uncommitted Secured Demand Transactional Line of Credit Facility
----------------------------------------------------------------
Gentlemen:
The purpose of the following is to outline the parameters of the uncommitted
secured demand transactional line of credit facility (the "MARKETING FACILITY")
------------------
which The First National Bank of Boston ("FNBB"), Internationale Nederlanden
----
(U.S.) Capital Corporation ("ING") and such other banks as may from time to time
---
become parties hereto by signing below or by executing an Instrument of
Accession in the form of Exhibit A attached hereto (collectively, the "LENDERS")
--------- -------
and FNBB, as agent for the Lenders (in such capacity, the "AGENT"), are prepared
-----
to provide to Plains Marketing & Transportation Inc. ("BORROWER") for the
--------
issuance of standby letters of credit and demand loans (each an "ACCOMMODATION"
-------------
and collectively, the "ACCOMMODATIONS"). An "uncommitted secured demand
--------------
transactional line of credit facility" means that the Lenders shall have no
obligation, under any circumstances, to issue, grant or make any Accommodation.
Each request made by Borrower for an Accommodation shall be reviewed by the
Lenders on a case by case basis and the decision to grant any Accommodation
shall be made by the Lenders in their absolute and sole discretion in light of
considerations which the Lenders in their sole discretion deem pertinent and
irrespective of whether or not the Borrower is in compliance with any of the
guidelines set forth in Schedule 4 hereto. The Lenders also reserve the right
----------
to summarily refuse any request for an Accommodation without any review as
contemplated by the preceding sentence. Accordingly, the Lenders have no
commitment to make any Accommodation available. FURTHERMORE, THE LENDERS MAY
DEMAND REPAYMENT OF ANY AMOUNTS OUTSTANDING HEREUNDER OR WITH RESPECT TO ANY
ACCOMMODATION AND, AS HEREINAFTER PROVIDED, PREPAYMENT OF ANY AND ALL UNDRAWN
AMOUNTS AVAILABLE FOR DRAWING UNDER ANY ISSUED AND OUTSTANDING L/C (AS
HEREINAFTER DEFINED) OR OF ANY OBLIGATIONS SECURED BY SUCH L/C AT ANY TIME IN
THE LENDERS' SOLE DISCRETION.
1. THE FACILITY. The parameters of the uncommitted secured demand
------------
transactional line of credit facility shall be as follows until further notice
by the Agent and the Lenders:
(a) BORROWER: Plains Marketing & Transportation Inc., a Delaware
--------
corporation.
<PAGE>
-2-
(b) MARKETING FACILITY AMOUNT: The aggregate amount of the
-------------------------
Accommodations which may be made available by the Lenders and which will be
allowed to be outstanding at any one time under the Marketing Facility shall be
restricted to the excess of (i) an amount which shall be $70,000,000 during
periods when the NYMEX price for West Texas Intermediate crude oil ("WTI") is
---
equal to or less than $20.00 per barrel and which shall increase by $2,500,000
for each $1.00 per barrel increase in the NYMEX price of WTI above $20.00 per
barrel up to a maximum amount of $80,000,000, such increase in the amount of the
Marketing Facility to be determined at the time of the issuance or advance of
any Accommodation over (ii) the then aggregate amount of the outstanding
Accommodations made by the Lenders to or for the account of PMCT Inc., a
Delaware corporation ("PMCT"), under that certain letter agreement of even date
----
herewith, as amended and in effect (the "PMCT AGREEMENT"), among the Lenders,
--------------
the Agent and PMCT (such difference in amount, as in effect from time to time
under the Marketing Facility, hereinafter referred to as the "MARKETING FACILITY
------------------
AMOUNT"). PLEASE NOTE THAT THE LENDERS MAY MODIFY THE MARKETING FACILITY AMOUNT
- ------
AT ANY TIME IN THEIR SOLE DISCRETION. In the event such modification results in
a decrease in the Marketing Facility Amount below the then aggregate amount of
outstanding Accommodations, the Borrower will, within one (1) Business Day (as
defined below), or as hereinafter provided, repay the amount of outstanding
Accommodations in excess of the modified Marketing Facility Amount or repay the
undrawn amounts available for drawing under L/Cs in excess of the modified
Marketing Facility Amount, unless notified otherwise by the Agent. As used
herein, "BUSINESS DAY" shall mean any day on which commercial lenders are not
------------
authorized or required to close in Boston, Massachusetts and New York, New York.
(c) LENDERS' SHARES: Each Lender shall be offered the opportunity to
---------------
fund or participate in that percentage of every requested Accommodation as set
forth opposite such Lender's name on Schedule 1 hereto (its "SCHEDULE 1
----------
PERCENTAGE"). If any Lender shall decline to so fund or participate in such
- ----------
requested Accommodation, any combination of one or more of the other Lenders may
additionally fund or purchase a participation in the requested Accommodation in
the entire or a pro rata portion of such declining Lender's Schedule 1
--------
Percentage of such Accommodation, provided that in no event shall any Lender's
--------
interest in any Accommodation exceed a sum representing such Lender's Schedule 1
Percentage multiplied by the Marketing Facility Amount.
(d) TYPES OF ACCOMMODATIONS; SUBLIMITS: The types of and limits on
----------------------------------
Accommodations which may be made available under the Marketing Facility shall be
the following:
(i) Standby Letters of Credit: Standby letters of credit having an
-------------------------
expiration date no later than 70 days after the date of issuance,
extension or
<PAGE>
-3-
renewal thereof issued for the account of Borrower to support the
purchase and exchange by Borrower of crude oil from producers and other
third parties (the "L/CS");
----
(ii) Demand Loans: Demand loans which may be made by the Lenders to
------------
Borrower in an aggregate principal amount at any time outstanding not
to exceed $20,000,000 less the amount of Demand Loans then outstanding
under the PMCT Agreement (the "DEMAND LOANS"), the proceeds of which
------------
are to be used for any of the following purposes: (x) to finance the
purchase and physical storage of crude oil which is fully hedged on
the NYMEX and located in the terminalling and storage facilities owned
by Plains Terminal & Transfer Corporation in Cushing, Oklahoma (the
"CUSHING TERMINAL") or in transit in specified pipelines approved by
-----------------
the Lenders and listed on Schedule 5 hereto (the "CASH AND CARRY
---------- --------------
PIPELINES") or (y) to finance up to ninety (90%) of the value,
---------
calculated on a marked-to-market basis, of inventory designated by the
requesting Borrower as so-called "working inventory" at the Cushing
Terminal or as linefill in Cash and Carry Pipelines.
(e) EXPIRATION: (i) No request for any Accommodation may be made after
----------
the first anniversary of the date hereof unless the Lenders, in their sole
discretion and without any obligation to do so, extend such date in writing.
(ii) All Accommodations are payable ON DEMAND. Any Lender may, at
any time and in its sole discretion, demand payment of all amounts
owing to the Lenders under the Marketing Facility; provided that any
--------
Lender not then making such demand for payment with respect to
Accommodations made by it may waive such demand with respect only to
the Accommodations made by it. In addition, those Lenders having a
pro rata share of the Accommodations at least equal to sixty-seven
--------
percent of the Accommodations (the "REQUIRED LENDERS") may at any time
----------------
in their sole discretion demand that the Borrower prepay in cash all
or any part or fraction of the undrawn amount available for drawing
under any issued and outstanding L/C or the obligations secured by
such L/C by delivery to the Agent. Each Lender demanding payment of
any outstanding amounts owing to the Lenders under the Marketing
Facility or prepayment of any undrawn amounts available for drawing
under any issued and outstanding L/C or of any obligations secured by
such L/C shall promptly notify the Borrower of the reason for such
demand. "CASH EQUIVALENTS" means repurchase agreements and short term
----------------
obligations issued or guaranteed as to principal
<PAGE>
-4-
and interest by the United States of America and having a maturity of
not more than 12 months from the date of acquisition; short-term
certificates of deposit issued by any bank organized under the laws of
the United States of America or any state thereof if such bank has a
short-term debt rating of not less than P-1 or A-1 or their equivalent
by Moody's Investor Service or Standard & Poor's Corporation,
respectively; short-term certificates of deposit issued by, and so-
called Eurodollar "call deposits" at, any Lender or any foreign
subsidiary or affiliates of such Lender, if any investments issued by
such Lender or foreign subsidiary or affiliate, as applicable, has a
rating of not less than A or its equivalent, or P-1 or A-1 or their
equivalent, as applicable, by Moody's Investor Service or Standard &
Poor's Corporation, respectively; or commercial paper or finance
company paper that is rated not less than P-1 or A-1 or their
equivalents by Moody's Investor Service or Standard & Poor's
Corporation, respectively.
(iii) Upon the occurrence of a Bankruptcy Event, all
obligations and liabilities of Borrower to the Lenders with respect to
the Accommodations, including, without limitation, the obligation to
prepay any and all amounts available for drawing under any issued and
outstanding L/C and all other obligations and liabilities of Borrower
to the Lenders arising under this letter agreement (the "MARKETING
---------
LETTER AGREEMENT") or any agreements, instruments or documents
----------------
executed in connection herewith (collectively with the Marketing
Letter Agreement, the "MARKETING FACILITY DOCUMENTS") shall become
----------------------------
immediately due and payable. "BANKRUPTCY EVENT" means any event
----------------
pursuant to which Borrower makes an assignment for the benefit of
creditors, or admits in writing its inability to pay or generally
fails to pay its debts as they mature or become due, or petitions or
applies for the appointment of a trustee or other custodian,
liquidator or receiver of Borrower or of any substantial part of its
assets or commences any case or other proceeding relating to Borrower
under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or takes any action to
authorize, or in furtherance of, any of the foregoing, or if any such
petition or application shall be filed or any such case or other
proceeding shall be commenced against Borrower and Borrower shall
indicate its approval thereof, consent thereto or acquiescence
therein, or a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating Borrower bankrupt or
insolvent, or approving a petition in any such case or other
proceeding, or a decree or order for relief
<PAGE>
-5-
is entered in respect of Borrower in an involuntary case under federal
bankruptcy laws as now or hereafter constituted.
(f) PRICING: The following will apply until further notice by the Agent:
-------
(i) Demand Loans: Subject to paragraph 1(f)(v) hereof, the annual
------ -----
rate of interest on the unpaid principal balance of Demand Loans from
time to time outstanding shall be equal to either (i) the Base Rate
plus five-eighths of one percent (5/8%) per annum or (ii) the
----
Eurodollar Rate for the applicable interest period plus two percent
----
(2%) per annum, as such rates are selected by Borrower pursuant to
Section 1(g) hereof, in each case computed on the basis of a 360-day
year. Interest calculated by reference to the Base Rate shall be
payable quarterly in arrears. Interest calculated by reference to the
Eurodollar Rate shall be payable at the end of any applicable interest
period selected by Borrower for such Demand Loan pursuant to Section
1(g) hereof. "BASE RATE" means the higher of (a) the annual rate of
---------
interest announced from time to time by FNBB as its "base rate" at its
head office in Boston, Massachusetts or (b) 1/2% above the overnight
federal funds rate from time to time in effect; provided, that such
--------
rate may not be the lowest rate at which funds are made available to
customers of FNBB at such time. "EURODOLLAR RATE" means for any
---------------
interest period of one, two or three months (as selected by Borrower
pursuant to Section 1(g) hereof), the annual rate of interest (rounded
upwards, if necessary, to the nearest 1/16th of 1%) determined by the
Agent at or about 10:30 a.m., Boston time, two Business Days on which
Lenders are able to conduct eurodollar transactions preceding the
first day of such interest period, as being (a) the average of the per
annum rates at which deposits of United States dollars are offered to
the Agent by prime banks in any lawful recognized market selected by
the Agent, in its sole discretion acting in good faith and in
accordance with its usual practice, in which United States dollars are
offered by banking institutions to each other for delivery on the
first day of such interest period for the number of days comprised
therein and in an amount equal (as nearly as may be) to the amount of
the Demand Loan to be subject to such Eurodollar Rate divided by (b)
-------
one minus the Reserve Rate. The "RESERVE RATE" for any date is the
------------
maximum percentage (expressed as a decimal) in effect on such date at
which the Agent is required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System against
"EUROCURRENCY LIABILITIES". The Reserve Rate shall be adjusted
-------------------------
automatically on and as of the effective date of any change therein.
<PAGE>
-6-
(ii) Letters of Credit.
-----------------
(x) For the issuance of an L/C, Borrower shall pay to any
Lender issuing such L/C (in such capacity, an "ISSUING LENDER"), for
--------------
the pro rata accounts of the Lenders participating in such L/C, a
--- ----
fee equal to the greater of (A) 1-1/2% per annum of the maximum
drawing amount of such L/C on the date of issuance calculated for
the period during which such L/C is outstanding or (B) 1/4% flat of
the maximum drawing amount of such L/C on the date of issuance, such
fee to be estimated and payable upon the issuance of such L/C and
any unpaid balance of such fee to be payable upon any drawing under,
and upon the expiration or termination of, such L/C.
(y) In addition to the fees set forth in clause (x) above,
Borrower shall pay to the Issuing Lender for its own account an
additional issuance fee of $100 per L/C, payable on the date of
issuance thereof, and such other fees and charges customarily
charged by the Issuing Lender in respect of L/Cs.
(iii) Overdue Amounts. All overdue amounts payable with respect to
---------------
the Demand Loans, including without limitation interest, principal and
fees, and reimbursement obligations in respect to drawn L/Cs shall bear
interest payable on demand at a rate per annum equal to four percent
above the Base Rate from the date of such nonpayment until paid in full
and whether before or after the entry of judgment thereon.
(iv) Charges to the Borrower's Accounts. Borrower authorizes the
----------------------------------
Agent and the Lenders to charge Borrower's account at any of the
Lenders for any interest and fees stated herein and due and payable by
Borrower; provided that in the absence of a demand for payment of the
--------
Accommodations or in the case of undrawn amounts available for drawing
under any L/C or the obligations secured by such L/C, prepayment of
such amounts, the Agent or the Lender charging such account shall give
Borrower prior notice of its intention to do so.
(v) Limitation on Interest. It is the intention of the parties
----------------------
hereto that the Agent and each Lender shall conform strictly to usury
laws applicable to it. Accordingly, if the transactions contemplated
hereby would be usurious as to the Agent or any Lender under
applicable laws then, in that event, notwithstanding anything to the
contrary in this Marketing Letter Agreement or any other Marketing
Facility Document, it is agreed that the
<PAGE>
-7-
aggregate of all consideration which constitutes interest under any
law applicable to the Agent or any Lender that is contracted for,
taken, reserved, charged or received by such Lender under this
Marketing Letter Agreement or under any other Marketing Facility
Document shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be credited by
the Agent or such Lender to the principal amount of the Demand Loans
or, if the principal amount of the Demand Loans shall have been or
would thereby be paid in full, refunded by the Agent or such Lender to
Borrower.
(vi) No pricing applicable to any particular outstanding
Accommodation shall be changed after the making or issuance of such
Accommodation without Borrower's written consent. Notwithstanding the
above, nothing herein shall affect the Lenders' right to demand
payment, as set forth herein, in their sole discretion, of such
Accommodation and to charge the rate of interest applicable to overdue
amounts thereon as set forth in Section 1(f)(iii) if such demand is
not met.
(g) PROCEDURES FOR REQUESTING ACCOMMODATIONS: The following procedures
----------------------------------------
will assist the Lenders in considering Borrower's requests for Accommodations:
(i) To Request a Demand Loan: To request a Demand Loan, the
-- ------- - ------ ----
Borrower shall, in a notice to the Agent in the form of Exhibit B
---------
hereto (a "DEMAND LOAN NOTICE"), delivered no later than 11:00 a.m.
------------------
Boston, Massachusetts time (x) on the Business Day on which the Demand
Loan is requested to be made if it is to bear interest calculated by
reference to the Base Rate and (y) three Business Days prior to the
day on which the Demand Loan is requested to be made if it is to bear
interest calculated by reference to the Eurodollar Rate, specify the
amount of such Demand Loan, whether such Demand Loan is to bear
interest calculated by reference to the Base Rate or to the Eurodollar
Rate and, if such Demand Loan is to bear interest calculated by
reference to the Eurodollar Rate, the interest period to be applicable
thereto which may be one, two or three months and shall also specify
the Business Day on which the Demand Loan then requested is to be
made;
(ii) To Request a Letter of Credit: To request an L/C, Borrower
-- ------- - ----------------
shall submit to the Agent a completed letter of credit application in
substantially the form of Exhibit C hereto or, if the Agent shall
------- -
designate, upon prior notice to the Borrower, a Lender other than FNBB
to be the
<PAGE>
-8-
Issuing Lender with respect to such requested L/C, in the form of
letter of credit application requested by such Lender. In the event
that any provision of the letter of credit application shall be
inconsistent with any provision of this Marketing Letter Agreement,
then the provisions of this Marketing Letter Agreement shall, to the
extent of any such inconsistency, govern; and
(iii) Representations, etc. Any request for an Accommodation
--------------- ---
shall automatically constitute a certification that the
representations and warranties contained in Schedule 2 hereof are true
-------- -
and correct on the date of such request and that all the guidelines
set forth in Schedule 4 attached to this Marketing Letter Agreement on
----------
the date of such request have been and are met, unless otherwise set
forth in a writing submitted by Borrower in connection with the
request for the corresponding Accommodation. Disclosure that Borrower
has not met or does not meet such guidelines shall in no way affect
the Lenders' right to demand payment or prepayment of any
Accommodation or any obligation secured by any L/C, as set forth
herein, in their sole discretion or to refuse to make or issue an
Accommodation in their sole discretion.
(h) PAYMENTS: All payments due with respect to the Accommodations,
--------
including, without limitation, prepayments of any undrawn amounts available for
drawing under any L/C or of the obligations secured by such L/C, shall be made
to the Agent or, with respect to an L/C, the Issuing Lender, for the respective
accounts of the Lenders and the Agent, and shall be paid to the Agent or such
Issuing Lender at the address set forth on the signature page of this Marketing
Letter Agreement for notices to the Agent or such Issuing Lender or at such
other address as the Agent or Issuing Lender may from time to time designate, in
each case in immediately available funds.
(i) ACCOMMODATIONS: All Accommodations or transactions related thereto
--------------
must meet the following criteria in addition to any other requirements that may
be imposed by the Lenders in their sole discretion from time to time:
(i) Copies of all applicable written purchase and sale contracts for
the purchase and sale of crude oil in form acceptable to the Agent and
other relevant third party documentation must be provided to the Agent
and the Lenders prior to the issuance or advance of any Accommodation
securing Borrower's obligation in connection with such transaction;
(ii) The obligations of the third party purchaser in any matched
purchase and sale transaction for which an L/C is to be issued shall
be
<PAGE>
-9-
secured in an amount at least equal to 100% of the maximum drawing
amount of such L/C by any combination of cash, Cash Equivalents,
accounts receivable approved by the Agent, or accounts receivable
secured by letters of credit from acceptable financial institutions
advised through the Agent;
(iii) Notification of the assignment to the Issuing Lender, as
agent for the Lenders of the proceeds of a sale contract relating to a
purchase and sale transaction for which an Accommodation is to be
issued or made has been or will be, prior to the making or issuance of
the Accommodation, accomplished by the following means:
(A) Borrower has notified or will, promptly, and in any event
prior to the making or issuance of the related
Accommodation, notify the account debtor on such sale
contract in writing, either by separate correspondence
and/or in Borrower's sales contract, of the assignment to
the Issuing Lender, as agent for the Lenders, of proceeds of
such sale contract and has given or will, prior to the
making or issuance of the related Accommodation, give
irrevocable instructions to such account debtor to make
payment on such sale contract, without offset or
counterclaim unless the Lenders, through the Agent, have
given their specific prior approval for the Borrower to give
effect to any net-out or offset agreements, to Borrower's
account at the Issuing Lender, as agent for the Lenders, by
wire transfer; and
(B) Agent shall notify such account debtor of the assignment of
such sale contract and the proceeds relating thereto to the
Agent or the Issuing Lender as agent for the Lenders, and of
Borrower's instruction to pay such proceeds, without offset
or counterclaim, unless the Lenders, through the Agent, have
given their specific prior approval for the Borrower to give
effect to any net-out or offset agreements, to Borrower's
account at the Issuing Lender, as agent for the Lenders, by
wire transfer.
(iv) Borrower shall endeavor, and Agent shall be satisfied that
Borrower has endeavored, to include the notification and instructions
referred to in clause (i)(iii)(A) above in such Borrower's sales
contracts;
<PAGE>
-10-
(v) Notification of the assignment to the Issuing Lender, as
agent for the Lenders, of the proceeds of each letter of credit securing
a sale contract relating to a purchase and sale transaction for which an
Accommodation is to be issued or made has been or will, prior to the
making or issuance of the related Accommodation, be accomplished by the
following means:
(A) Borrower has notified the issuer of such letter of credit in
writing of the assignment of such proceeds to the Issuing
Lender, as agent for the Lenders, and has given irrevocable
instructions to such issuing bank to pay such proceeds,
without offset or counterclaim unless the Lenders, through
the Agent, have given their specific prior approval for the
Borrower to give effect to any net-out or offset agreements,
to such Borrower's account at the Issuing Lender, as agent
for the Lenders; and
(B) Borrower or such issuer has delivered the original of such
letter of credit to the Issuing Lender, as agent for the
Lenders.
(vi) Funds from any account debtor with respect to a sale contract
in a purchase and sale transaction for which an L/C was issued which
are received in advance of payment under such L/C shall be maintained
as cash collateral with the Issuing Lender, as agent for the Lenders,
for such L/C and shall be paid over and delivered to Borrower upon
expiration (without drawdown) of such L/C unless the Lenders have
demanded payment of any Accommodations, or prepayment of any undrawn
amounts available for drawing under any other L/C or of the
obligations secured thereby, as permitted herein, and such demand has
not been met;
(vii) Payments made to suppliers under outstanding L/C will be made
through the Issuing Lender, as agent for the Lenders, by wire transfer
with reference to the corresponding L/C to facilitate the reduction or
cancellation of such L/C; and
(viii) Marine cargo, transportation, and other insurance as
appropriate, shall name the Agent or Issuing Lender, as agent for the
Lenders, as loss payee or co-loss payee to the extent of its interest in
any purchase and sale transaction for which an Accommodation has been
made or issued.
<PAGE>
-11-
(j) REPORTING AND INSPECTION REQUIREMENTS: For so long as any
-------------------------------------
Accommodation is outstanding under this Marketing Letter Agreement or Borrower
wishes to request any Accommodations under this Marketing Letter Agreement and
to enable the Lenders to carry out an ongoing financial review of Borrower,
Borrower shall furnish each of the Lenders with the following:
(i) within 45 days following the end of each month, a monthly
unaudited balance sheet and income statement, prepared in accordance
with generally accepted accounting principles ("GAAP"), subject to
----
year-end adjustments, together with a certificate regarding the
financial and other guidelines set forth in Schedule 4 to this
----------
Marketing Letter Agreement (the "FINANCIAL AND OTHER GUIDELINES") in
------------------------------
the form attached as Exhibit D hereto (and showing calculations for
---------
the financial performance guidelines set forth in paragraphs (i), (ii)
and (iii) of Schedule 4 hereto) demonstrating that the Borrower has
----------
met, or has not met, as applicable, such operating guidelines, signed
by the Borrower's chief financial officer or principal accounting
officer;
(ii) within 120 days following Borrower's fiscal year end, audited
balance sheets and statements of income and retained earnings from
Price Waterhouse L.L.P. or, in lieu of Price Waterhouse L.L.P., an
independent public accounting firm selected by Borrower and acceptable
to the Agent, prepared in accordance with GAAP;
(iii) on a daily basis, MERC position reports of Borrower as of
the end of the immediately preceding Business Day and, at such other
intervals as the Agent may request, reports of inventory held by
Borrower;
(iv) as soon as possible and, in any event prior to the date
requested for the issuance of L/C hereunder on a monthly basis, a
monthly scheduling forecast report listing purchases, sales and
exchange volumes, counterparties, pricing indices and other
information relating to crude oil purchases and exchanges for the next
month, together with copies of purchase and sales contracts and an
estimate of the gross profit margin and operating income for such
month;
(v) immediate notice of any material adverse change in the
business of Borrower, including without limitation, any threatened or
pending
<PAGE>
-12-
material litigation against Borrower or any event which may give rise
to any material litigation or claim under any environmental law;
(vi) immediate notice of any material default by Plains Resources,
Inc., a Delaware corporation ("RESOURCES") with respect to any
---------
indebtedness of Resources in excess of $50,000, including defaults
under that certain Second Amended and Restated Credit Agreement dated
as of February 11, 1994, as amended, among Resources, ING, as agent,
and the Lenders named therein (the "RESOURCES CREDIT AGREEMENT");
--------------------------
(vii) on a monthly basis, a report of the value, calculated on a
marked-to-market basis, of inventory designated by the Borrower as so-
called "working inventory" at the Cushing Terminal or as linefill in Cash
and Carry Pipelines, provided that Borrower will deliver an additional
--------
report within two days of any downward fluctuation in the value of such
inventory stated in the most recent monthly report by an amount equal to
or greater than $500,000;
(viii) if requested by any of the Lenders, Borrower will furnish to
the requesting Lender in connection with any Accommodation hereunder a
statement in conformity with the requirements of Federal Reserve Form U-1
referred to in said Regulation U; and
(ix) such other financial or other information about Borrower as
any Lender may request.
In addition, at least twice per year, and more frequently if requested
by the Required Lenders, the Lenders or any of their agents or representatives
shall have the right to conduct a commercial finance examination, including the
right to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, Borrower and to discuss the affairs,
finances and accounts of Borrower with any of Borrower's officers, directors
and, upon prior written notice to Borrower, independent accountants. All
expenses relating to not more than two such commercial finance examinations per
year shall be for the account of Borrower, provided Borrower will be responsible
--------
for more than two such commercial finance examinations per year if agreed to by
the Borrower or if any demand has been made by any Lender for the payment by
Borrower of outstanding Accommodations owing to such Lenders, or by the Required
Lenders for the prepayment of any undrawn amounts available for drawing under
any L/C or of any obligations secured by such L/C, and such demand has not been
met or withdrawn.
<PAGE>
-13-
(k) FINANCIAL AND OTHER GUIDELINES. In determining whether to issue or
------------------------------
extend, as applicable, any Accommodation, and in no way limiting the imposition,
from time to time, of other reasonable requirements by the Lenders or the
discretionary nature of this Marketing Facility, the Lenders will rely on
Borrower's representations and warranties given pursuant to Section 1(g)(iii)
that as of the date of each request by Borrower for an Accommodation, each of
the Financial and Other Guidelines are met and, up to the date of such request,
have been met by Borrower, unless the Lenders have otherwise been notified by
Borrower. In order to induce the Lenders to issue or make Accommodations,
Borrower hereby agrees to make such representations and warranties pursuant to
Section 1(g) hereof and hereby covenants that it will immediately notify the
Agent and the Lenders if, at any time, such Financial and Other Guidelines are
not then met by the Borrower. Whether or not the Financial and Other Guidelines
are, at any time, met shall in no way affect the Lenders' ability to demand
repayment of any Demand Loans outstanding hereunder or to demand prepayment of
any undrawn amounts available for drawing under any L/C or of the obligations
secured by such L/C or the Lenders' right to refuse to advance any
Accommodations. The Agent, Lenders and Borrower acknowledge that the Financial
and Other Guidelines are meant to provide parameters for Borrower's operations
and serve only as a basis for Borrower to keep the Agent and Lenders apprised of
the status of its operations.
2. GENERAL DOCUMENTATION. (a) Prior to Borrower's initial request for an
----------------------
Accommodation under the Marketing Facility, Borrower shall execute and/or
deliver, or cause to be executed and/or delivered, to the Agent and the Lenders
(i) a security agreement, in form and substance of Exhibit E hereto and in any
------- -
event sufficient to grant to the Agent a continuing, perfected, first priority
lien on all of the assets of Borrower to secure Borrower's obligations with
respect to or in connection with the Accommodations, (ii) pledges, in form and
substance of Exhibit F hereto, of all of the Borrower's deposit and margin
------- -
accounts and acknowledgments of and consents to such pledges from the financial
institutions with which such accounts are maintained, (iii) a guaranty, in form
and substance of Exhibit G hereto, by Resources of all of Marketing's payment
------- -
obligations with respect to or in connection with the Accommodations, together
with a letter of credit in form and substance of Exhibit H hereto issued by a
------- -
bank acceptable to the Lenders in the face amount of $1,000,000 to secure
Resources' obligations under such guaranty (items (i) through (iii),
collectively, the "SECURITY DOCUMENTS"), (iv) promissory notes evidencing the
------------------
Borrower's obligations to repay the Demand Loans and any drawings under the L/Cs
(the "NOTES") in form and substance of Exhibit I hereto and (v) such other
----- ------- -
documents and instruments requested by the Agent and the Lenders, including,
without limitation those documents and instruments listed on that certain
Closing Agenda prepared in connection with the execution of this Marketing
Letter Agreement.
<PAGE>
-14-
(b) Notwithstanding, the foregoing, any Accommodation which the
Lenders, in their sole discretion, may make or issue shall be on such terms and
conditions as the Lenders may require and shall be evidenced by documentation in
form and substance satisfactory to the Lenders and shall be subject thereto. If,
however, the Lenders shall make or issue any Accommodation and the Lenders shall
not specify other terms, conditions or documentation applicable thereto, then
such Accommodation shall be subject to the terms and conditions set forth in
this Marketing Letter Agreement.
3. INDEMNIFICATION. Borrower shall indemnify and hold harmless the Agent
---------------
and each of the Lenders and each of their respective directors, officers,
employees and agents from and against (a) any and all damages, losses,
liabilities, reasonable costs, and expenses, including, without limitation,
reasonable legal, and/or outside accounting, investment banking and other
professional fees paid or incurred by the Agent or any of the Lenders, which
shall arise out of, result from or in any way relate to any investigation,
litigation or proceeding (actual or threatened) relating to the extension of
Accommodations under this Marketing Letter Agreement, the Marketing Facility
Documents, the Marketing Facility, any Accommodation issued or made hereunder,
the violation or alleged violation of any environmental law or involving or
respecting any inventory or product sold to or by any Borrower and (b) all
related reasonable costs and expenses, including, without limitation, legal,
and/or outside accounting, investment banking and other professional fees paid
or incurred by the Agent or any of the Lenders in connection with any effort to
mitigate or defend against such damages, losses and liabilities, actual or
potential, and to otherwise protect the Agent's or any of the Lenders' interests
in connection with any matter which may give rise to such damages, losses and
liabilities (but excluding any such damages, losses, liabilities, costs and
expenses, and related costs and expenses, incurred by reason of the gross
negligence or willful misconduct by the person or entity seeking to be
indemnified hereunder). Without prejudice to any of the foregoing provisions of
this Agreement, Borrower will on demand by any Lender indemnify such Lender
against any losses, costs and expenses which such Lender may at any time or from
time to time sustain or incur with respect to any Demand Loan which bears
interest calculated by reference to the Eurodollar Rate as a consequence of
Borrower's failure to borrow such Demand Loan on the date designated for
Borrower therefor or to repay such Demand Loan on the last day of the Interest
Period relating thereto or if any principal payment thereof is made, whether
before or after demand, on any day other than the last day of the interest
period relating thereto, including interest or fees payable by such Lender to
lenders of funds obtained by it in order to maintain such Demand Loan for such
interest period. Such losses, costs and expenses shall be determined by such
Lender in good faith on a commercially reasonable basis.
4. EXPENSES. Whether or not any Accommodations shall be made hereunder,
--------
Borrower agrees to pay:
<PAGE>
-15-
(i) the reasonable cost of (x) reproducing this Marketing Letter
Agreement and the other Marketing Facility Documents and (y) any taxes
(including any interest and penalties in respect thereto) or filing
fees payable by the Agent or the Lenders (other than taxes based upon
the Agent's or any Lender's net income) on or with respect to the
transactions contemplated by this Agreement (the Borrowers hereby
agreeing to indemnify the Agent and the Lenders with respect thereto);
(ii) the reasonable fees, expenses and disbursements of the Agent,
the Agent's legal counsel and any experts or consultants (which
experts or consultants may be employees of the Agent or any Lender)
retained by the Agent incurred in connection with the preparation,
negotiation or interpretation of this Marketing Letter Agreement and
the other Marketing Facility Documents, each Accommodation issued or
made hereunder, and each amendment, modification, approval, consent or
waiver hereto or hereunder; and
(iii) all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and costs (which attorneys may be employees
of the Agent or such Lender)) incurred by the Agent or the Lenders in
connection with (x) the enforcement of this Marketing Letter
Agreement, the Marketing Facility or any of the Marketing Facility
Documents against the Borrower or the administration thereof, (y) any
so-called "work-out" of the Borrowers' obligations with respect to the
Marketing Facility, or (z) any litigation, proceeding or dispute
whether arising hereunder or otherwise, in any way related to the
Agent's or the Lenders' relationship with Borrower or any of its
subsidiaries under the Marketing Facility Documents if with respect to
any litigation, proceeding or dispute where the Borrowers and the
Lenders are adverse parties, the Agent and the Lenders are the
prevailing parties. The provisions of this section shall survive
payment or satisfaction of payment of amounts owing under or with
respect to the Marketing Facility Documents.
5. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly
-------- ---------- ------- ---
provided in this Marketing Letter Agreement, any consent or approval required or
permitted by this Marketing Letter Agreement to be given by the Agent and the
Lenders may be given, and any term of this Marketing Letter Agreement or the
Marketing Facility Documents may be amended, and the performance or observance
by the Borrower of any terms of this Marketing Letter Agreement or the other
Marketing Facility Documents may be waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the
written consent of the Borrower, the Agent and the
<PAGE>
-16-
Required Lenders. Neither (a) the provisions of Section 1(e) requiring that the
Required Lenders are necessary to make a demand for prepayment of any undrawn
amounts available for drawing under any L/C or of any obligations secured by
such L/C nor (b) modification to the defined term "Required Lenders" shall be
made without the written consent of the Borrower, the Agent and all of the
Lenders.
6. ASSIGNMENT. Any Lender may, with the prior written consent of the
----------
Borrowers, the Agent and ING, such consent not to be unreasonably withheld, make
an assignment of any portion of its share of the Marketing Facility, provided
that the assignee with respect thereto and Borrower shall execute an Instrument
of Accession in the form of Exhibit A attached hereto.
---------
7. NOTICES, ETC. Except as otherwise expressly provided herein or in the
------- ---
other Marketing Facility Documents, all notices and other communications made or
required to be given pursuant to this Marketing Letter Agreement or the other
Marketing Facility Documents to any party hereto shall be in writing and shall
be delivered in hand, mailed by United States registered or certified first
class mail, postage prepaid, sent by overnight courier, or sent by telecopy,
facsimile or telex and confirmed by delivery via courier or postal service at
the address set forth for such party on the signature pages hereto or at such
other address for notice as such party shall have last furnished in writing to
the person giving the notice. Any such notice or demand shall be deemed to have
been duly given or made and to have become effective upon receipt thereof.
8. DEFINITIONS. Any capitalized term defined herein shall have such meaning
-----------
in each place it appears herein, including in any schedules and exhibits hereto.
9. MISCELLANEOUS.
-------------
With respect to the Borrower, this Marketing Letter Agreement is for
Borrower's information only and the Borrower is not to show this Marketing
Letter Agreement to, and it is not to be relied upon by, third parties (except
that the Borrower may file a copy of, or show, or both, as applicable, this
Marketing Letter Agreement to the Securities Exchange Commission ("SEC"), as
---
required by the SEC) and this Marketing Letter Agreement creates no rights in
any such third party. The Agent and the Lenders shall not disclose the terms of
this Marketing Letter Agreement except in accordance with standard and customary
banking practices or as required by law or legal practice or to assignees or
potential assignees. This Marketing Letter Agreement constitutes the entire
understanding among Borrower, the Lenders and the Agent on this subject and
supersedes all prior discussions.
<PAGE>
-17-
No failure on the part of the Agent or the Lenders to exercise and no
delay in exercising, and no course of dealing with respect to any right, power,
or privilege under this Marketing Letter Agreement or any of the other Marketing
Facility Documents shall operate as a waiver thereof. Any waiver of any
provision hereof shall be effective only in the specific instance granted and
shall not operate as a continuing waiver of such provision.
THIS LETTER AGREEMENT AND THE FACILITY DOCUMENTS AND INSTRUMENTS EXECUTED
IN CONNECTION HEREWITH SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CHOICE OF LAW PROVISIONS). THE BORROWER AGREES THAT ANY SUIT FOR
THE ENFORCEMENT OF THIS LETTER AGREEMENT OR ANY RELATED DOCUMENT OR INSTRUMENT
MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL
COURT SITTING THEREIN AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURT AND IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. BORROWER
CONSENTS TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER BY
CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID AND RETURN RECEIPT REQUESTED, WITH
COPY THEREOF TO RESOURCES ALSO BY SUCH CERTIFIED OR REGISTERED MAIL, AT THE
ADDRESS, WITH RESPECT TO BORROWER, FOR BORROWER SPECIFIED IN SECTION 7 HEREOF,
AND AT THE ADDRESS, WITH RESPECT TO RESOURCES FOR RESOURCES, SPECIFIED AT
SECTION 13 OF THAT CERTAIN GUARANTY OF EVEN DATE HEREWITH BY RESOURCES
GUARANTYING MARKETING'S OBLIGATIONS WITH RESPECT TO THE ACCOMMODATIONS. SERVICE
OF PROCESS SERVED IN THE MANNER SET FORTH IN THE PRECEDING SENTENCE SHALL BE
EFFECTIVE FIVE BUSINESS DAYS AFTER THE DATE ON WHICH SUCH SERVICE OF PROCESS IS
SENT AS PROVIDED ABOVE; PROVIDED THAT SUCH FIVE BUSINESS DAY PERIOD SHALL NOT
--------
APPLY IF THE AGENT OR ANY LENDER TAKES ANY ACTION OR FILES ANY MOTION, AND SHALL
NOT PREVENT THE AGENT OR ANY LENDER FROM TAKING ANY ACTION, OR FILING ANY
MOTION, SEEKING AN INJUNCTION OR OTHER EMERGENCY ORDER OR RELIEF WITHOUT REGARD
TO THE FIVE BUSINESS DAY PERIOD PROVIDED FOR IN THIS SENTENCE AND SUCH ACTION OR
MOTION WILL NOT BE CONSIDERED TO BE EX PARTE EXCEPT AS OTHERWISE PROVIDED BY
--------
APPLICABLE LAW.
<PAGE>
-18-
EACH OF THE AGENT, THE LENDERS AND THE BORROWER HEREBY WAIVES ITS RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS LETTER AGREEMENT OR ANY OTHER FACILITY
DOCUMENT OR ANY RIGHT OR OBLIGATION HEREUNDER OR THEREUNDER. Except as
prohibited by law, each of the Agent, the Lenders and the Borrower hereby waives
any right which it may have to claim or recover in any litigation referred to in
the preceding sentence any special, exemplary, punitive consequential damages or
any damages other than, or in addition to, actual damages. Each of the Agent,
the Lenders and the Borrower (i) certifies that no party hereto nor any
representative, agent or attorney for any party hereto has represented,
expressly or otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers, and (ii) acknowledges that, in entering
into the Marketing Letter Agreement and the other Marketing Facility Documents
such parties are relying upon, among other things, the waivers and
certifications contained in this (S)9.
Agent and each Lender agrees (on behalf of itself and each of its
affiliates, directors, officers, employees, agents and representatives) to use
reasonable precautions to keep confidential, in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by Borrower or Resources as being confidential at the time the
same is delivered to Agent or such Lender, provided that nothing herein shall
limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to counsel for Agent or any
Lender, (iii) to bank examiners, auditors or accountants, (iv) in connection
with any litigation to which Agent or any Lender is a party or (v) to any
assignee or participant (or prospective assignee participant) so long as such
assignee or participant (or prospective assignee or participant) first enters
into a confidentiality agreement with Agent or such Lender; and provided further
that in no event shall Agent or any Lender be required to return any materials
furnished by Borrower or Resources.
This Marketing Letter Agreement may be executed in several counterparts,
each of which shall be an original, and all of which shall constitute one
agreement. In proving this Marketing Letter Agreement, it shall not be necessary
to produce more than one such counterpart executed by the party to be charged.
The provisions of this Marketing Letter Agreement are severable and if any one
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such invalidity or unenforceability shall affect only such
provision in such jurisdiction.
<PAGE>
-19-
Please acknowledge your understanding of the above by signing and
returning the enclosed copy of this letter.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By: /s/ Christopher H. Holmgren
---------------------------------------
Name: Christopher H. Holmgren
---------------------------------------
Title: Vice President
---------------------------------------
Address: 100 Federal Street, 01-08-02
Boston, Massachusetts 02110
Attention: Christopher H. Holmgren,
Vice President
Fax: (617) 434-4067
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By: /s/ Robi Artman-Hodge
---------------------------------------
Name: Robi Artman-Hodge
---------------------------------------
Title: Managing Director
---------------------------------------
Address: 135 East 57 Street
New York, New York 10022
Attention: Ms. Robi Artman-Hodge
Managing Director
Fax: (212) 593-3362
<PAGE>
-20-
Accepted and Agreed to:
PLAINS MARKETING & TRANSPORTATION INC.
By: /s/ Phil Kramer
------------------------------------
Name: Phil Kramer
------------------------------------
Title: Vice President
------------------------------------
Address: 1600 Smith Street
Houston, Texas 77002
Attention: Mr. Phillip D. Kramer
Fax: (713) 654-1523
<PAGE>
EXHIBIT 10.N
August 23, 1995
PMCT Inc.
1600 Smith Street
Houston, TX 77002
Re: Uncommitted Secured Demand Transactional Line of Credit Facility
----------------------------------------------------------------
Gentlemen:
The purpose of the following is to outline the parameters of the
uncommitted secured demand transactional line of credit facility (the "PMCT
-----
FACILITY") which The First National Bank of Boston ("FNBB"), Internationale
- -------- ----
Nederlanden (U.S.) Capital Corporation ("ING") and such other banks as may from
---
time to time become parties hereto by signing below or by executing an
Instrument of Accession in the form of Exhibit A attached hereto (collectively,
the "LENDERS") and FNBB, as agent for the Lenders (in such capacity, the
-------
"AGENT"), are prepared to provide to PMCT Inc. ("BORROWER") for the issuance of
----- --------
standby letters of credit and demand loans (each an "ACCOMMODATION" and
-------------
collectively, the "ACCOMMODATIONS"). An "uncommitted secured demand
--------------
transactional line of credit facility" means that the Lenders shall have no
obligation, under any circumstances, to issue, grant or make any Accommodation.
Each request made by Borrower for an Accommodation shall be reviewed by the
Lenders on a case by case basis and the decision to grant any Accommodation
shall be made by the Lenders in their absolute and sole discretion in light of
considerations which the Lenders in their sole discretion deem pertinent and
irrespective of whether or not the Borrower is in compliance with any of the
guidelines set forth in Schedule 4 hereto. The Lenders also reserve the right to
summarily refuse any request for an Accommodation without any review as
contemplated by the preceding sentence. Accordingly, the Lenders have no
commitment to make any Accommodation available. FURTHERMORE, THE LENDERS MAY
DEMAND REPAYMENT OF ANY AMOUNTS OUTSTANDING HEREUNDER OR WITH RESPECT TO ANY
ACCOMMODATION AND, AS HEREINAFTER PROVIDED, PREPAYMENT OF ANY AND ALL UNDRAWN
AMOUNTS AVAILABLE FOR DRAWING UNDER ANY ISSUED AND OUTSTANDING L/C (AS
HEREINAFTER DEFINED) OR OF ANY OBLIGATIONS SECURED BY SUCH L/C AT ANY TIME IN
THE LENDERS' SOLE DISCRETION.
1. THE FACILITY. The parameters of the uncommitted secured demand
------------
transactional line of credit facility shall be as follows until further notice
by the Agent and the Lenders:
<PAGE>
-2-
(a) BORROWER: PMCT Inc., a Delaware corporation.
--------
(b) PMCT FACILITY AMOUNT: The aggregate amount of the Accommodations
--------------------
which may be made available by the Lenders and which will be allowed to be
outstanding at any one time under the PMCT Facility shall be restricted to the
lesser of (i) the PMCT Sublimit (as hereinafter defined) or (ii) the excess of
(x) an amount which shall be $70,000,000 during periods when the NYMEX price for
West Texas Intermediate crude oil ("WTI") is equal to or less than $20.00 per
---
barrel and which shall increase by $2,500,000 for each $1.00 per barrel increase
in the NYMEX price of WTI above $20.00 per barrel up to a maximum amount of
$80,000,000, such increase in the amount of the PMCT Facility to be determined
at the time of the issuance or advance of any Accommodation over (y) the then
aggregate amount of the outstanding Accommodations made by the Lenders to or for
the account of Plains Marketing & Transportation Inc., a Delaware corporation
("MARKETING") under that certain letter agreement of even date herewith, as
- -----------
amended and in effect (the "MARKETING AGREEMENT"), among the Lenders, the Agent
-------------------
and Marketing (such lesser amount, as in effect from time to time under the PMCT
Facility, hereinafter referred to as the "PMCT FACILITY AMOUNT"). PLEASE NOTE
--------------------
THAT THE LENDERS MAY MODIFY THE AMOUNT OF THE PMCT FACILITY AMOUNT AT ANY TIME
IN THEIR SOLE DISCRETION. In the event such modification results in a decrease
in the PMCT Facility Amount below the then aggregate amount of outstanding
Accommodations, the Borrower will within one (1) Business Day (as defined below,
or as hereinafter provided, repay the amount of outstanding Accommodations in
excess of the modified PMCT Facility Amount or prepay the undrawn amounts
available for drawing under L/Cs in excess of the modified PMCT Facility Amount,
unless notified otherwise by the Agent. As used herein, "BUSINESS DAY" shall
------------
mean any day on which commercial lenders are not authorized or required to close
in Boston, Massachusetts or New York,, New York.
(c) LENDERS' SHARES: Each Lender shall be offered the opportunity to
---------------
fund or participate in that percentage of every requested Accommodation as set
forth opposite such Lender's name on Schedule 1 hereto (its "SCHEDULE 1
----------
PERCENTAGE"). If any Lender shall decline to so fund or participate in such
- ----------
requested Accommodation, any combination of one or more of the other Lenders may
additionally fund or purchase a participation in the requested Accommodation in
the entire or a pro rata portion of such declining Lender's Schedule 1
--------
Percentage of such Accommodation, provided that in no event shall any Lender's
--------
interest in any Accommodation exceed a sum representing such Lender's Schedule 1
Percentage multiplied by the PMCT Facility Amount.
<PAGE>
-3-
(d) TYPES OF ACCOMMODATIONS; SUBLIMITS: The types of and limits on
----------------------------------
Accommodations which may be made available under the PMCT Facility shall be the
following:
(i) Standby Letters of Credit: Standby letters of credit having
-------------------------
an expiration date no later than 70 days after the date of issuance,
extension or renewal thereof issued for the account of Borrower to
support the purchase and exchange by Borrower of crude oil from
producers and other third parties (the "L/CS");
----
(ii) Demand Loans: Demand loans which may be made by the Lenders
------
to Borrower in an aggregate amount at any time outstanding not to
exceed $20,000,000 less the amount of Demand Loans then outstanding
under the Marketing Agreement (the "DEMAND LOANS"), the proceeds of
------------
which are to be used for any of the following purposes: (x) to finance
the purchase and physical storage of crude oil which is fully hedged
on the NYMEX and located in the terminalling and storage facilities
owned by Plains Terminal & Transfer Corporation in Cushing, Oklahoma
(the "CUSHING TERMINAL") or in transit in specified pipelines approved
----------------
by the Lenders and listed on Schedule 5 hereto (the "CASH AND CARRY
---------- --------------
PIPELINES") or (y) to finance up to ninety (90%) of the value,
---------
calculated on a marked-to-market basis, of inventory designated by the
requesting Borrower as so-called "working inventory" at the Cushing
Terminal or as linefill in Cash and Carry Pipelines.
(iii) PMCT Sublimit: For purposes hereof, "PMCT SUBLIMIT"
------------- -------------
shall mean an amount equal to the lesser of (a) five (5) times
Tangible Liquid Net Worth of PMCT or (b) $20,000,000. For purposes
hereof, "TANGIBLE LIQUID NET WORTH" shall mean the excess of the total
-------------------------
assets of PMCT as determined in accordance with generally accepted
accounting principles ("GAAP"), over the total liabilities of PMCT as
----
determined in accordance with GAAP, less the total book value of all
assets of PMCT properly classified as intangible assets under GAAP;
provided that the Tangible Liquid Net Worth of PMCT shall be deemed to
---------
be zero unless at least $2,000,000 of cash, Cash Equivalents or fully
hedged crude oil inventory valued on a marked to market basis, or any
combination of the foregoing, is included therein; and provided,
---------
further, that intercompany notes payable to PMCT by Plains Resources,
-------
Inc. ("RESOURCES") shall be included in the calculation of the
---------
Tangible Liquid Net Worth of PMCT (1)
<PAGE>
-4-
only if such promissory notes are payable on demand or within one year
from the date on which such calculation is made and (2) only to the
extent that the principal amount thereof does not at the time of such
calculation exceed the unused borrowing base available to support
additional revolving credit loans under that certain Second Amended
and Restated Credit Agreement dated as of February 11, 1994, as
amended, among Resources, ING, as agent, and the lenders named therein
(the "RESOURCES CREDIT AGREEMENT"). "CASH EQUIVALENTS" means
-------------------------- ----------------
repurchase agreements and short term obligations issued or guaranteed
as to principal and interest by the United States of America and
having a maturity of not more than 12 months from the date of
acquisition; short-term certificates of deposit issued by any bank
organized under the laws of the United States of America or any state
thereof if such bank has a short-term debt rating of not less than P-1
or A-1 or their equivalent by Moody's Investor Service or Standard &
Poor's Corporation, respectively; short-term certificates of deposit
issued by, and so-called Eurodollar "call deposits" at, any Lender or
any foreign subsidiary or affiliates of such Lender, if any
investments issued by such Lender or foreign subsidiary or affiliate,
as applicable, has a rating of not less than A or its equivalent, or
P-1 or A-1 or their equivalent, as applicable, by Moody's Investor
Service or Standard & Poor's Corporation, respectively; or (d)
commercial paper or finance company paper that is rated not less than
P-1 or A-1 or their equivalents by Moody's Investor Service or
Standard & Poor's Corporation, respectively.
(e) EXPIRATION: (i) No request for any Accommodation may be made after the
----------
first anniversary of the date hereof unless the Lenders, in their sole
discretion and without any obligation to do so, extend such date in writing.
(ii) All Accommodations are payable ON DEMAND. Any Lender
may, at any time and in its sole discretion, demand payment of all
amounts owing to the Lenders under the PMCT Facility, provided that
--------
any Lender not then making such demand for payment with respect to
Accommodations made by it may waive such demand with respect only to
the Accommodations made by it. In addition, those Lenders having a pro
---
rata share of the Accommodations at least equal to sixty-seven percent
----
of the Accommodations (the "REQUIRED LENDERS") may at any time in
----------------
their sole discretion demand that the Borrower prepay in cash all or
any part or fraction of the undrawn amount available for drawing under
any issued and outstanding L/C or the obligations secured by such L/C
by delivery to the
<PAGE>
-5-
Agent. Each Lender demanding payment of any outstanding amounts owing
to the Lenders under the PMCT Facility or prepayment of any undrawn
amounts available for drawing under any issued and outstanding L/C or
of any obligations secured by such L/C shall promptly notify the
Borrower of the reason for such demand.
(iii) Upon the occurrence of a Bankruptcy Event, all obligations
and liabilities of Borrower to the Lenders with respect to the
Accommodations, including, without limitation, the obligation to
prepay any and all amounts available for drawing under any issued and
outstanding L/C and all other obligations and liabilities of Borrower
to the Lenders arising under this letter agreement (the "PMCT LETTER
-----------
AGREEMENT") or any agreements, instruments or documents executed in
---------
connection herewith (collectively with the PMCT Letter Agreement, the
"PMCT FACILITY DOCUMENTS") shall become immediately due and payable.
-----------------------
"BANKRUPTCY EVENT" means any event pursuant to which Borrower makes an
----------------
assignment for the benefit of creditors, or admits in writing its
inability to pay or generally fails to pay its debts as they mature or
become due, or petitions or applies for the appointment of a trustee
or other custodian, liquidator or receiver of Borrower or of any
substantial part of its assets or commences any case or other
proceeding relating to Borrower under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in
effect, or takes any action to authorize, or in furtherance of, any of
the foregoing, or if any such petition or application shall be filed
or any such case or other proceeding shall be commenced against
Borrower and Borrower shall indicate its approval thereof, consent
thereto or acquiescence therein, or a decree or order is entered
appointing any such trustee, custodian, liquidator or receiver or
adjudicating Borrower bankrupt or insolvent, or approving a petition
in any such case or other proceeding, or a decree or order for relief
is entered in respect of Borrower in an involuntary case under federal
bankruptcy laws as now or hereafter constituted.
(f) PRICING: The following will apply until further notice by the
Agent:
(i) Demand Loans: Subject to paragraph 1(f)(v) hereof, the annual
------------
rate of interest on the unpaid principal balance of Demand Loans from
time to time outstanding shall be equal to either (i) the Base Rate
plus five-eighths of one percent (5/8%) per annum or (ii) the
----
Eurodollar Rate for
<PAGE>
-6-
the applicable interest period plus two percent (2%) per annum, as
----
such rates are selected by Borrower pursuant to Section 1(g) hereof,
in each case computed on the basis of a 360-day year. Interest
calculated by reference to the Base Rate shall be payable quarterly in
arrears. Interest calculated by reference to the Eurodollar Rate
shall be payable at the end of any applicable interest period selected
by Borrower for such Demand Loan pursuant to Section 1(g) hereof.
"BASE RATE" means the higher of (a) the annual rate of interest
---------
announced from time to time by FNBB as its "base rate" at its head
office in Boston, Massachusetts or (b) 1/2% above the overnight
federal funds rate from time to time in effect; provided, that such
--------
rate may not be the lowest rate at which funds are made available to
customers of FNBB at such time. "EURODOLLAR RATE" means for any
---------------
interest period of one, two or three months (as selected by Borrower
pursuant to Section 1(g) hereof), the annual rate of interest (rounded
upwards, if necessary, to the nearest 1/16th of 1%) determined by the
Agent at or about 10:30 a.m., Boston time, two Business Days on which
Lenders are able to conduct eurodollar transactions preceding the
first day of such interest period, as being (a) the average of the per
annum rates at which deposits of United States dollars are offered to
the Agent by prime banks in any lawful recognized market selected by
the Agent, in its sole discretion acting in good faith and in
accordance with its usual practice, in which United States dollars are
offered by banking institutions to each other for delivery on the
first day of such interest period for the number of days comprised
therein and in an amount equal (as nearly as may be) to the amount of
the Demand Loan to be subject to such Eurodollar Rate divided by (b)
-------
one minus the Reserve Rate. The "RESERVE RATE" for any date is the
------------
maximum percentage (expressed as a decimal) in effect on such date at
which the Agent is required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System against
"EUROCURRENCY LIABILITIES". The Reserve Rate shall be adjusted
------------------------
automatically on and as of the effective date of any change therein.
(ii) Letters of Credit.
-----------------
(x) For the issuance of an L/C, Borrower shall pay to any
Lender issuing such L/C (in such capacity, the "ISSUING LENDER"), for
--------------
the pro rata accounts of the Lenders participating in such L/C, a fee
--------
equal to the greater of (A) 1-1/2% per annum of the maximum drawing
amount of such L/C calculated for the period during which such L/C is
outstanding or (B)
<PAGE>
-7-
1/4% flat of the maximum drawing amount of such L/C, such fee to be
estimated and payable upon the issuance of such L/C and any unpaid
balance of such fee to be payable upon any drawing under, and upon the
expiration or termination of, such L/C.
(y) In addition to the fees set forth in clause (x) above,
Borrower shall pay to the Issuing Lender for its own account an
additional issuance fee of $100 per L/C, payable on the date of
issuance thereof, and such other fees and charges customarily
charged by the Agent in respect of L/Cs.
(iii) Overdue Amounts. All overdue amounts payable with respect
---------------
to the Demand Loans and reimbursement obligations in respect to drawn
L/Cs shall bear interest payable on demand at a rate per annum equal
to four percent above the Base Rate from the date of such nonpayment
until paid in full and whether before or after the entry of judgment
thereon.
(iv) Charges to the Borrower's Accounts. Borrower authorizes the
----------------------------------
Agent and the Lenders to charge Borrower's account at any of the
Lenders for any interest and fees stated herein and due and payable by
Borrower; provided that in the absence of a demand for payment of the
--------
Accommodations or in the case of undrawn amounts available for drawing
under any L/C or the obligations secured by such L/C, prepayment, of
such amounts, the Agent or the Lender charging such account shall give
Borrower prior notice of its intention to do so.
(v) Limitation on Interest. It is the intention of the parties
----------------------
hereto that the Agent and each Lender shall conform strictly to usury
laws applicable to it. Accordingly, if the transactions contemplated
hereby would be usurious as to the Agent or any Lender under
applicable laws then, in that event, notwithstanding anything to the
contrary in this PMCT Letter Agreement or any other PMCT Facility
Document, it is agreed that the aggregate of all consideration which
constitutes interest under any law applicable to the Agent or any
Lender that is contracted for, taken, reserved, charged or received by
such Lender under this PMCT Letter Agreement or under any other PMCT
Facility Document shall under no circumstances exceed the maximum
amount allowed by such applicable law, and any excess shall be
credited by the Agent or such Lender to the principal amount of the
Demand Loans or, if the principal amount of the Demand
<PAGE>
-8-
Loans shall have been or would thereby be paid in full, refunded by
the Agent or such Lender to Borrower.
(vi) No pricing applicable to any particular outstanding
Accommodation shall be changed after the making or issuance of such
Accommodation without Borrower's written consent. Notwithstanding the
above, nothing herein shall affect the Lenders' right to demand
payment, as set forth herein, in their sole discretion, of such
Accommodation and to charge the rate of interest applicable to overdue
amounts thereon as set forth in Section 1(f)(iii) if such demand is
not met.
(g) PROCEDURES FOR REQUESTING ACCOMMODATIONS: The following
----------------------------------------
procedures will assist the Lenders in considering Borrower's requests for
Accommodations:
(i) To Request a Demand Loan: To request a Demand Loan, the
------------------------
Borrower shall, in a notice to the Agent in the form of Exhibit B
---------
hereto (a "DEMAND LOAN NOTICE"), delivered no later than 11:00 a.m.
------------------
Boston, Massachusetts time (x) on the Business Day on which the Demand
Loan is requested to be made if it is to bear interest calculated by
reference to the Base Rate and (y) three Business Days prior to the
day on which the Demand Loan is requested to be made if it is to bear
interest calculated by reference to the Eurodollar Rate, specify the
amount of such Demand Loan, whether such Demand Loan is to bear
interest calculated by reference to the Base Rate or to the Eurodollar
Rate and, if such Demand Loan is to bear interest calculated by
reference to the Eurodollar Rate, the interest period to be applicable
thereto which may be one, two or three months and shall also specify
the Business Day on which the Demand Loan then requested is to be
made;
(ii) To Request a Letter of Credit: To request an L/C, Borrower
-----------------------------
shall submit to the Agent a completed letter of credit application in
substantially the form of Exhibit C hereto or, if the Agent shall
---------
designate, upon prior notice to the Borrower, any Lender other than
FNBB to be the Issuing Lender with respect to such requested L/C, in
the form of letter of credit application requested by such Lender. In
the event that any provision of the letter of credit application shall
be inconsistent with any provision of this PMCT Letter Agreement, then
the provisions of this PMCT Letter Agreement shall, to the extent of
any such inconsistency, govern; and
<PAGE>
-9-
(iii) Representations, etc. Any request for an Accommodation
--------------------
shall automatically constitute a certification that the
representations and warranties contained in Schedule 2 hereof are
----------
true and correct on the date of such request and that all guidelines
set forth in Schedule 4 attached to this PMCT Letter Agreement on the
----------
date of such request have been and are met, unless otherwise set forth
in a writing submitted by Borrower in connection with the request for
the corresponding Accommodation. Disclosure that Borrower has not met
or does not meet such guidelines shall in no way affect the Lenders'
right to demand payment or prepayment of any Accommodation or any
obligation secured by any L/C, as set forth herein, in their sole
discretion or to refuse to make or issue an Accommodation in their
sole discretion.
(h) PAYMENTS: All payments due with respect to the Accommodations,
--------
including, without limitation, prepayments of any undrawn amounts available for
drawing under any L/C or of the obligations secured by such L/C, shall be made
to the Agent or, with respect to an L/C, the Issuing Lender, for the respective
accounts of the Lenders and the Agent, and shall be paid to the Agent or such
Issuing Lender at the address set forth on the signature page of this PMCT
Letter Agreement for notices to the Agent and such Issuing Lender or at such
other address as the Agent or Issuing Lender may from time to time designate, in
each case in immediately available funds.
(i) ACCOMMODATIONS: All Accommodations or transactions related thereto
--------------
must meet the following criteria in addition to any other requirements that may
be imposed by the Lenders in their sole discretion from time to time:
(i) Copies of all applicable written purchase and sale contracts
for the purchase and sale of crude oil in form acceptable to the Agent
and other relevant third party documentation must be provided to the
Agent and the Lenders prior to the issuance or advance of any
Accommodation securing Borrower's obligation in connection with such
transaction;
(ii) The obligations of the third party purchaser in any matched
purchase and sale transaction for which an L/C is to be issued shall
be secured in an amount at least equal to 100% of the maximum drawing
amount of such L/C by any combination of cash, Cash Equivalents,
accounts receivable approved by the Agent, or accounts receivable
secured by letters of credit from acceptable financial institutions
advised through the Agent;
<PAGE>
-10-
(iii) Notification of the assignment to the Issuing Lender, as
agent for the Lenders, of the proceeds of a sale contract relating to
a purchase and sale transaction for which an Accommodation is to be
issued or made has been or will be, prior to the making or issuance of
the Accommodation, accomplished by the following means:
(A) Borrower has notified or will, promptly, and in any
event prior to the making or issuance of the related
Accommodation, notify the account debtor on such sale
contract in writing, either by separate correspondence
and/or in Borrower's sales contract, of the assignment to
the Issuing Lender, as agent for the Lenders, of proceeds of
such sale contract and has given or will, prior to the
making or issuance of the Accommodation, give irrevocable
instructions to such account debtor to make payment on such
sale contract, without offset or counterclaim unless the
Lenders, through the Agent, have given their specific prior
approval for the Borrower to give effect to any net-out or
offset agreements, to Borrower's account at the Issuing
Lender, as agent for the Lenders, by wire transfer; and
(B) Agent shall notify such account debtor of the
assignment of such sale contract and the proceeds relating
thereto to the Issuing Lender, as agent for the Lenders, and
of Borrower's instruction to pay such proceeds, without
offset or counterclaim, unless the Lenders, through the
Agent, have given their specific prior approval for the
Borrower to give effect to any net-out or offset agreements,
to Borrower's account at the Issuing Lender, as agent for
the Lenders, by wire transfer.
(iv) Borrower shall endeavor, and Agent shall be satisfied that
Borrower has endeavored, to include the notification and instructions
referred to in clause (i)(iii)(A) above in such Borrower's sales
contracts;
(v) Notification of the assignment to the Issuing Lender, as
agent for the Lenders, of the proceeds of each letter of credit
securing a sale contract relating to a purchase and sale transaction
for which an
<PAGE>
-11-
Accommodation is to be issued or made has been or will, prior to the
making or issuance of the Accommodation, be accomplished by the
following means:
(A) Borrower has notified the issuer of such letter of
credit in writing of the assignment of such proceeds to the
Issuing Lender, as agent for the Lenders, and has given
irrevocable instructions to such issuing bank to pay such
proceeds, without offset or counterclaim unless the Lenders,
through the Agent, have given their specific prior approval
for the Borrower to give effect to any net-out or offset
agreements, to such Borrower's account at the Issuing
Lender, as agent for the Lenders; and
(B) Borrower or such issuer has delivered the original of
such letter of credit to the Issuing Lender, as agent for
the Lenders.
(vi) Funds from any account debtor with respect to a sale
contract in a purchase and sale transaction for which an L/C was
issued which are received in advance of payment under such L/C shall
be maintained as cash collateral with the Issuing Lender, as agent for
the Lenders, for such L/C and shall be paid over and delivered to
Borrower upon expiration (without drawdown) of such L/C unless the
Lenders have demanded payment of any Accommodations, or prepayment of
any undrawn amounts available for drawing under any other L/C or of
the obligations secured thereby, as permitted herein, and such demand
has not been met;
(vii) Payments made to suppliers under outstanding L/Cs will be
made through the Issuing Lender, as agent for the Lenders, by wire
transfer with reference to the corresponding L/C to facilitate the
reduction or cancellation of such L/C; and
(viii) Marine cargo, transportation, and other insurance as
appropriate, shall name the Agent or Issuing Lender as loss payee or
co-loss payee to the extent of its interest in any purchase and sale
transaction for which an Accommodation has been made or issued.
<PAGE>
-12-
(j) REPORTING AND INSPECTION REQUIREMENTS: For so long as any
-------------------------------------
to request any Accommodations under this PMCT Letter Agreement and to enable the
Lenders to carry out an ongoing financial review of Borrower, Borrower shall
furnish each of the Lenders with the following:
(i) within 45 days following the end of each month, a monthly
unaudited balance sheet and income statement, prepared in accordance
with GAAP, subject to year-end adjustments, together with a
certificate regarding the financial and other guidelines set forth in
Schedule 4 to this Marketing Letter Agreement (the "FINANCIAL AND
---------- -------------
OTHER GUIDELINES") in the form attached as Exhibit D hereto (and
---------------- ---------
showing calculations for the financial performance guidelines set
forth in paragraphs (i), (ii) and (iii) of Schedule 4 hereto)
----------
demonstrating that the Borrower has met, or has not met, as
applicable, such operating guidelines, signed by the Borrower's chief
financial officer or principal accounting officer;
(ii) within 120 days following Borrower's fiscal year end,
audited balance sheets and statements of income and retained earnings
from Price Waterhouse L.L.P. or, in lieu of Price Waterhouse L.L.P.,
an independent public accounting firm selected by Borrower and
acceptable to the Agent, prepared in accordance with GAAP;
(iii) on a daily basis, MERC position reports of Borrower as of
the end of the immediately preceding Business Day and, at such other
intervals as the Agent may request, reports of inventory held by
Borrower;
(iv) as soon as possible and in any event prior to the date
requested for the issuance of L/Cs hereunder on a monthly basis, a
monthly scheduling forecast report listing purchases, sales and
exchange volumes, counterparties, pricing indices and other
information relating to crude oil purchases and exchanges for the next
month, together with copies of purchase and sales contracts and an
estimate of the gross profit margin and operating income for such
month;
(v) immediate notice of any material adverse change in the
business of Borrower, including without limitation, any threatened or
pending material litigation against Borrower or any event which may
give rise to any material litigation or claim under any environmental
law;
<PAGE>
-13-
(vi) immediate notice of any material default by Resources with
respect to any indebtedness of Resources in excess of $50,000,
including defaults under the Resources Credit Agreement;
(vii) on a monthly basis, a report of the value, calculated on
a marked-to-market basis, of inventory designated by the Borrower as
so-called "working inventory" at the Cushing Terminal or as linefill
in Cash and Carry Pipelines, provided that Borrower will deliver an
--------
additional report within two days of any downward fluctuation in the
value of such inventory stated in the most recent monthly report by an
amount equal to or greater than $500,000;
(viii) if requested by any of the Lenders, Borrower will furnish
to the requesting Lender in connection with any Accommodation
hereunder a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in said Regulation U; and
(ix) such other financial or other information about Borrower as
any Lender may request.
In addition, at least twice per year, and more frequently if requested by
the Required Lenders, the Lenders or any of their agents or representatives
shall have the right to conduct a commercial finance examination, including the
right to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, Borrower and to discuss the affairs,
finances and accounts of Borrower with any of Borrower's officers, directors
and, upon prior written notice to Borrower, independent accountants. All
expenses relating to not more than two such commercial finance examinations per
year shall be for the account of Borrower, provided Borrower will be responsible
for more than two such commercial finance examinations per year if agreed to by
the Borrower or if any demand has been made by any Lender for the payment by
Borrower of outstanding Accommodations owing to such Lenders, or by the Required
Lenders for the prepayment of any undrawn amounts available for drawing under
any L/C or of any obligations secured by such L/C, and such demand has not been
met or withdrawn.
(k) FINANCIAL AND OTHER GUIDELINES: In determining whether to issue or
------------------------------
extend, as applicable, any Accommodation, and in no way limiting the imposition,
from time to time, of other reasonable requirements by the Lenders or the
discretionary nature
<PAGE>
-14-
of this PMCT Facility, the Lenders will rely on Borrower's representations and
warranties given pursuant to Section 1(g)(iii) that as of the date of each
request by Borrower for an Accommodation, each of the Financial and Other
Guidelines are met and, up to the date of such request, have been met by
Borrower, unless the Lenders have otherwise been notified by Borrower. In order
to induce the Lenders to issue or make Accommodations, Borrower hereby agrees to
make such representations and warranties pursuant to Section 1(g) hereof and
hereby covenants that it will immediately notify the Agent and the Lenders if,
at any time, such Financial and Other Guidelines are not then met by Borrower.
Whether or not the Financial and Other Guidelines are, at any time, met shall in
no way affect the Lenders' ability to demand repayment of any Demand Loans
outstanding hereunder or to demand prepayment of any undrawn amounts available
for drawing under any L/C or of the obligations secured by such L/C or the
Lenders' right to refuse to advance any Accommodations. The Agent, the Lenders
and Borrower hereby acknowledge that the Financial and Other Guidelines are
meant to provide parameters for Borrower's operations and serve only as a basis
for Borrower to keep the Agent and Lenders apprised of the status of its
operations.
2. GENERAL DOCUMENTATION. (a) Prior to Borrower's initial request for an
---------------------
Accommodation under this PMCT Facility, Borrower shall execute and/or deliver,
or cause to be executed and/or delivered, to the Agent and the Lenders (i) a
security agreement, in form and substance of Exhibit E hereto and in any event
---------
sufficient to grant to the Agent a continuing, perfected, first priority lien on
all of the assets of Borrower to secure Borrower's obligations with respect to
or in connection with the Accommodations, (ii) pledges, in form and substance of
Exhibit F hereto, of all of the Borrower's deposit and margin accounts and
- ---------
acknowledgments of and consents to such pledges from the financial institutions
with which such accounts are maintained, (iii) a guaranty by Resources of all of
Marketing's payment obligations with respect to or in connection with the
Marketing Facility (as defined in the Marketing Agreement), together with a
letter of credit issued by a bank acceptable to the Lenders in the face amount
of $1,000,000 to secure Resources' obligations under such guaranty, (items (i)
through (iii), collectively, the "SECURITY DOCUMENTS"), (iv) promissory notes
------------------
evidencing Borrower's obligations to repay the Demand Loans and any drawings
under the L/Cs (the "NOTES") in form and substance of Exhibit G hereto and (v)
----- ---------
such other documents and instruments requested by the Agent and the Lenders,
including, without limitation those documents and instruments listed on that
certain Closing Agenda prepared in connection with the execution of this PMCT
Letter Agreement.
(b) Notwithstanding, the foregoing, any Accommodation which the
Lenders, in their sole discretion, may make or issue shall be on such terms and
conditions as the
<PAGE>
-15-
Lenders may require and shall be evidenced by documentation in form and
substance satisfactory to the Lenders and shall be subject thereto. If,
however, the Lenders shall make or issue any Accommodation and the Lenders shall
not specify other terms, conditions or documentation applicable thereto, then
such Accommodation shall be subject to the terms and conditions set forth in
this PMCT Letter Agreement.
3. INDEMNIFICATION. Borrower shall indemnify and hold harmless the Agent
---------------
and each of the Lenders and each of their respective directors, officers,
employees and agents from and against (a) any and all damages, losses,
liabilities, reasonable costs, and expenses, including, without limitation,
reasonable legal, and/or outside accounting, investment banking and other
professional fees paid or incurred by the Agent or any of the Lenders, which
shall arise out of, result from or in any way relate to any investigation,
litigation or proceeding (actual or threatened) relating to the extension of
Accommodations under this PMCT Letter Agreement, the PMCT Facility Documents,
the PMCT Facility, any Accommodation issued or made hereunder, the violation or
alleged violation of any environmental law or involving or respecting any
inventory or product sold to or by any Borrower and (b) all related reasonable
costs and expenses, including, without limitation, legal, and/or outside
accounting, investment banking and other professional fees paid or incurred by
the Agent or any of the Lenders in connection with any effort to mitigate or
defend against such damages, losses and liabilities, actual or potential, and to
otherwise protect the Agent's or any of the Lenders' interests in connection
with any matter which may give rise to such damages, losses and liabilities (but
excluding any such damages, losses, liabilities, costs and expenses, and related
costs and expenses, incurred by reason of the gross negligence or willful
misconduct by the person or entity seeking to be indemnified hereunder).
Without prejudice to any of the foregoing provisions of this Agreement, Borrower
will on demand by any Lender indemnify such Lender against any losses, costs and
expenses which such Lender may at any time or from time to time sustain or incur
with respect to any Demand Loan which bears interest calculated by reference to
the Eurodollar Rate as a consequence of Borrower's failure to borrow such Demand
Loan on the date designated for Borrower therefor or to repay such Demand Loan
on the last day of the Interest Period relating thereto or if any principal
payment thereof is made, whether before or after demand, on any day other than
the last day of the interest period relating thereto, including interest or fees
payable by such Lender to Lenders of funds obtained by it in order to maintain
such Demand Loan for such interest period. Such losses, costs and expenses
shall be determined by such Lender in good faith on a commercially reasonable
basis.
4. EXPENSES. Whether or not any Accommodations shall be made hereunder,
--------
Borrower agrees to pay:
<PAGE>
-16-
(i) the reasonable cost of (x) reproducing this PMCT Letter
Agreement and the other PMCT Facility Documents and (y) any taxes
(including any interest and penalties in respect thereto) or filing
fees payable by the Agent or the Lenders (other than taxes based upon
the Agent's or any Lender's net income) on or with respect to the
transactions contemplated by this PMCT Letter Agreement (the Borrower
hereby agreeing to indemnify the Agent and the Lenders with respect
thereto);
(ii) the reasonable fees, expenses and disbursements of the
Agent, the Agent's legal counsel and any experts or consultants (which
experts or consultants may be employees of the Agent or any Lender)
retained by the Agent incurred in connection with the preparation,
negotiation or interpretation of this PMCT Letter Agreement and the
other PMCT Facility Documents, each Accommodation issued or made
hereunder, and each amendment, modification, approval, consent or
waiver hereto or hereunder; and
(iii) all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and costs (which attorneys may be employees
of the Agent or such Lender)) incurred by the Agent or the Lenders in
connection with (x) the enforcement of this PMCT Letter Agreement, the
PMCT Facility or any of the PMCT Facility Documents against the
Borrower or the administration thereof, (y) any so-called "work-out"
of the Borrowers' obligations with respect to the PMCT Facility, or
(z) any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to the Agent's or the Lenders'
relationship with the Borrower or any of its subsidiaries under the
PMCT Facility Documents if with respect to any litigation, proceeding
or dispute where the Borrowers and the Lenders are adverse parties,
the Agent and the Lenders are the prevailing parties. The provisions
of this section shall survive payment or satisfaction of payment of
amounts owing under or with respect to the PMCT Facility Documents.
5. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly
-----------------------------------
provided in this PMCT Letter Agreement, any consent or approval required or
permitted by this PMCT Letter Agreement to be given by the Agent and the Lenders
may be given, and any term of this PMCT Letter Agreement or the PMCT Facility
Documents may be amended, and the performance or observance by the Borrower of
any terms of this PMCT Letter Agreement or the other PMCT Facility Documents may
be waived (either
<PAGE>
-17-
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Borrower, the Agent and the
Required Lenders. Neither (a) the provisions of Section 1(e), requiring that the
Required Lenders are necessary to make a demand for prepayment of any undrawn
amounts available for drawing under any L/C or of any obligations secured by
such L/C nor (b) any modification to the defined term "Required Lenders" shall
be made without the written consent of the Borrower, the Agent and all of the
Lenders.
6. ASSIGNMENT. Any Lender may, with the prior written consent of the
----------
Borrowers, the Agent and ING, such consent not to be unreasonably withheld, make
an assignment of any portion of its share of the PMCT Facility, provided that
the assignee with respect thereto and Borrower shall execute an Instrument of
Accession in the form of Exhibit A attached hereto.
---------
7. NOTICES, ETC. Except as otherwise expressly provided herein or in the
------------
other PMCT Facility Documents, all notices and other communications made or
required to be given pursuant to this PMCT Letter Agreement or the other PMCT
Facility Documents to any party hereto shall be in writing and shall be
delivered in hand, mailed by United States registered or certified first class
mail, postage prepaid, sent by overnight courier, or sent by telecopy, facsimile
or telex and confirmed by delivery via courier or postal service at the address
set forth for such party on the signature pages hereto or at such other address
for notice as such party shall have last furnished in writing to the person
giving the notice. Any such notice or demand shall be deemed to have been duly
given or made and to have become effective upon receipt thereof.
8. DEFINITIONS. Any capitalized term defined herein shall have such
-----------
meaning in each place it appears herein, including in any schedules and exhibits
hereto.
9. MISCELLANEOUS.
-------------
With respect to Borrower, this PMCT Letter Agreement is for Borrower's
information only and Borrower is not to show this PMCT Letter Agreement to, and
it is not to be relied upon by, third parties (except that Borrower may file a
copy of, or show, or both, as applicable, this PMCT Letter Agreement to the
Securities Exchange Commission ("SEC") as required by the SEC) and this PMCT
----
Letter Agreement creates no rights in any such third party. The Agent and the
Lenders shall not disclose the terms of this PMCT Letter Agreement except in
accordance with standard and customary banking practices or as required by law
or legal practice or to assignees or potential
<PAGE>
-18-
assignees. This PMCT Letter Agreement constitutes the entire understanding
among Borrower, the Lenders and the Agent on this subject and supersedes all
prior discussions.
No failure on the part of the Agent or the Lenders to exercise and no delay
in exercising, and no course of dealing with respect to any right, power, or
privilege under this PMCT Letter Agreement or any of the other PMCT Facility
Documents shall operate as a waiver thereof. Any waiver of any provision hereof
shall be effective only in the specific instance granted and shall not operate
as a continuing waiver of such provision.
THIS LETTER AGREEMENT AND THE PMCT FACILITY DOCUMENTS AND INSTRUMENTS
EXECUTED IN CONNECTION HEREWITH SHALL FOR ALL PURPOSES BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CHOICE OF LAW PROVISIONS). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS PMCT LETTER AGREEMENT OR ANY
RELATED DOCUMENT OR INSTRUMENT MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH
OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NON-
EXCLUSIVE JURISDICTION OF SUCH COURT AND IRREVOCABLY WAIVES TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. BORROWER CONSENTS TO SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID AND
RETURN RECEIPT REQUESTED, AT THE ADDRESS FOR BORROWER SPECIFIED IN SECTION 7
HEREOF. SERVICE OF PROCESS SERVED IN THE MANNER SET FORTH IN THE PRECEDING
SENTENCE SHALL BE EFFECTIVE FIVE BUSINESS DAYS AFTER THE DATE ON WHICH SUCH
SERVICE OF PROCESS IS SENT AS PROVIDED ABOVE; PROVIDED THAT SUCH FIVE BUSINESS
--------
DAY PERIOD SHALL NOT APPLY IF THE AGENT OR ANY LENDER TAKES ANY ACTION OR FILES
ANY MOTION, AND SHALL NOT PREVENT THE AGENT OR ANY LENDER FROM TAKING ANY
ACTION, OR FILING ANY MOTION, SEEKING AN INJUNCTION OR OTHER EMERGENCY ORDER OR
RELIEF WITHOUT REGARD TO THE FIVE BUSINESS DAY PERIOD PROVIDED FOR IN THIS
SENTENCE AND SUCH ACTION OR MOTION WILL NOT BE CONSIDERED TO BE EX PARTE EXCEPT
--------
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
<PAGE>
-19-
EACH OF THE AGENT, THE LENDERS AND THE BORROWER HEREBY WAIVES ITS RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS LETTER AGREEMENT OR ANY OTHER PMCT FACILITY
DOCUMENT OR ANY RIGHT OR OBLIGATION HEREUNDER OR THEREUNDER. Except as
prohibited by law, each of the Agent, the Lenders and the Borrower hereby waives
any right which it may have to claim or recover in any litigation referred to in
the preceding sentence any special, exemplary, punitive consequential damages or
any damages other than, or in addition to, actual damages. Each of the Agent,
the Lenders and the Borrower (i) certifies that no party hereto nor any
representative, agent or attorney for any party hereto has represented,
expressly or otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers, and (ii) acknowledges that, in entering
into the PMCT Letter Agreement and the other PMCT Facility Documents such
parties are relying upon, among other things, the waivers and certifications
contained in this (S)9.
Agent and each Lender agrees (on behalf of itself and each of its
affiliates, directors, officers, employees, agents and representatives) to use
reasonable precautions to keep confidential, in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by Borrower or Resources as being confidential at the time the
same is delivered to Agent or such Lender, provided that nothing herein shall
limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to counsel for Agent or any
Lender, (iii) to bank examiners, auditors or accountants, (iv) in connection
with any litigation to which Agent or any Lender is a party or (v) to any
assignee or participant (or prospective assignee participant) so long as such
assignee or participant (or prospective assignee or participant) first enters
into a confidentiality agreement with Agent or such Lender; and provided further
that in no event shall Agent or any Lender be required to return any materials
furnished by Borrower or Resources.
This PMCT Letter Agreement may be executed in several counterparts, each of
which shall be an original, and all of which shall constitute one agreement.
In proving this PMCT Letter Agreement, it shall not be necessary to produce more
than one such counterpart executed by the party to be charged. The provisions
of this PMCT Letter Agreement are severable and if any one provision hereof
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such invalidity or unenforceability shall affect only such provision in such
jurisdiction.
<PAGE>
-20-
Please acknowledge your understanding of the above by signing and returning
the enclosed copy of this letter.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By: /s/ Christopher H. Holmgren
--------------------------------
Name: /s/ Christopher H. Holmgren
--------------------------------
Title: Vice President
--------------------------------
Address: 100 Federal Street, 01-08-02
Boston, Massachusetts 02110
Attention: Christopher H. Holmgren,
Vice President
Fax: (617) 434-4067
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By: /s/ Robi Artman-Hodge
--------------------------------
Name: Robi Artman-Hodge
--------------------------------
Title: Managing Director
--------------------------------
Address: 135 East 57 Street
New York, New York 10022
Attention:
Ms. Robi Artman-Hodge
Managing Director
Fax: (212) 593-3362
with a copy to:
<PAGE>
-21-
Accepted and Agreed to:
PMCT INC.
By: /s/ Phil Kramer
---------------------
Name: Phil Kramer
---------------------
Title: Vice President
---------------------
Address: 1600 Smith Street
Houston, Texas 77002
Attention: Mr. Phillip D. Kramer
Fax: (713) 654-1523
<PAGE>
Exhibit 11 (A)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
------------ --------------
<S> <C> <C>
Weighted average common shares
outstanding 13,859,121 13,859,121
Other dilutive securities 2,122,370 2,313,128
----------- -----------
Total shares outstanding for calculation 15,981,491 16,172,249
=========== ===========
Net income - as reported $ 2,652,000 $ 2,652,000
Deduct: Dividends on Cumulative
Convertible Preferred Stock (42,000) (42,000)
----------- -----------
Net income for calculation $ 2,610,000 $ 2,610,000
=========== ===========
Net income per share $.16 $.16
=========== ===========
</TABLE>
<PAGE>
Exhibit 11 (B)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1994
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
------------ --------------
<S> <C> <C>
Weighted average common shares
outstanding 11,576,126 11,576,126
Other dilutive securities 48,780 1,694,095
----------- -----------
Total shares outstanding for calculation 11,624,906 13,270,221
=========== ===========
Net loss - as reported $ 571,000 $ 571,000
Deduct: Dividends on Cumulative
Convertible Preferred Stock (62,000) (62,000)
----------- -----------
Net income for calculation $ 509,000 $ 509,000
=========== ===========
Net income per share $.04 $.04
=========== ===========
</TABLE>
<PAGE>
Exhibit 11 (C)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1993
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
-------------- --------------
<S> <C> <C>
Weighted average common shares
outstanding 11,438,451 11,438,451
Other dilutive securities -- 66,430
------------ ------------
Total shares outstanding for calculation 11,438,451 11,504,881
============ ============
Net loss - as reported $(20,198,000) $(20,198,000)
Deduct: Dividends on Cumulative
Convertible Preferred Stock (63,000) (62,000)
------------ ------------
Net loss for calculation $(20,261,000) $(20,260,000)
============ ============
Net loss per share $ (1.77) $ (1.76)
============ ============
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES AND PARTNERSHIPS OF PLAINS RESOURCES INC.
Subsidiaries
- ------------
. PMCT INC.
. Plains Terminal & Transfer Corporation
. Plains Marketing & Transportation Inc.
. Plains Liquids Transport Inc.
. Plains Resources International Inc.
. PLX Crude Lines Inc.
. PRI Producing Inc.
. Stocker Resources Inc.
. Calumet Florida, Inc.
. Plains Illinois Inc.
. PLX Ingleside Inc.
Partnerships
- ------------
. Plains Gulf Coast Limited Partnership
. Stocker Resources, L.P.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Prospectus
constituting part of the Registration Statements on Form S-8 (Nos. 33-32565, 33-
43788, 33-48610 and 33-53802 of Plains Resources Inc. of our report dated
February 22, 1996, appearing on page F2 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,
1995, AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,129
<SECURITIES> 0
<RECEIVABLES> 51,632
<ALLOWANCES> 0
<INVENTORY> 5,120
<CURRENT-ASSETS> 63,632
<PP&E> 418,084
<DEPRECIATION> 137,546
<TOTAL-ASSETS> 352,046
<CURRENT-LIABILITIES> 68,381
<BONDS> 206,636
0
0
<COMMON> 1,618
<OTHER-SE> 75,411
<TOTAL-LIABILITY-AND-EQUITY> 352,046
<SALES> 403,906
<TOTAL-REVENUES> 404,225
<CGS> 363,716
<TOTAL-COSTS> 401,573
<OTHER-EXPENSES> 7,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,606
<INCOME-PRETAX> 2,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,652
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
