<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
/ / 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 No.)
500 DALLAS STREET
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(Zip Code)
(713) 654-1414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
16,964,128 shares of common stock $0.10 par value, issued and outstanding at
July 30, 1999.
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets:
June 30, 1999 and December 31, 1998............................. 3
Consolidated Statements of Income:
For the three and six months ended June 30, 1999 and 1998....... 4
Consolidated Statements of Cash Flows:
For the six months ended June 30, 1999 and 1998................. 5
Notes to Consolidated Financial Statements......................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS..................................... 11
PART II. OTHER INFORMATION ............................................ 24
</TABLE>
Page 2 of 25
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,058 $ 6,544
Accounts receivable 346,493 128,875
Inventory 60,510 42,520
Prepaid expenses and other 4,984 1,527
------------ ------------
Total current assets 425,045 179,466
------------ ------------
PROPERTY AND EQUIPMENT
Oil and natural gas properties - full cost method
Subject to amortization 627,746 596,203
Not subject to amortization 59,374 54,545
Crude oil pipeline, gathering and terminal assets 513,226 378,254
Other property and equipment 10,462 8,606
------------ ------------
1,210,808 1,037,608
Less allowance for depreciation, depletion and amortization (389,833) (375,882)
------------ ------------
820,975 661,726
------------ ------------
OTHER ASSETS 153,505 133,075
------------ ------------
$ 1,399,525 $ 974,267
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 397,530 $ 170,985
Interest payable 7,800 7,950
Royalties payable 2,851 4,211
Notes payable and other current obligations 23,161 10,261
------------ ------------
Total current liabilities 431,342 193,407
BANK DEBT 117,300 52,000
BANK DEBT OF A SUBSIDIARY 289,350 175,000
SUBORDINATED DEBT 202,302 202,427
OTHER LONG-TERM DEBT 2,556 2,556
OTHER LONG-TERM LIABILITIES 7,289 13,967
------------ ------------
1,050,139 639,357
------------ ------------
MINORITY INTEREST 180,340 173,461
------------ ------------
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK,
STATED AT LIQUIDATION PREFERENCE 92,655 88,487
------------ ------------
NON-REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER STOCKHOLDERS' EQUITY
Series D Cumulative Convertible Preferred Stock, $1.00 par value, 46,600 shares
authorized, issued and outstanding, net of discount of $687,000 and
$1,354,000, respectively 22,613 21,946
Common Stock, $.10 par value, 50,000,000 shares authorized;
issued and outstanding 16,927,474 and 16,881,938 shares, respectively 1,693 1,688
Additional paid-in capital 125,139 124,679
Accumulated deficit (73,054) (75,351)
------------ ------------
76,391 72,962
------------ ------------
$ 1,399,525 $ 974,267
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
Page 3 of 25
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales $ 25,189 $ 25,547 $ 46,331 $ 51,711
Marketing, transportation, storage and terminalling revenues 861,850 163,479 1,317,610 330,683
Interest and other income 238 415 307 619
---------- ---------- ---------- ----------
887,277 189,441 1,364,248 383,013
---------- ---------- ---------- ----------
EXPENSES
Production expenses 12,100 12,835 23,663 25,673
Marketing, transportation, storage and terminalling expenses 835,984 158,283 1,272,380 321,483
General and administrative 7,655 2,437 11,717 4,813
Depreciation, depletion and amortization 8,275 6,838 15,445 13,593
Interest expense 10,764 6,757 19,517 12,866
---------- ---------- ---------- ----------
874,778 187,150 1,342,722 378,428
---------- ---------- ---------- ----------
Income before income taxes and minority interest 12,499 2,291 21,526 4,585
Minority interest 5,016 -- 9,836 --
---------- ---------- ---------- ----------
Income before income taxes 7,483 2,291 11,690 4,585
Income tax expense:
Current -- 19 -- 22
Deferred 2,918 854 4,559 1,714
---------- ---------- ---------- ----------
NET INCOME 4,565 1,418 7,131 2,849
Less: cumulative preferred stock dividends 2,473 316 4,834 628
---------- ---------- ---------- ----------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 2,092 $ 1,102 $ 2,297 $ 2,221
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE:
Basic $ 0.12 $ 0.07 $ 0.14 $ 0.13
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted $ 0.11 $ 0.06 $ 0.13 $ 0.12
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
Page 4 of 25
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,131 $ 2,849
Items not affecting cash flows from operating activities:
Depreciation, depletion and amortization 15,445 13,593
Minority interest in income of a subsidiary 9,836 --
Deferred income taxes 4,559 1,714
Other non-cash items 971 131
Change in assets and liabilities from operating activities:
Accounts receivable (69,163) 9,524
Inventory (1,170) (9,330)
Prepaid expenses and other (3,457) 197
Purchase of pipeline linefill (4) --
Accounts payable and other current liabilities 63,178 (7,016)
Interest payable (150) 499
Royalties payable (1,360) (354)
--------- ---------
Net cash provided by operating activities 25,816 11,807
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost incurred in connection with acquisitions (see Note 3) (141,971) --
Payment for crude oil pipeline, gathering and terminal assets (4,678) --
Payment for acquisition, exploration and developments costs (50,980) (39,405)
Payment for additions to other property and assets (1,321) (951)
--------- ---------
Net cash used in investing activities (198,950) (40,356)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 308,021 119,560
Proceeds from short-term debt 24,150 17,900
Principal payments of long-term debt (127,721) (63,560)
Principal payments of short-term debt (11,900) (18,000)
Distribution to public Unitholders (8,413) --
Other (4,489) 519
--------- ---------
Net cash provided by financing activities 179,648 56,419
--------- ---------
Net increase in cash and cash equivalents 6,514 27,870
Cash and cash equivalents, beginning of period 6,544 3,714
--------- ---------
Cash and cash equivalents, end of period $ 13,058 $ 31,584
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
Page 5 of 25
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Plains
Resources Inc. (the "Company"), its wholly-owned subsidiaries and Plains All
American Pipeline, L.P. ("PAA") in which the Company has an approximate 59%
ownership interest. The operations of PAA are conducted through Plains
Marketing, L.P., All American Pipeline, L.P. and Plains Scurlock Permian,
L.P. ("Plains Scurlock"). Plains All American Inc. ("PAAI"), a wholly owned
subsidiary of the Company, is the general partner ("General Partner") of PAA.
The accompanying consolidated financial statements at June 30, 1999
and for the three and six months ended June 30, 1999 are unaudited and have
been prepared in accordance with the instructions to interim financial
reporting as prescribed by the Securities and Exchange Commission ("SEC").
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, filed with the SEC.
All material adjustments, consisting only of normal recurring
adjustments, which in the opinion of management were necessary for a fair
statement of the results for the interim periods have been reflected. The
results for the three and six months ended June 30, 1999 are not necessarily
indicative of the final results to be expected for the full year. Certain
reclassifications have been made to the prior year statements to conform to
the current year presentation. The Company evaluates the capitalized costs of
its oil and natural gas properties on an ongoing basis and has utilized the
most recently available information to estimate its reserves at June 30,
1999, in order to determine the realizability of such capitalized costs.
Future events, including drilling activities, product prices and operating
costs, may affect future estimates of such reserves.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is
effective for all fiscal years beginning after June 15, 2000. FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. For fair-value hedge transactions in which
the Company is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash-flow hedge transactions, in which the
Company is hedging the variability of cash flows related to a variable-rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income. The
gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the periods in which
earnings are affected by the variability of the cash flows of the hedged
item. The Company is required to adopt this statement beginning in 2001. The
Company has not yet determined the impact that the adoption of FAS 133 will
have on its earnings or financial position.
NOTE 2 -- INVENTORY AND OTHER ASSETS
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Crude oil $ 55,698 $ 37,702
Materials and supplies 4,812 4,818
------------ ------------
$ 60,510 $ 42,520
------------ ------------
------------ ------------
Page 6 of 25
<PAGE>
Other assets consist of the following:
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Pipeline linefill $ 70,572 $ 54,511
Deferred tax asset 44,118 47,785
Land 8,853 8,853
Debt issue costs 22,997 18,668
Other 13,968 8,245
------------ ------------
160,508 138,062
Accumulated amortization (7,003) (4,987)
------------ ------------
$ 153,505 $ 133,075
------------ ------------
------------ ------------
</TABLE>
NOTE 3 -- ACQUISITIONS
SCURLOCK ACQUISITION
On May 12, 1999, Plains Scurlock, a limited partnership of which PAAI
is the general partner and Plains Marketing, L.P. is the limited partner,
completed the acquisition of Scurlock Permian LLC ("Scurlock") and certain
other pipeline assets (the "Scurlock Acquisition") from Marathon Ashland
Petroleum LLC ("MAP"). Including working capital adjustments and associated
closing and financing costs, the cash purchase price was approximately $141
million.
Scurlock, previously a wholly owned subsidiary of MAP, is engaged in
crude oil transportation, trading and marketing, operating in 14 states with
more than 2,400 miles of active pipelines, numerous storage terminals and a
fleet of more than 225 trucks. Its largest asset is an 800-mile pipeline and
gathering system located in the Spraberry Trend in West Texas that extends
into Andrews, Glasscock, Martin, Midland, Regan and Upton Counties, Texas.
The assets acquired also include approximately 2.4 million barrels of crude
oil.
Financing for the Scurlock Acquisition was provided through (i) a
borrowing of approximately $92 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A. (the "Plains Scurlock Credit
Facility"), (ii) the sale to the General Partner of 1.3 million Class B
Common Units ("Class B Units") of PAA at $19.125 per unit, the price equal to
the market value of PAA's common units ("Common Units") on May 12, 1999, for
a total cash consideration of $25 million and (iii) a $25 million draw under
PAA's existing revolving credit agreement. The funds for the purchase of the
Class B Units by the General Partner were provided through a capital
contribution by the Company, which was financed by the Company's revolving
credit facility (the "Revolving Credit Facility").
The Plains Scurlock Credit Facility consists of (i) a five-year $126.6
million term loan and (ii) a three-year $35 million revolving credit
facility. The Plains Scurlock Credit Facility is nonrecourse to PAA, Plains
Marketing, L.P. and All American Pipeline, L.P. and is secured by the assets
acquired. Borrowings under the term loan bear interest at the London
Interbank Offering Rate ("LIBOR") plus 3% and under the revolving credit
facility at LIBOR plus 2.75%. A commitment fee equal to one-half of one
percent per year is charged on the unused portion of the revolving credit
facility. The revolving credit facility, which may be used for borrowings or
letters of credit to support crude oil purchases, matures in May 2002. The
term loan provides for principal amortization of $0.7 million annually
beginning May 2000, with a final maturity of May 2004. As of June 30, 1999,
letters of credit of approximately $15.2 million were outstanding under the
revolver and borrowings of $90 million were outstanding under the term loan.
The Class B Units are initially pari passu with Common Units with
respect to distributions, and after six months are convertible into Common
Units upon approval of a majority of Common Unitholders. After such six month
period, the Class B Unitholder may request that PAA call a meeting of Common
Unitholders to consider approval of the conversion of Class B Units into
Common Units. If the approval of such conversion by the Common Unitholders is
not obtained within 120 days of such request (the "Initial Approval Period"),
the Class B Unitholders will be entitled to receive distributions, on a per
Unit basis, equal to 110% of the amount of distributions paid on a Common
Unit, with such distribution right increasing to 115% if such approval is not
secured within 90 days after the end of the Initial Approval Period. Except
for the vote to approve the conversion, Class B Units have the same voting
rights as the Common Units.
Page 7 of 25
<PAGE>
The assets, liabilities and results of operations of Scurlock are
included in the Consolidated Financial Statements of the Company effective
May 1, 1999. The Scurlock Acquisition has been accounted for using the
purchase method of accounting and the purchase price was allocated in
accordance with Accounting Principles Board Opinion No. 16, Business
Combinations ("APB 16") as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Crude oil pipeline, gathering and terminal assets $124,615
Other property and equipment 1,546
Pipeline linefill 16,057
Other assets (debt issue costs) 3,100
Environmental accrual (1,000)
Net working capital items (3,090)
----------
Cash paid $141,228
----------
----------
</TABLE>
The purchase price allocation was based on preliminary estimates of
fair value and is subject to adjustment as additional information becomes
available and is evaluated. The purchase accounting entries include a $1.0
million accrual for estimated environmental remediation costs. Under the
agreement for the sale of Scurlock by MAP to Plains Scurlock, MAP has agreed
to indemnify and hold harmless Scurlock and Plains Scurlock for claims,
liabilities and losses (collectively "Losses") resulting from any act or
omission attributable to Scurlock's business or properties occurring prior to
the date of the closing of such sale to the extent the aggregate amount of
such losses exceed $1.0 million; provided however, that claims for such
Losses must individually exceed $25,000 and must be asserted by Scurlock
against MAP on or before May 15, 2003.
CHEVRON ASSET ACQUISITION
On July 15, 1999, Plains Scurlock completed the acquisition of a West
Texas crude oil pipeline and gathering system from Chevron Pipe Line Company
for approximately $36.6 million including transaction costs (the "Chevron
Asset Acquisition"). The principal assets acquired include approximately 450
miles of crude oil transmission mainlines, approximately 340 miles of
associated gathering and lateral lines and approximately three million
barrels of crude oil storage and terminalling capacity in Crane, Ector,
Midland, Upton, Ward and Winkler Counties, Texas. Financing for the Chevron
Asset Acquisition was provided by a draw of $36.6 million under the term loan
portion of the Plains Scurlock Credit Facility.
Chevron U.S.A Inc. ("Chevron"), which currently transports
approximately 24,000 barrels of crude oil per day on the system, will
continue to transport its equity crude oil production from the region on the
system under a twelve-year contractual arrangement.
PRO FORMA RESULTS FOR THE SCURLOCK ACQUISITION AND ALL AMERICAN ACQUISITION
The following unaudited pro forma data is presented to show pro forma
revenues, net income and basic and diluted net income per share as if the
Scurlock Acquisition and the acquisition of the All American Pipeline and
Celeron Gathering system ("All American Acquisition") had both occurred on
January 1, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Revenues $ 2,409,209 $ 2,487,524
-------------- ---------------
-------------- ---------------
Net income $ 9,631 $ 4,641
-------------- ---------------
-------------- ---------------
Net income per share:
Basic $ 0.28 $ 0.00
-------------- ---------------
-------------- ---------------
Diluted $ 0.26 $ 0.00
-------------- ---------------
-------------- ---------------
</TABLE>
Page 8 of 25
<PAGE>
POINT ARGUELLO ACQUISITION
On July 1, 1999, Arguello Inc., a wholly owned subsidiary of the
Company, acquired Chevron's interests in the Point Arguello Field. The
interests acquired include Chevron's 26% working interest in the Point
Arguello Field and associated onshore processing facilities, Chevron's right
to participate in surrounding leases and certain fee acreage onshore. The
acquisition, which was funded from the Company's working capital, has an
effective date of July 1, 1999. Chevron retained the obligation of (i)
removing, dismantling, and disposing of all existing offshore platforms, (ii)
removing and disposing of all existing pipelines and (iii) removing,
dismantling, disposing and remediation of all existing onshore facilities.
The Company assumed its 26% share of (i) plugging and abandoning all existing
well bores, (ii) removing conductors, (iii) flushing all lines and vessels,
and (iv) removing/abandoning all structures, fixtures and conditions created
subsequent to closing.
Arguello Inc. will be the operator of record for the Point Arguello
field and has entered into an outsourcing agreement with a unit of Torch
Energy Advisors, Inc. for the conduct of daily operations and field
management.
NOTE 4 -- EARNINGS PER SHARE
The following is a reconciliation of the numerators and the
denominators of the basic and diluted earnings per share ("EPS") computations
for income from continuing operations for the three and six months ended June
30, 1999 and 1998, as required by Statement of Financial Accounting Standards
No. 128, Earnings Per Share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ----------------------------------
INCOME SHARES PER INCOME SHARES PER
(NUMERA- (DENOMI- SHARE (NUMERA- (DENOMI- SHARE
TOR) NATOR) AMOUNT TOR) NATOR) AMOUNT
----------- ---------- --------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 4,565 $ 1,418
Less: preferred stock dividends (2,473) (316)
----------- ------------
Income available to common
stockholders 2,092 16,914 $ 0.12 1,102 16,820 $ 0.07
--------- ---------
--------- ---------
Effect of dilutive securities:
Employee stock options - 1,137 - 1,151
Warrants - 545 - 579
----------- ---------- ------------ -----------
Income available to common
stockholders assuming dilution $ 2,092 18,596 $ 0.11 $ 1,102 18,550 $ 0.06
----------- ---------- --------- ------------ ----------- ---------
----------- ---------- --------- ------------ ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
1999 1998
--------------------------------- ----------------------------------
INCOME SHARES PER INCOME SHARES PER
(NUMERA- (DENOMI- SHARE (NUMERA- (DENOMI- SHARE
TOR) NATOR) AMOUNT TOR) NATOR) AMOUNT
----------- ---------- --------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 7,131 $ 2,849
Less: preferred stock dividends (4,834) (628)
----------- ------------
Income available to common
stockholders 2,297 16,902 $ 0.14 2,221 16,772 $ 0.13
--------- ---------
--------- ---------
Effect of dilutive securities:
Employee stock options - 882 - 1,090
Warrants - 470 - 549
----------- ---------- ------------ -----------
Income available to common
stockholders assuming dilution $ 2,297 18,254 $ 0.13 $ 2,221 18,411 $ 0.12
----------- ---------- --------- ------------ ----------- ---------
----------- ---------- --------- ------------ ----------- ---------
</TABLE>
Certain options and warrants to purchase shares of the Company's
common stock ("Common Stock") were not included in the computations of
diluted EPS because the exercise prices were greater than the average market
price of the Common Stock during the periods of the EPS calculations,
resulting in antidilution. In addition, the Company's preferred stock is
convertible into Common Stock but was not included in the computation of
diluted EPS because the effect was antidilutive.
Page 9 of 25
<PAGE>
NOTE 5 -- OPERATING SEGMENTS
The Company's operations consist of three operating segments: (i)
Upstream Operations - engages in the acquisition, exploitation, development,
exploration and production of crude oil and natural gas, (ii) Midstream
Operations - engages in crude oil gathering, marketing, terminalling, storage
and transportation and (iii) Corporate - reflects certain amounts that are
not directly attributable to Upstream or Midstream Operations. The Company
evaluates segment performance based on gross margin, gross profit and income
before income taxes and minority interest.
<TABLE>
<CAPTION>
(IN THOUSANDS) UPSTREAM MIDSTREAM CORPORATE TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
Revenues:
External Customers $ 25,189 $ 861,850 $ -- $ 887,039
Intersegment (a) -- 347 -- 347
Other income 48 190 -- 238
------------ ------------ ------------ ------------
Total revenues of reportable segments $ 25,237 $ 862,387 $ -- $ 887,624
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Segment gross margin (b) $ 13,089 $ 25,866 $ -- $ 38,955
Segment gross profit (c) 11,716 20,097 (513) 31,300
Segment income (loss) before income taxes
and minority interest 1,512 11,726 (739) 12,499
- -----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1998
Revenues:
External Customers $ 25,547 $ 163,479 $ -- $ 189,026
Intersegment (a) -- 308 -- 308
Other income 12 403 -- 415
------------ ------------ ------------ ------------
Total revenues of reportable segments $ 25,559 $ 164,190 $ -- $ 189,749
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Segment gross margin (b) $ 12,712 $ 5,196 $ -- $ 17,908
Segment gross profit (c) 11,330 4,141 -- 15,471
Segment income (loss) before income taxes and
minority interest (602) 2,893 -- 2,291
- -----------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Revenues:
External Customers $ 46,331 $ 1,317,610 $ -- $ 1,363,941
Intersegment (a) -- 674 -- 674
Other income 20 287 -- 307
------------ ------------ ------------ ------------
Total revenues of reportable segments $ 46,351 $ 1,318,571 $ -- $ 1,364,922
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Segment gross margin (b) $ 22,668 $ 45,230 $ -- $ 67,898
Segment gross profit (c) 19,685 37,009 (513) 56,181
Segment income (loss) before income taxes
and minority interest (447) 22,712 (739) 21,526
- -----------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Revenues:
External Customers $ 51,711 $ 330,683 $ -- $ 382,394
Intersegment (a) -- 565 -- 565
Other income 39 580 -- 619
------------ ------------ ------------ ------------
Total revenues of reportable segments $ 51,750 $ 331,828 $ -- $ 383,578
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Segment gross margin (b) $ 26,038 $ 9,200 $ -- $ 35,238
Segment gross profit (c) 23,266 7,159 -- 30,425
Segment income (loss) before income taxes and
minority interest (301) 4,886 -- 4,585
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Intersegment revenues and transfers were conducted on an
arm's-length basis.
(b) Gross margin is calculated as operating revenues less operating
expenses.
(c) Gross profit is calculated as operating revenues less operating
and general and administrative expenses.
Page 10 of 25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
On May 12, 1999, Plains Scurlock Permian, L.P. ("Plains Scurlock"), a
limited partnership of Plains All American Pipeline, L.P., ("PAA"), through
which the Company's midstream activities are conducted, completed the
acquisition of Scurlock Permian LLC ("Scurlock") and certain other pipeline
assets from Marathon Ashland Petroleum LLC (the "Scurlock Acquisition").
Including working capital adjustments and associated closing and financing
costs, the cash purchase price was approximately $141 million. The assets,
liabilities and results of operations of the Scurlock Acquisition are
included in the Company's Consolidated Financial Statements effective May 1,
1999.
Scurlock, previously a wholly owned subsidiary of Marathon Ashland
Petroleum LLC ("MAP"), is engaged in crude oil transportation, trading and
marketing, operating in 14 states with more than 2,400 miles of active
pipelines, numerous storage terminals and a fleet of more than 225 trucks.
Its largest asset is an 800-mile pipeline and gathering system located in the
Spraberry Trend in West Texas that extends into Andrews, Glasscock, Martin,
Midland, Regan and Upton Counties, Texas. The assets acquired also include
approximately 2.4 million barrels of crude oil.
On November 23, 1998, PAA completed its initial public offering of
13.1 million common units representing limited partner interests. PAA's
results are consolidated into the Company's results with the public's
ownership reflected as a minority interest deduction from income. The
operations of PAA are conducted through Plains Marketing, L.P., All American
Pipeline, L.P. and Plains Scurlock. Plains All American Inc. ("PAAI"), a
wholly owned subsidiary of the Company is the general partner ("General
Partner") of PAA. PAA was formed to acquire the midstream crude oil business
and assets of the Company, including the All American Pipeline and the SJV
Gathering System, which the Company purchased from Goodyear in July 1998 (the
"All American Acquisition"). The assets, liabilities and results of
operations of the All American Acquisition are included in the Company's
Consolidated Financial Statements effective July 30, 1998. See Note 3 to the
accompanying Consolidated Financial Statements for pro forma information
giving effect to the Scurlock Acquisition and the All American Acquisition as
if such transactions had occurred on January 1, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
The Company reported net income for the second quarter of 1999 of $4.6
million, or $0.12 per common share ($0.11 assuming dilution) as compared with
net income of $1.4 million, or $0.07 per common share ($0.06 assuming
dilution) in the 1998 second quarter. Cash flow from operations (net income
before non-cash expenses) increased approximately 78% to $16.3 million in the
1999 period as compared to $9.2 million in the second quarter of 1998.
Earnings before interest, taxes, depreciation, amortization and minority
interest ("EBITDA") increased 99% to $31.5 million versus $15.9 million in
the second quarter of 1998.
Page 11 of 25
<PAGE>
UPSTREAM RESULTS
The following table sets forth certain upstream operating information of the
Company for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
AVERAGE DAILY PRODUCTION VOLUMES
Barrels of oil equivalent ("BOE")
California (approximately 92% oil) 15.7 13.8
Gulf Coast (100% oil) 2.5 5.3
Illinois Basin (100% oil) 3.0 3.6
--------- ---------
Total (approximately 94% oil) 21.2 22.7
--------- ---------
--------- ---------
UNIT ECONOMICS
Average sales price per BOE $ 13.05 $ 12.38
Production expense per BOE 6.27 6.22
--------- ---------
Gross margin per BOE 6.78 6.16
Upstream G&A expense per BOE 0.72 0.67
--------- ---------
Gross profit per BOE $ 6.06 $ 5.49
--------- ---------
--------- ---------
</TABLE>
During the 1999 second quarter, production volumes were affected by
shut-ins and production cutbacks related to lower crude oil prices and
curtailments due to refinery disruptions in California as well as declines in
the Company's Gulf Coast production. As a result, total oil equivalent
production decreased approximately 7% to an average of 21,200 BOE per day as
compared to the second quarter 1998 average of 22,700 BOE per day.
Net daily production in California increased approximately 14% to
15,700 BOE in the second quarter of 1999 compared to 13,800 BOE in the same
quarter of 1998 due to the acquisition of the Mt. Poso Field in December 1998
and ongoing exploitation activities. Excluding production from the Mt. Poso
field, total California production increased approximately 7% from the
comparative prior year quarter. Net daily production for the Company's Gulf
Coast properties averaged approximately 2,500 barrels per day during the
second quarter of 1999, compared to 5,300 barrels per day in the 1998
comparative period. The Gulf Coast production decrease is due to voluntary
shut-ins, mechanical downtime resulting from the deferral of workovers due to
low crude oil prices, the effects of natural decline and drilling delays. The
Company recently completed some of the well work activity that was commenced
in the second quarter, which included returning wells to production and also
drilling a horizontal lateral out of an existing well to increase its
productive capacity. As a result, Gulf Coast production for July was
approximately 3,400 barrels per day, net to the Company's interest. Net daily
production in the Illinois Basin averaged approximately 3,000 barrels per day
during the second quarter of 1999, a decrease of approximately 17% as
compared to the 1998 second quarter average of 3,600 barrels per day. The
Illinois Basin production decrease is primarily attributable to well shut-ins
and natural decline.
Oil and natural gas revenues were $25.2 million for the second quarter
of 1999, almost flat with the 1998 second quarter amount of $25.5 million as
slightly higher prices offset decreased production. The Company's average
product price, which represents a combination of fixed and floating price
sales arrangements and incorporates location and quality discounts from the
benchmark New York Mercantile Exchange ("NYMEX") price was $13.05 per BOE, up
5% as compared to the 1998 second quarter average wellhead price of $12.38
per BOE. The NYMEX benchmark West Texas Intermediate ("WTI") crude oil price
averaged $17.65 per barrel during the second quarter of 1999, approximately
20% above the $14.69 per barrel amount in the prior year period. The Company
maintained hedges on approximately 65% and 57% of its crude oil production in
the second quarter of 1999 and 1998, respectively, with the hedge price
averaging a NYMEX WTI price of approximately $17.45 per barrel and $19.80 per
barrel in the respective periods. Hedging transactions had the effect of
decreasing the Company's average price per BOE by $0.12 and increasing the
average price by $2.75 in the second quarter of 1999 and 1998, respectively.
Unit production expenses averaged $6.27 per BOE for the second quarter
of 1999, almost equal to the 1998 second quarter average of $6.22 per BOE.
Unit gross margin in the upstream segment was $6.78 per BOE, a 10% increase
as compared to $6.16 per BOE reported for the second quarter of 1998.
Upstream unit gross profit, which deducts all pre-interest cash costs, was
$6.06 per BOE, 10% above the 1998 amount of $5.49 per BOE. Total production
expenses were $12.1 million, as compared to $12.8 million for the second
quarter of 1998. Unit general and administrative ("G&A")
page 12 of 25
<PAGE>
expenses in the upstream segment were $0.72 per BOE in the second quarter of
1999, compared to $0.67 per BOE in the prior year comparative quarter.
Total upstream depreciation, depletion and amortization ("DD&A")
expense was $4.4 million in the second quarter of 1999, compared to $6.5
million in the 1998 comparative quarter due primarily to a lower per unit
DD&A rate and decreased production volumes. DD&A per BOE was $2.10 for the
second quarter of 1999 compared to $3.00 per BOE in the 1998 comparative
quarter. Such decrease is primarily due to a $174 million reduction in the
carrying cost of the Company's proved oil and natural gas properties recorded
in the 1998 fourth quarter due to low crude oil prices, and the impact of
subsequent price recovery on proved reserve volumes. The NYMEX WTI price was
$12.05 per barrel at December 31, 1998, compared to $19.29 at June 30, 1999.
MIDSTREAM RESULTS
The following table sets forth certain midstream operating information
of the Company for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Operating Results:
Gross margin
Pipeline $ 12,917 $ -
Gathering and marketing and
terminalling and storage 12,949 5,196
------------- ------------
Total 25,866 5,196
General and administrative expense (5,783) (1,055)
------------- ------------
Gross profit $ 20,083 $ 4,141
------------- ------------
------------- ------------
Average Daily Volumes (barrels)
Pipeline Activities:
All American
Tariff activities 101 -
Margin activities 63 -
Other 25 -
------------- ------------
Total 189 -
------------- ------------
------------- ------------
Lease gathering 294 83
Bulk purchases 161 109
Terminal throughput 84 83
</TABLE>
PIPELINE OPERATIONS. The Company's results for the second quarter of
1998 do not include the results of operations of the All American Acquisition
which was effective July 30, 1998. Gross margin from pipeline operations was
$12.9 million for the second quarter of 1999. Approximately $0.8 million of
such margin was from the Scurlock Acquisition, for which two months of
operations are included in the current period's results. Pipeline tariff
revenues and tariff transport volumes from the All American Pipeline were
approximately $9.4 million and 101,000 barrels per day, respectively. Volumes
related to barrels shipped as part of the Company's merchant activities were
63,000 barrels per day in the current year period. Operations and maintenance
expenses were $6.8 million for such period.
The following table sets forth the All American Pipeline average
deliveries per day within and outside California for the three months ended June
30, 1999.
<TABLE>
<S> <C>
DELIVERIES:
AVERAGE DAILY VOLUMES (THOUSAND BARRELS):
Within California 101
Outside California 63
---------
Total 164
---------
---------
</TABLE>
GATHERING AND MARKETING ACTIVITIES AND TERMINALLING AND STORAGE
ACTIVITIES. Gross margin from gathering, marketing, terminalling and storage
activities was approximately $12.9 million for the second quarter of 1999.
Approximately $6.2
Page 13 of 25
<PAGE>
million of this gross margin is attributable to the Scurlock Acquisition
which was effective May 1, 1999. The Scurlock gross margin was generated on
gathering volumes of approximately 192,000 barrels per day and bulk purchase
volumes of approximately 71,000 barrels per day. Scurlock daily volumes are a
two month average of activity from the date of acquisition through June 30,
1999.
Excluding the Scurlock Acquisition, gross margin from the Company's
gathering, marketing, terminalling and storage activities was approximately
$6.7 million for the second quarter of 1999, compared to $5.2 million in the
prior year comparative period. The increase is due to an increase in lease
gathering volumes and storage capacity leased at the Company's crude oil
terminal and storage facility in Cushing, Oklahoma, (the "Cushing Terminal").
Lease gathering volumes increased from an average of 83,000 barrels per day
for the second quarter of 1998 to approximately 102,000 barrels per day in
the current year quarter. Bulk purchase volumes declined from approximately
109,000 barrels per day in last year's quarter to approximately 90,000
barrels per day in the second quarter of 1999. This decrease is primarily due
to a lesser volume of contango purchases and an increased amount of tankage
that was leased to third parties at the Cushing Terminal. The one million
barrel expansion of the Cushing Terminal was placed in service during the
second quarter of 1999. Throughput volumes at the Company's terminals
averaged approximately 84,000 barrels per day in the current year quarter,
about flat with the 1998 comparative period average of 83,000 barrels per
day. Average leased terminal capacity increased significantly from
approximately 600,000 barrels per month in last year's quarter to 2.3 million
barrels per month during the current year quarter.
GENERAL
Total G&A expenses, including midstream activities, were approximately
$7.7 million for the three months ended June 30, 1999, an increase of $5.2
million as compared to the 1998 comparative period. Approximately $4.7
million of the increase is attributable to the Company's midstream
activities. Approximately $4.2 million of the midstream increase is
associated with the May 1999 Scurlock Acquisition, the July 1998 All American
Acquisition and expenses incurred by PAA as a result of its being a separate
public entity. Interest expense for the quarter ended June 30, 1999 increased
to $10.8 million from $6.8 million for the comparative prior year quarter
primarily due to the debt incurred for the Scurlock Acquisition and the All
American Acquisition. Capitalized interest was $1.2 million and $0.9 million
for the three months ended June 30, 1999 and 1998, respectively.
The Company's total tax provision for the quarter ended June 30, 1999,
was approximately $2.9 million, as compared to the second quarter 1998 tax
provision of approximately $0.9 million. Such increase is due to the increase
in income before taxes between the two periods. In both periods,
substantially all of the Company's income tax provision was deferred.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company reported net income for the first six months of 1999 of
$7.1 million, or $0.14 per common share ($0.13 assuming dilution), as
compared with net income of $2.8 million, or $0.13 per common share ($0.12
assuming dilution) in the first six months of 1998. Cash flow from operations
(net income before non-cash expenses) increased approximately 54% to $28.1
million in the 1999 period as compared to $18.3 million in the first six
months of 1998. EBITDA increased 82% to $56.5 million versus $31.0 million in
the first half of 1998. Net cash provided by operating activities, as
reported in the Consolidated Statements of Cash Flows was $25.8 million for
the six months ended June 30, 1999, as compared to $11.8 million for the 1998
comparative period.
Page 14 of 25
<PAGE>
UPSTREAM RESULTS
The following table sets forth certain upstream operating information of the
Company for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
AVERAGE DAILY PRODUCTION VOLUMES
Barrels of oil equivalent
California (approximately 91% oil) 15.3 13.7
Gulf Coast (100% oil) 2.7 5.1
Illinois Basin (100% oil) 3.1 3.7
---------- ----------
Total (approximately 94% oil) 21.1 22.5
---------- ----------
---------- ----------
UNIT ECONOMICS
Average sales price per BOE $ 12.14 $ 12.70
Production expense per BOE 6.20 6.31
---------- ----------
Gross margin per BOE 5.94 6.39
Upstream G&A expense per BOE 0.78 0.68
---------- ----------
Gross profit per BOE $ 5.16 $ 5.71
---------- ----------
---------- ----------
</TABLE>
During the first six months of 1999, production volumes were affected
by shut-ins and production cutbacks related to lower crude oil prices and
curtailments due to refinery disruptions in California as well as declines in
the Company's Gulf Coast production. As a result, total oil equivalent
production decreased approximately 6% to an average of 21,100 BOE per day as
compared to the 1998 first half average of 22,500 barrels per day.
Net daily production in California increased approximately 12% to
15,300 BOE in the first half of 1999 compared to 13,700 BOE in the same
period of 1998 due to the acquisition of the Mt. Poso Field in December 1998
and ongoing exploitation activities. Excluding production from the Mt. Poso
field, total California production increased approximately 5% from the
comparative prior year period. Net daily production for the Company's Gulf
Coast properties averaged approximately 2,700 barrels per day during the
first half of 1999, compared to 5,100 barrels per day in the 1998 comparative
period. The Gulf Coast production decrease is due to voluntary shut-ins,
mechanical downtime resulting from the deferral of workovers due to low crude
oil prices, the effects of natural decline and drilling delays. The Company
recently completed some of the well work activity that was commenced in the
second quarter, which included returning wells to production and also
drilling a horizontal lateral out of an existing well to increase its
productive capacity. As a result, Gulf Coast production for July was
approximately 3,400 barrels per day, net to the Company's interest. Net daily
production in the Illinois Basin averaged approximately 3,100 barrels per day
during the first half of 1999, a decrease of approximately 16% as compared to
the 1998 first half average of 3,700 barrels per day. The Illinois Basin
production decrease is primarily attributable to well shut-ins and natural
decline.
Oil and natural gas revenues were $46.3 million for the first half of
1999, a decrease of approximately 10% from the comparable 1998 period amount
of $51.7 million. The Company's average product price, which represents a
combination of fixed and floating price sales arrangements and incorporates
location and quality discounts from the benchmark NYMEX price was $12.14 per
BOE, a decrease of approximately 4% as compared to the 1998 first half
average wellhead price of $12.70 per BOE. The NYMEX WTI crude oil price
averaged $15.35 per barrel during the first half of 1999, compared to $15.33
per barrel in the prior year period. The Company maintained hedges on
approximately 56% and 58% of its crude oil production in the first half of
1999 and 1998, respectively, with the hedge price averaging a NYMEX WTI price
of approximately $17.80 per barrel and $19.80 per barrel in the respective
periods. Hedging transactions had the effect of increasing the Company's
average price per BOE by $1.03 and $2.43 in the first half of 1999 and 1998,
respectively.
Unit production expenses averaged $6.20 per BOE, a 2% decrease as
compared to the 1998 first half average of $6.31 per BOE. Unit gross margin
in the upstream segment was $5.94 per BOE, a 7% decrease as compared to $6.39
per BOE reported for the first half of 1998. Upstream unit gross profit,
which deducts all pre-interest cash costs, was $5.16 per BOE, 10% below the
1998 amount of $5.71 per BOE. Total production expenses were $23.7 million,
as compared to $25.7 million for the first half of 1998. Unit G&A expenses in
the upstream segment were $0.78 per BOE in the first half of 1999, compared
to $0.68 per BOE in the prior year comparative period.
Page 15 of 25
<PAGE>
Total upstream DD&A expense was $8.8 million in the first half of
1999, compared to $13.0 million in the 1998 comparative period due to a lower
per unit DD&A rate and decreased production volumes. DD&A per BOE was $2.10
for the first half of 1999 compared to $3.00 per BOE in the 1998 comparative
period. Such decrease is primarily due to a $174 million reduction in the
carrying cost of the Company's proved oil and natural gas properties recorded
in the 1998 fourth quarter due to low crude oil prices, and the impact of
subsequent price recovery on proved reserve volumes. The NYMEX WTI price was
$12.05 per barrel at December 31, 1998, compared to $19.29 at June 30, 1999.
MIDSTREAM RESULTS
The following table sets forth certain midstream operating information
of the Company for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING RESULTS:
Gross margin
Pipeline $ 24,799 $ -
Gathering and marketing and
terminalling and storage 20,431 9,200
------------- ------------
Total 45,230 9,200
General and administrative expense (8,234) (2,041)
------------- ------------
Gross profit $ 36,996 $ 7,159
------------- ------------
------------- ------------
AVERAGE DAILY VOLUMES (BARRELS)
Pipeline Activities
All American
Tariff activities 113 -
Margin activities 55 -
Other 25 -
------------- ------------
Total 193 -
------------- ------------
------------- ------------
Lease gathering 292 82
Bulk purchases 163 102
Terminal throughput 79 75
</TABLE>
PIPELINE OPERATIONS. The Company's results for the first six months of
1998 do not include the results of operations of the All American Acquisition
which was effective July 30, 1998. Gross margin from pipeline operations was
$24.8 million for the first six months of 1999. Approximately $0.8 million of
such margin was from the Scurlock Acquisition, for which two months of
operations are included in the current period's results. Pipeline tariff
revenues and tariff transport volumes from the All American Pipeline were
approximately $22.0 million and 113,000 barrels per day, respectively, for
the first six months of 1999. Volumes related to barrels shipped as part of
the Company's merchant activities were 55,000 barrels per day in the current
year period. Operations and maintenance expenses were $13.0 million for such
period.
The following table sets forth the All American Pipeline average
deliveries per day within and outside California for the six months ended
June 30, 1999.
<TABLE>
<S> <C>
DELIVERIES:
AVERAGE DAILY VOLUMES (THOUSAND BARRELS):
Within California 106
Outside California 62
---------
Total 168
---------
---------
</TABLE>
GATHERING AND MARKETING ACTIVITIES AND TERMINALLING AND STORAGE
ACTIVITIES. Gross margin from gathering, marketing, terminalling and storage
activities was approximately $20.4 million for the first half of 1999.
Approximately $6.2 million of this gross margin is attributable to the
Scurlock Acquisition which was effective May 1, 1999. The Scurlock gross
margin was generated on gathering volumes of approximately 192,000 barrels
per day and bulk purchase volumes of approximately 71,000 barrels per day.
Scurlock daily volumes are a two month average of activity from the date of
acquisition through June 30, 1999.
Page 16 of 25
<PAGE>
Excluding the Scurlock Acquisition, gross margin from the Company's
gathering, marketing, terminalling and storage activities was approximately
$14.2 million for the first half 1999, compared to $9.2 million in the prior
year comparative period. The increase is due to an increase in per barrel
lease gathering margins, lease gathering volumes and storage capacity leased
at the Company's crude oil terminal facilities. Lease gathering volumes
increased from an average of 82,000 barrels per day for the first half of
1998 to approximately 100,000 barrels per day in the current year period.
Bulk purchase volumes declined from approximately 102,000 barrels per day in
the first half of 1998 to approximately 92,000 barrels per day in the 1999
comparative period. This decrease is primarily due to a lesser volume of
contango purchases and an increased amount of tankage that was leased to
third parties at the Cushing Terminal. The one million barrel expansion of
the Cushing Terminal was placed in service during the second quarter of 1999.
Throughput volumes at the Company's terminals averaged approximately 79,000
barrels per day in the current year period, up approximately 5% as compared
to the 1998 first half average of 75,000 barrels per day. Average leased
terminal capacity increased significantly from approximately 935,000 barrels
per month in last year's first half to 2.0 million barrels per month during
the current year period.
GENERAL
Total G&A expenses, including midstream activities, were approximately
$11.7 million for the six months ended June 30, 1999, an increase of $6.9
million as compared to the 1998 comparative period. Approximately $6.2
million of the increase is attributable to the Company's midstream
activities. Approximately $5.1 million of the midstream increase is
associated with the May 1999 Scurlock Acquisition, the July 1998 All American
Acquisition and expenses incurred by PAA as a result of its being a separate
public entity. An additional $0.3 million is due to a one time expense
related to a staff reduction and relocation of certain functions related to
the midstream segment's pipeline operations. Interest expense for the six
month period ended June 30, 1999 increased to $19.5 million from $12.9
million for the comparative prior year period, primarily due to the debt
incurred for the Scurlock Acquisition and the All American Acquisition.
Capitalized interest was $2.2 million and $1.8 million for the six months
ended June 30, 1999 and 1998, respectively.
The Company's total tax provision for the six months ended June 30,
1999, was approximately $4.6 million, as compared to the comparative period
1998 tax provision of approximately $1.7 million. Such increase is due to the
increase in income before taxes between the two periods. In both periods,
substantially all of the Company's income tax provision was deferred.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is
effective for all fiscal years beginning after June 15, 2000. FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. For fair value hedge transactions in which
the Company is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash flow hedge transactions, in which the
Company is hedging the variability of cash flows related to a variable-rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income. The
gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the periods in which
earnings are affected by the variability of the cash flows of the hedged
item. The Company is required to adopt this statement beginning in 2001. The
Company has not yet determined the impact that the adoption of FAS 133 will
have on its results of operations or financial position.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
ACQUISITIONS
Scurlock
On May 12, 1999, Plains Scurlock, a limited partnership of which PAAI
is the general partner and Plains Marketing, L.P. is the limited partner,
completed the Scurlock Acquisition. Including working capital adjustments and
associated closing and financing costs, the cash purchase price was
approximately $141 million.
Page 17 of 25
<PAGE>
Financing for the Scurlock Acquisition was provided through (i) a
borrowing of approximately $92 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A. (the "Plains Scurlock Credit
Facility"), (ii) the sale to the General Partner of 1.3 million Class B
Common Units ("Class B Units") of PAA at $19.125 per unit, the price equal to
the market value of PAA's common units ("Common Units") on May 12, 1999, for
a total cash consideration of $25 million and (iii) a $25 million draw under
PAA's existing revolving credit agreement. The funds for the purchase of the
Class B Units by the General Partner were provided through a capital
contribution by the Company which was financed by the Company's revolving
credit facility (the "Revolving Credit Facility").
The Class B Units are initially pari passu with Common Units with
respect to distributions, and after six months are convertible into Common
Units upon approval of a majority of Common Unitholders. After such six month
period, the Class B Unitholder may request that PAA call a meeting of Common
Unitholders to consider approval of the conversion of Class B Units into
Common Units. If the approval of such conversion by the Common Unitholders is
not obtained within 120 days of such request (the "Initial Approval Period"),
the Class B Unitholders will be entitled to receive distributions, on a per
unit basis, equal to 110% of the amount of distributions paid on a Common
Unit, with such distribution right increasing to 115% if such approval is not
secured within 90 days after the end of the Initial Approval Period. Except
for the vote to approve the conversion, Class B Units have the same voting
rights as the Common Units.
Chevron
On July 15, 1999, Plains Scurlock completed the acquisition of a West
Texas crude oil pipeline and gathering system from Chevron Pipeline Company
for approximately $36.6 million including transaction costs (the "Chevron
Asset Acquisition"). The principal assets acquired include approximately 450
miles of crude oil transmission mainlines, approximately 340 miles of
associated gathering and lateral lines and approximately three million
barrels of crude oil storage and terminalling capacity in Crane, Ector,
Midland, Upton, Ward and Winkler Counties, Texas. Financing for the Chevron
Asset Acquisition was provided by a draw of $36.6 million under the term loan
portion of the Plains Scurlock Credit Facility.
Chevron U.S.A Inc. ("Chevron"), which currently transports
approximately 24,000 barrels of crude oil per day on the system, will
continue to transport its equity crude oil production from the region on the
system under a twelve-year contractual arrangement.
Point Arguello
On July 1, 1999, Arguello Inc., a wholly owned subsidiary of the
Company, acquired Chevron's interests in the Point Arguello Field. The
interests acquired include Chevron's 26% working interest in the Point
Arguello Field and associated onshore processing facilities, Chevron's right
to participate in surrounding leases and certain fee acreage onshore. The
acquisition, which was funded from the Company's working capital, has an
effective date of July 1, 1999. Chevron retained the obligation of (i)
removing, dismantling, and disposing of all existing offshore platforms, (ii)
removing and disposing of all existing pipelines and (iii) removing,
dismantling, disposing and remediation of all existing onshore facilities.
The Company assumed its 26% share of (i) plugging and abandoning all existing
well bores, (ii) removing conductors, (iii) flushing all lines and vessels,
and (iv) removing/abandoning all structures, fixtures and conditions created
subsequent to closing.
Arguello Inc. will be the operator of record for the Point Arguello
field and has entered into an outsourcing agreement with a unit of Torch
Energy Advisors, Inc. for the conduct of daily operations and field
management.
PAA DISTRIBUTIONS
On July 22, 1999, PAA declared a cash distribution of $0.4625 per Unit
on its outstanding Common Units, Class B Units and Subordinated Units. The
distribution is payable on August 13, 1999, to holders of record of such
Units on August 3, 1999. The total distribution to be paid is approximately
$14.9 million, with approximately $6.1 million to be paid to PAA's public
Unitholders and the remainder to be paid to the Company for its limited and
general partner interests. This distribution represents an increase of $.0125
per unit over the minimum quarterly distribution of $0.45 per unit.
Page 18 of 25
<PAGE>
CREDIT FACILITIES
The Plains Scurlock Credit Facility consists of (i) a five-year $126.6
million term loan and (ii) a three-year $35 million revolving credit
facility. The Plains Scurlock Credit Facility is nonrecourse to PAA, Plains
Marketing, L.P. and All American Pipeline, L.P. and is secured by the assets
acquired. Borrowings under the term loan bear interest at the London
Interbank Offering Rate ("LIBOR") plus 3% and under the revolving credit
facility at LIBOR plus 2.75%. A commitment fee equal to one-half of one
percent per year is charged on the unused portion of the revolving credit
facility. The revolving credit facility, which may be used for borrowings or
letters of credit to support crude oil purchases, matures in May 2002. The
term loan provides for principal amortization of $0.7 million annually
beginning May 2000, with a final maturity of May 2004. As of June 30, 1999,
letters of credit of approximately $15.2 million were outstanding under the
revolver and borrowings of $90 million were outstanding under the term loan.
The Company has a $225 million Revolving Credit Facility with a group
of banks (the "Lenders"). The Revolving Credit Facility is guaranteed by all
of the Company's upstream subsidiaries and is collateralized by the oil and
gas properties of the Company and the guaranteeing subsidiaries and the stock
of all upstream subsidiaries. The borrowing base under the Revolving Credit
Facility at June 30, 1999, is $225 million and is subject to redetermination
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 3/8% per annum on the unused portion of the borrowing base.
The Revolving Credit Facility, as amended, matures on July 1, 2001, at which
time the remaining outstanding balance converts to a term loan which is
repayable in sixteen equal quarterly installments commencing October 1, 2001,
with a final maturity of July 1, 2005. The Revolving Credit Facility bears
interest, at the Company's option of either LIBOR plus 1 3/8% or Base Rate
(as defined therein). At June 30, 1999, outstanding borrowings under the
Revolving Credit Facility were approximately $117.3 million.
Concurrently with the closing of the IPO, PAA entered into a $225
million bank credit agreement (the "Bank Credit Agreement") that includes a
$175 million term loan facility (the "Term Loan Facility") and a $50 million
revolving credit facility (the "PAA Revolving Credit Facility"). PAA may
borrow up to $50 million under the PAA Revolving Credit Facility for
acquisitions, capital improvements, working capital and general business
purposes. At June 30, 1999, PAA had $175 million outstanding under the Term
Loan Facility, representing indebtedness assumed from the General Partner and
$25 million outstanding under the PAA Revolving Credit Facility. The Term
Loan Facility matures in 2005, and no principal is scheduled for payment
prior to maturity. The Term Loan Facility may be prepaid at any time without
penalty. The PAA Revolving Credit Facility expires in November 2000.
PAA has a $175 million letter of credit and borrowing facility (the
"Letter of Credit Facility"), the purpose of which is to provide (i) standby
letters of credit to support the purchase and exchange of crude oil for
resale and (ii) borrowings to finance crude oil inventory which has been
hedged against future price risk or designated as working inventory.
Aggregate availability under the Letter of Credit Facility for direct
borrowings and letters of credit is limited to a borrowing base which is
determined monthly based on certain current assets and current liabilities of
PAA, primarily crude oil inventory and accounts receivable and accounts
payable related to the purchase and sale of crude oil. At June 30, 1999, the
borrowing base under the Letter of Credit Facility was $175 million. The
Letter of Credit Facility has a $40 million sublimit for borrowings to
finance crude oil purchased in connection with operations at PAA's crude oil
terminal and storage facilities. At June 30, 1999, there were letters of
credit of approximately $90.1 million and borrowings of $22 million
outstanding under the Letter of Credit Facility.
INVESTING AND FINANCING ACTIVITIES
At June 30, 1999, the Company had a working capital deficit of
approximately $6.3 million compared to a working capital deficit of $13.9
million at December 31, 1998. 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.
Net cash flows used in investing activities were $199.0 million and
$40.4 million for the six months ended June 30, 1999, and 1998, respectively.
Investing activities for the 1999 period include payments of approximately
$135.9 million related to the Scurlock Acquisition (net of Scurlock cash on
hand at acquisition date) and a $6.0 million deposit on the Chevron Asset
Acquisition. Investing activities include payments for acquisition,
exploration and development costs of $51.0
Page 19 of 25
<PAGE>
million and $39.4 million for the six months ended June 30, 1999 and 1998,
respectively. Investing activities for the 1999 period include payments for
crude oil pipeline, gathering and terminal assets (excluding the Scurlock
Acquisition and the Chevron Asset Acquisition) of approximately $4.7 million,
including approximately $3.3 million related to the expansion of the Cushing
Terminal.
Net cash provided by financing activities amounted to $179.6 million
and $56.4 million for the six months ended June 30, 1999 and 1998,
respectively. Financing activities for 1999 include approximately $117.0
million borrowed to fund the Scurlock Acquisition and approximately $6.0
million borrowed to fund a deposit paid on the Chevron Asset Acquisition,
which closed in July 1999. Included in both years are net proceeds from
borrowings under the Revolving Credit Facility as a result of acquisition,
exploration and development activities. Financing activities include
approximately $24.2 million and $17.9 million in short-term borrowings for
the six months ended June 30, 1999 and 1998, respectively, and approximately
$11.9 million and $18.0 million of repayments for the respective periods,
related to hedged crude oil inventory transactions at the Cushing Terminal.
Financing activities for the first six months of 1999 include cash
distributions paid to PAA's public Unitholders of approximately $8.4 million.
CHANGING OIL AND NATURAL GAS PRICES
The Company's upstream activities are affected by changes in 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, substantial future crude oil price
declines would adversely affect 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. In order to
manage its exposure to commodity price risk, the Company has routinely hedged
a portion of its crude oil production. For the second half of 1999, the
Company has entered into crude oil swap agreements for an average of 16,500
barrels per day at an average NYMEX WTI crude oil price of approximately
$18.20 per barrel. This hedge position is equivalent to approximately 66% of
second quarter 1999 average daily oil volumes, adjusted for the Point
Arguello acquisition completed effective July 1, 1999. For the first half of
2000, the Company has entered into various arrangements which will provide
for it to receive a minimum NYMEX WTI price of approximately $15.80 per
barrel on 17,500 barrels per day (equivalent to 70% of second quarter 1999
crude oil production levels, adjusted for Point Arguello). For the second
half of 2000, the Company has entered into various arrangements which will
provide for it to receive a minimum NYMEX WTI price of approximately $15.25
per barrel on 14,000 barrels per day (equivalent to 56% of second quarter
1999 crude oil production levels, adjusted for Point Arguello). Approximately
10,000 barrels per day of the volumes hedged in 2000 will participate in
price increases above the $15.25 floor price, subject to a ceiling limitation
of $19.75 per barrel. The foregoing NYMEX WTI crude oil prices are before
quality and location differentials. 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.
YEAR 2000
YEAR 2000 ISSUE. Some software applications, hardware and equipment,
and embedded chip systems identify dates using only the last two digits of
the year. These products may be unable to distinguish between dates in the
year 2000 and dates in the year 1900. That inability, if not addressed, could
cause applications, equipment or systems to fail or provide incorrect
information after December 31, 1999, or when using dates after December 31,
1999. This in turn could have an adverse effect on the Company because the
Company directly depends on its own applications, equipment and systems and
indirectly depends on those of third parties with which the Company does
business. The Company's key applications, equipment, and automated systems
consist of:
- financial systems applications;
- computer hardware and equipment;
- embedded chip systems; and
- third-party developed software.
YEAR 2000 PROJECT. In order to address the year 2000 issue, the
Company has implemented a year 2000 project for all of its business units. As
the Company evaluates new properties for acquisition, it performs a
pre-acquisition assessment to determine year 2000 readiness. Upon
acquisition, the Company has incorporated these properties into the year 2000
project. The Company has formed a project team to coordinate the five phases
of the year 2000 project. Those phases are:
Page 20 of 25
<PAGE>
- assessment;
- remediation;
- testing;
- implementation of the necessary modifications; and
- contingency planning.
The year 2000 project also includes the evaluation of the extent and
status of the year 2000 compliance efforts of third parties who are material
to the Company's operations and its business units. In conjunction with its
internal efforts, the Company retained a year 2000 consulting firm to review
certain operations of all of its business units and to assess the potential
impact of the year 2000 issue on such operations. The consulting firm has
completed its review, and the Company is utilizing the consultant's
recommendations in its year 2000 project. The Company also retained a second
year 2000 consulting firm to perform an assessment of certain field equipment
which has embedded chip systems. The Company and the consulting firm are
currently performing the necessary remediation, testing and modification of
embedded chip systems which are critical to the Company`s field operations.
YEAR 2000 PROJECT STATUS. The assessment phase for all key
applications, equipment, and automated systems is complete. The remaining
phases of the project involving remediation, testing, and implementation of
necessary modifications are proceeding concurrently. The following table sets
forth the estimated dates of completion of the Year 2000 project for the
Company`s key applications, equipment, and automated systems:
<TABLE>
<CAPTION>
Key Applications, Equipment Estimated Completion
and Automated Systems Date
--------------------- ----
<S> <C>
Third Party Developed Software September 1999
Computer Hardware and Equipment October 1999
Embedded Chip Systems October 1999
Financial Systems Applications October 1999
</TABLE>
An integral part of the year 2000 project is communication with the
Company's critical suppliers and key customers and partners to determine
whether their operations and/or services or products will be year 2000 ready.
The Company has contacted all of these third parties requesting information
on the status of their year 2000 efforts and is currently evaluating
responses and making additional inquiries as needed.
CONTINGENCY PLANNING. As the other phases of the year 2000 project
near completion, the Company is evaluating which of its business activities
may still be vulnerable to a year 2000 disruption. The Company is developing
appropriate contingency plans for each material "at risk" business activity
to provide an alternative means of functioning in an attempt to minimize the
effect of the potential year 2000 disruptions, both internally and on third
parties. The contingency plans are expected to be completed by December 1,
1999. Communications with third parties that are critical to the Company's
business will continue throughout the remainder of 1999, and the Company
plans to develop contingency plans to the extent necessary to address any
concerns regarding the year 2000 readiness of such third parties.
COSTS OF THE YEAR 2000 PROJECT. Through June 30, 1999, the Company has
incurred approximately $1.3 million for its year 2000 project, approximately
$0.4 million of which were costs paid to third parties. While the total cost
of the Company's year 2000 project is still being evaluated, the Company
currently estimates that the costs of the project to be incurred in the
remainder of 1999 and 2000 is between $1.0 million and $1.2 million. The
Company anticipates that approximately $0.5 million of these estimated costs
will be paid to third parties with the remainder being internal costs. The
Company expects to fund these expenditures with cash from operations or
borrowings.
RISK OF NON-COMPLIANCE. The items that pose the greatest year 2000
risks for the Company if implementation of the year 2000 project is not
successful are its financial systems applications, its pipeline supervisory
control and data acquisition ("SCADA") systems and embedded chip systems in
its field equipment. The potential problems if the year 2000 project is not
successful with respect to the financial systems applications are disruptions
of the Company's revenue gathering from and distribution to its customers and
vendors and the inability to perform the Company's other financial and
accounting functions. Failures of SCADA systems or embedded chip systems in
the Company's field equipment or its customers'
Page 21 of 25
<PAGE>
equipment could disrupt the Company's upstream exploitation and production
activities and its midstream crude oil transportation, terminalling, storage
and gathering and marketing activities.
While the Company believes that the year 2000 project will
substantially reduce the risks associated with the year 2000 issue, there can
be no assurance that the Company will be successful in completing each and
every aspect of the project on schedule, and if successful, that the project
will have the expected results. Due to the general uncertainty inherent in
the year 2000 issue, the Company cannot conclude that its failure or the
failure of third parties to achieve year 2000 compliance will not adversely
affect its financial position, results of operations or cash flows. Specific
factors that might affect the success of the Company's year 2000 efforts and
the occurrence of a year 2000 disruption or expense include:
- the Company's failure or the failure of its consultants to
properly identify deficient systems;
- the failure of the selected remedial action to adequately address
any deficiencies;
- the failure of the Company or its consultants to complete the
remediation in a timely manner, due to shortages of qualified
labor or other factors;
- unforeseen expenses related to the remediation of existing systems
or the transition to replacement systems; and
- the failure of third parties to become compliant or to adequately
notify us of potential non-compliance.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to various market risks, including volatility
in crude oil and natural gas commodity prices and interest rates. To manage
such exposure, the Company enters into various derivative transactions. The
Company does not enter into derivative transactions for speculative trading
purposes. Substantially all the Company's derivative contracts are exchange
traded or with major financial institutions and the risk of credit loss is
considered remote.
COMMODITY PRICE RISK. The fair value of outstanding derivative
commodity instruments and the change in fair value that would be expected
from a 10 percent adverse price change are shown in the table below:
<TABLE>
<CAPTION>
CHANGE IN FAIR
FAIR VALUE FROM 10%
VALUE ADVERSE PRICE CHANGE
--------- ------------------------
(IN MILLIONS)
<S> <C> <C>
AT JUNE 30, 1999
Crude Oil
Swaps $ (4.3) $ (8.5)
Futures and option
contracts (2.3) (2.0)
</TABLE>
INTEREST RATE RISK. The Company's debt instruments are sensitive to
market fluctuations in interest rates. The table below presents principal
cash flows and the related weighted average interest rates by expected
maturity dates for debt outstanding at June 30, 1999. The Company's variable
rate debt bears interest at LIBOR plus the applicable margin. The average
interest rates presented below are based upon rates in effect at June 30,
1999. The carrying value of variable rate bank debt approximates fair value
as interest rates are variable, based on prevailing market rates. The fair
value of fixed rate debt was based on quoted market prices based on trades of
subordinated debt. The fair value of the Redeemable Preferred Stock
approximates its liquidation value at June 30, 1999.
Page 22 of 25
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
EXPECTED YEAR OF MATURITY
------------------------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
--------- -------- ------- ------- ------- ----------- ------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>>
LIABILITIES:
Short-term debt - variable rate $ 22.0 $ - $ - $ - $ - $ - $22.0 $ 22.0
Average interest rate 6.3% 6.3%
Long-term debt - variable rate - 25.7 8.0 30.0 30.0 313.6 407.3 407.3
Average interest rate - 6.4% 6.7% 6.6% 6.6% 7.0% 6.9%
Long-term debt - fixed rate - - - - - 200.0 200.0 203.0
Average interest rate - - - - - 10.25%
REDEEMABLE PREFERRED STOCK - - - - - 92.7 92.7 92.7
</TABLE>
Interest rate swaps and collars are used to hedge underlying debt
obligations. These instruments hedge specific debt issuances and qualify for
hedge accounting. The interest rate differential is reflected as an
adjustment to interest expense over the life of the instruments. At June 30,
1999, the Company had interest rate swap and collar arrangements for an
aggregate notional principal amount of $290 million. The Company would
receive approximately $9.0 million if such arrangements were terminated as of
such date.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
All statements, other than statements of historical facts, included in
this report which address activities, events or developments that the Company
expects or anticipates will or may occur in the future are forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties including, among other things, market conditions, drilling and
operating hazards, uncertainties inherent in estimating oil and gas reserves,
uncertainties inherent in the year 2000 issue, environmental liabilities not
covered by an indemnity or insurance and other factors discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Page 23 of 25
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Stockholders (the "Meeting") of the Company
was held on May 20, 1999. At the Meeting, holders of common stock, $.10
par value, of the Company ("Common Stock"), elected eight members of the
Company's Board of Directors. No other matters were voted on at the
Meeting.
Out of the 16,891,617 shares of Common Stock entitled to vote at the
Meeting, there were 14,193,031 shares of Common Stock represented at the
Meeting either by proxies solicited in accordance with Schedule 14A or by
security holders voting in person.
The tabulation of votes for each director nominee is as follows:
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION TO THE
COMPANY'S BOARD OF DIRECTORS VOTES "FOR" WITHHELD
----------- --------
<S> <C> <C>>
Greg Armstrong 14,135,643 57,388
Jerry L. Dees 14,135,630 57,401
Tom H. Delimitros 14,135,630 57,401
William H. Hitchcock 14,135,345 57,686
Dan M. Krausse 14,135,623 57,408
John H. Lollar 14,135,630 57,401
Robert V. Sinnott 14,135,630 57,401
J. Taft Symonds 14,135,555 57,476
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10(h) Purchase and Sale Agreement dated June 4, 1999, by and
among the Company, Chevron U.S.A., Inc., and Chevron
Pipe Line Company.
10(p) Third Amendment to Fourth Amended and Restated Credit
Agreement dated June 21, 1999, among the Company and
ING (U.S.) Capital Corporation, et. al.
10(q) Second Amendment to Plains Resources 1996 Stock
Incentive Plan dated May 20, 1999.
27. Financial Data Schedule
B. Reports on Form 8-K
Amendment No. 1 to Current Report was filed on June 28, 1999, on
form 8-K/A which amends the financial statements, exhibits or
other portion of the Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 27, 1999, with respect
to PAA's acquisition of Scurlock Permian LLC and certain other
pipeline assets from Marathon Ashland Petroleum LLC.
A Current Report on Form 8-K was filed on May 27, 1999, with
respect to PAA's acquisition of Scurlock Permian LLC and certain
other pipeline assets from Marathon Ashland Petroleum LLC.
Page 24 of 25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
PLAINS RESOURCES INC.
Date: August 16, 1999 By: /s/ Cynthia A. Feeback
-------------------------------------
Cynthia A. Feeback, Vice President -
Accounting and Assistant Treasurer
(Principal Accounting Officer)
Page 25 of 25
<PAGE>
EXHIBIT 10(h)
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), entered into as of
June 4, 1999 (the "Execution Date"), by and among CHEVRON U.S.A. INC., a
Pennsylvania corporation ("CUSA"), CHEVRON PIPE LINE COMPANY, a Delaware
corporation ("CPL"), and PLAINS RESOURCES INC., a Delaware corporation
("Buyer"),
W I T N E S S E T H:
WHEREAS CUSA and CPL (collectively "Sellers") are the owners of
interests in crude oil and natural gas production properties located offshore
California and wells, platforms, pipelines, processing facilities, terminals,
storage facilities, real property interests, equipment, inventories and other
property related thereto defined below; and
WHEREAS Sellers desire to sell such interests to Buyer, and Buyer
desires to purchase such interests from Sellers, on the terms and subject to
the conditions set forth in this Agreement:
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, Sellers and Buyer hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following
capitalized terms shall have the respective meanings set forth below or in
the respective referenced Sections.
ABANDONMENT OBLIGATIONS. The obligations, as and to the extent required
by Laws, permits, licenses or other Government Authority approvals, or
rights-of-way or easement agreements or other contracts, to perform the
activities defined in Schedule 1 with respect to any of the CUSA Properties,
the CPL Properties or the Partnerships' Facilities that would become
effective as of and result from the permanent cessation of operation of any
given facility; and the obligations to pay the actual costs of performance of
the foregoing activities. In the case of Abandonment Obligations with
respect to the Partnerships' Facilities or to property subject to a lease,
operating agreement or unit agreement, the Abandonment Obligations consist of
the Sellers' share of such obligations transferred by this Agreement as
allocated to Sellers or Buyer as a member of the applicable unit or holder of
an interest in the applicable lease, operating agreement or partnership.
Abandonment Obligations do not include any Environmental Losses or other
Losses relating to other aspects of the condition of
Ex 10(h) Page 1 of 56
<PAGE>
a facility that are discovered in the course of conducting the abandonment
activities; such Losses shall be allocated between Sellers and Buyer in
accordance with Article 3 below.
AFFILIATE. With respect to a given Person, any other Person directly or
indirectly controlling, controlled by or under common control with the given
Person. For purposes of this definition "control" means ownership of fifty
percent (50%) or more of the voting securities or equivalent voting rights of
a Person.
AGREEMENT. See Recitals.
APPLICABLE CONTRACTS. The CUSA Applicable Contracts and the CPL
Applicable Contracts defined in Article 2, collectively.
APPLICABLE PERMITS. The CUSA Applicable Permits and the CPL Applicable
Permits defined in Article 2, collectively.
APPROVAL DATE. See Section 8.1(b).
BUSINESS DAY. Any day other than a Saturday, a Sunday or any other day
on which federal banking institutions in the United States of America
conducting business in the State of California are required or authorized by
Law to suspend such business.
BUYER. See Recitals.
CLAIM. See Section 3.4.
CLEAN SEAS. Clean Seas L.L.C., a California limited liability company
formed under a LLC Membership Agreement amended to be effective January 12,
1998 among CUSA, CPL and other parties.
CLOSING. The closing of the transactions contemplated by this
Agreement, to be effective at 12:01 a.m. California time on the Closing Date.
CLOSING DATE. See Section 5.2.
COLD STANDBY PERIOD. As to any given platform in the Transferred
Properties, the Cold Standby Period shall begin at 12:01 a.m. on the latter
of (i) 12 months following notice from Buyer to Sellers that Cold Standby is
to begin, or (ii) the date on which all wells drilled from a given platform
have been abandoned to MMS standards, all well conductors have been removed,
and all platform facilities have been purged and cleared of hydrocarbons to a
safe level as required by applicable regulatory standards. As to any given
onshore facility or offshore or onshore pipeline in the Transferred
Properties, the Cold Standby Period shall begin at 12:01 am on the date on
which all facility or pipeline components have been purged and cleared of
hydrocarbons to a safe level as required by applicable regulatory standards.
The Cold Standby Period for any platform, facility or pipeline ends on the
date on which the Abandonment Obligations allocated to Sellers in Schedule 1
with respect to such platform, facility or pipeline have been completed.
Ex 10(h) Page 2 of 56
<PAGE>
For purposes of having Cold Standby apply to a portion of an onshore
facility in circumstances whereby any equipment owned and maintained by the
partnership which owns the facility remains in service for the purpose of
processing, handling, or storing crude oil or natural gas, Buyer must
establish that such portion of the facility to be placed in Cold Standby (i)
has ceased operation and has been purged and cleaned of hydrocarbons and
other process materials, (ii) has been completely isolated from any equipment
that remains in service both mechanically and electrically, (iii) can be
abandoned using usual, economic means of removal, demolition, etc. according
to applicable regulations and reasonably permitted conditions without undue
risk and hazard from the ongoing operations, and (iv) can be abandoned
without increasing costs over the full removal of such facility once
operations have completely ceased.
COLD STANDBY COSTS. The costs incurred during the Cold Standby Period
for maintenance of any given platform, processing plant or other facility, or
pipeline, including operating costs, insurance, taxes, bonds (other than
those bonds required of Buyer hereunder), and management fees and general and
administrative overhead charges chargeable under applicable agreements.
CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement dated April
22, 1999 between CUSA and Buyer.
CPL PROPERTIES. See Section 2.2.
CUSA PROPERTIES. See Section 2.1.
DEPOSIT. See Section 4.1.
DISCLOSURE LETTER. The letter from Sellers to Buyer dated May 5, 1999
and referencing Article 7 of this Agreement, including all attachments to
such letter.
DOLLARS OR $. United States of America dollars.
ENVIRONMENTAL CONDITION. Any condition resulting from a violation of
Laws and permits, licenses and other Government Authority approvals relating
to environmental, health and safety matters to the extent that prosecution,
if instituted, or removal and remediation, if required, would be reasonably
likely to result in Environmental Losses.
ENVIRONMENTAL LOSSES. Losses relating to the presence, release,
discharge or threatened discharge of Subject Materials in or into the air,
surface water, ground water, soil, land surface, subsurface strata or soil
vapor in excess of levels permitted by Laws, permits, licenses or other
Government Authority approvals; Losses incurred in investigating and
remediating such presence, release, discharge or threatened discharge; and
Losses relating to noncompliance with Laws, permits, licenses or other
Government Authority approvals pertaining to Subject Materials or otherwise
relating to environment, health and safety, including Laws related to
"endangered species" or "threatened species" (e.g., 16 U.S.C. Section 1531 et
seq. and California Fish and Game Code Section 2000 et seq.).
Notwithstanding the
Ex 10(h) Page 3 of 56
<PAGE>
foregoing, Abandonment Obligations do not constitute Environmental Losses for
purposes of this Agreement.
EXECUTION DATE. See Recitals.
FERC. Federal Energy Regulatory Commission.
GOVERNMENT AUTHORITY. Any national, state or local government or any
subdivision, agency, court, commission, board, bureau or other authority
thereof.
GGP. Gaviota Gas Plant Company, a California general partnership formed
under a Partnership Agreement dated October 1, 1984.
HYDROCARBON INVENTORIES. See Section 2.3.
INTEREST RATE. The lesser of (i) the interest rate announced as of the
Closing Date by the principal San Francisco, California office of Bank of
America, N.T.&S.A. as its prime rate or reference rate or (ii) the highest
rate permitted by applicable Laws.
LAWS. All applicable statutes, laws, rules, regulations, orders,
ordinances, judgments, decrees, directives, instructions, and interpretations
of any Government Authority, including common law, equity and other legal
principles.
LIENS. All pledges, mortgages, charges, security interests, options,
rights of first refusal or first offer, preemptive rights or any other
encumbrances or liens of any kind in respect of any of the Transferred
Properties.
LOSSES. All liabilities, losses, damages, costs, penalties (civil or
criminal), expenses, fines, settlements, interest, reasonable attorneys'
fees, suits, causes of action, legal or administrative proceedings,
arbitration awards, demands or claims, including claims for personal injury
or damage to business property. Losses may include claims of consequential
or punitive damages sought by third parties against any of Sellers, Buyer or
their Affiliates, but exclude (i) any claims of consequential damages
suffered by any of Sellers, Buyer or their Affiliates, including claims of
lost profits, lost revenue or loss of use of facilities or assets, and (ii)
any claims of punitive damages by any of Sellers, Buyer or their Affiliates.
Losses include Environmental Losses defined above.
MATERIAL DISCOVERY. See Section 8.1(b).
MEASURED INVENTORIES. See Section 4.3(a).
MMS. The Minerals Management Service of the United States Department of
the Interior (or successor Government Authority).
MMS PERFORMANCE BOND. See Section 3.6(a).
Ex 10(h) Page 4 of 56
<PAGE>
PANGL. Point Arguello Natural Gas Line Company, a California general
partnership formed under a Partnership Agreement dated September 1, 1984.
PAPCO. Point Arguello Pipeline Company, a California general
partnership formed under a Partnership Agreement dated August 1, 1984.
PARTNERSHIP INTERESTS. The partnership interests of Sellers in GGP,
PANGL, PAPCO and PATC collectively.
PARTNERSHIPS' FACILITIES. The real property, including fixtures and
improvements thereon, owned or operated as of the Closing Date by any of GGP,
PANGL, PAPCO or PATC.
PATC. Point Arguello Terminal Company, a California general partnership
formed under a Partnership Agreement dated January 1, 1998.
PERMITTED ENCUMBRANCES. Any of the following:
(i) lessor's royalties, non-participating royalties, overriding
royalties, division orders and sales contracts containing
customary terms and provisions covering oil, gas or associated
liquefied or gaseous hydrocarbons, reversionary interests, and
similar burdens if the net cumulative effect of such burdens does
not operate to reduce the net revenue interest claimed by Sellers;
(ii) Liens for taxes or assessments not yet due or delinquent or, if
delinquent, that are being contested in good faith in the normal
course of business;
(iii) all rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the
sale or conveyance of oil and gas leases or interests therein, if
the same are customarily obtained subsequent to such sale or
conveyance and Buyer has no reason to believe they cannot be
obtained;
(iv) easements, road-use agreements, rights-of-way, servitudes,
permits, surface leases and other rights in respect of surface
operations, or defects or deficiencies in title thereto, that do
not materially interfere with Buyer's operation or use of the
Transferred Properties;
(v) zoning, planning and environmental Laws to the extent valid and
applicable to the Transferred Properties; and
(vi) Liens of carriers, warehousemen, mechanics, workers, material
suppliers or other providers of materials or services arising by
operation of Law in the ordinary course of business or incident
to the construction or improvement of any property in respect of
obligations which are not yet due.
Ex 10(h) Page 5 of 56
<PAGE>
PERSON. Any individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, firm, Government Authority or other entity or
person.
PURCHASE PRICE. See Section 4.2.
SELLERS. See Recitals.
SELLERS' BANK ACCOUNT. Account number 55-58727 in the name of Chevron
Corporation at the Chicago, Illinois principal office of First National Bank
of Chicago, American Banking Association ("ABA") number 0710-0001-3, or such
other account as Sellers may designate by written notice to Buyer more than
three Business Days prior to the payment date of any payment obligation of
Buyer under this Agreement.
SELLERS' PERFORMANCE BOND. See Section 3.6(b).
SETTLEMENT ESTIMATE. See Section 4.4.
SETTLEMENT STATEMENT. See Section 4.4.
STRUCTURAL CONDITION. Any rupture, fracture, corrosion or similar
physical defect in any structural component of the platforms included in the
Transferred Properties not constituting ordinary wear and tear and not
covered by any applicable warranty, insurance policy or maintenance service
contract provided at Sellers' expense.
SUBJECT MATERIAL. Any substance, product, waste or other material which
is, or becomes identified, listed, published or defined as a hazardous
substance, hazardous waste, hazardous material, toxic substance, solid waste
or pollutant, or which is otherwise regulated or restricted under any Laws or
permits, licenses or other Government Authority approvals, including the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA),
the Superfund Amendments and Reauthorization Act (SARA), the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act
(RCRA), the Toxic Substances Control Act (TSCA), the Clean Water Act and the
Oil Pollution Liability and Compensation Act of 1990 (OPA 90). Without
limitation, Subject Material includes hydrocarbons, asbestos and
polychlorinated biphenyls.
TITLE DEFECT. Any defect or deficiency in title, except for Permitted
Encumbrances, that (i) creates a Lien affecting the interests of Sellers in
the Transferred Properties, (ii) diminishes Sellers' net revenue interest
(defined as Sellers' share of the proceeds from the sale of hydrocarbons
produced from and allocable to the Transferred Properties, net of all
royalties, overriding royalties, or other burdens on production or
non-operating interests applicable thereto) with respect to a particular
Transferred Property to an interest less than that set forth on a Schedule
hereto, (iii) increases Sellers' working interest (defined as Sellers' share
of the costs of operation, development or production borne by the owner of
such interest) with respect to a particular Transferred Property to an
interest greater than that set forth on a Schedule hereto without a
corresponding increase in Sellers' net revenue interest, (iv) creates an
obligation to pay costs in an amount greater than Sellers' working interest
with respect to a particular Transferred Property as set forth on a
Ex 10(h) Page 6 of 56
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Schedule hereto, or (v) constitutes a lack of validity or perfection of title
such that a reasonably prudent person, engaged in the ownership, development
and operation of oil and gas properties or assets with knowledge of all the
facts would not be willing to accept title without curing such defect.
TRANSFERRED PROPERTIES. The CUSA Properties, the CPL Properties, the
Hydrocarbon Inventories, the Partnership Interests and the transferred
interests of CUSA and CPL in Clean Seas collectively. Transferred Properties
specifically excludes the Partnerships' Facilities, which continue to be
owned by the relevant partnerships, but includes CUSA's and CPL's interests
in such partnerships.
YEAR 2000 COMPLIANT AND YEAR 2000 COMPLIANCE. See Section 7.6.
1.2 RULES OF CONSTRUCTION. For the purposes of this Agreement,
unless the context otherwise requires:
(a) GENERAL. In any provision, (i) "or" is not exclusive; (ii)
"including" and "include" are not exclusive; (iii) an accounting term not
otherwise defined has the meaning assigned to it in accordance with
accounting principles that are generally accepted in the United States of
America; (iv) words in the singular include the plural and words in the
plural include the singular; (v) words in the masculine include the feminine
and words in the feminine include the masculine; (vi) any date specified for
any action that is not a Business Day shall be deemed to mean the first
Business Day after such date; and (vii) a reference to a corporation, limited
liability company or a partnership includes its successors and permitted
assigns.
(b) ARTICLES AND SECTIONS. References to Articles and Sections
without identifying a specific agreement shall be deemed references to
Articles and Sections of this Agreement. The captions of Articles and
Sections are for convenience of reference only and shall not be used in the
interpretation of this Agreement.
(c) AGREEMENTS AND INSTRUMENTS. References to this Agreement or any
other agreement or instrument shall be deemed references to such agreement or
instrument as it may from time to time be amended, and shall be deemed to
refer to any schedules, exhibits or other materials incorporated into such
agreement or instrument.
Ex 10(h) Page 7 of 56
<PAGE>
ARTICLE 2
PURCHASE AND SALE OF TRANSFERRED PROPERTIES
2.1 CUSA PROPERTIES. At the Closing, CUSA shall sell, convey,
transfer and assign to Buyer and Buyer shall purchase and receive from CUSA
all right, title and interest of CUSA in and to assets associated with
Sellers' crude oil and natural gas production associated with the Point
Arguello Project, as such assets are described as follows (collectively the
"CUSA Properties"). Notwithstanding the foregoing, certain CUSA Properties
are jointly used in the ownership, use, operation, maintenance, improvement
or abandonment of the properties related to the Santa Barbara Channel and Dos
Cuadras Projects (the "SBC/DC Properties") transferred to Venoco, Inc.
("Venoco") under the Purchase and Sale Agreement among CUSA, CPL, Venoco and
Ellwood Pipeline, Inc. dated as of November 4, 1998. Such jointly used
properties are designated in the referenced Schedules by a "J," and shall be
transferred in accordance with the provisions of Section 5.5 of this
Agreement:
(a) OIL AND GAS LEASES. All of CUSA's oil and gas leases and lease
operating agreements described in Part A of Schedule 2 attached to this
Agreement, which includes all of CUSA's interests in the Point Arguello Unit,
the Rocky Point Unit, the overriding royalty interest in State of California
leases, and the Cojo lease defined in Schedule 2 (collectively the "Oil and
Gas Leases");
(b) UNIT AGREEMENTS. The unit agreements, unit operating agreements,
joint operating agreements and facility operating agreements described in
Part B of Schedule 2 attached to this Agreement (the "Unit Agreements");
(c) WELLS. The oil and gas wells, disposal wells, injection wells
and other wells located on the real property described in (a) above or (d)
below or on real property subject to the Unit Agreements, as such wells are
described in Part C of Schedule 2 attached to this Agreement (the "Wells");
(d) CUSA REAL PROPERTY. The fee properties, surface leases,
easements and other real property interests described in Part D-1 of Schedule
2 attached to this Agreement (the "CUSA Real Property");
(e) CUSA FIXED ASSETS. The production platforms, equipment,
machinery, furnishings, vehicles, fixtures, flowlines, roads, pipelines, pole
lines, appurtenances, materials, improvements, spare parts, and other
property (excluding Hydrocarbon Inventories separately defined below) related
to the foregoing assets, as described more particularly in Part E-1 of
Schedule 2 attached to this Agreement (the "CUSA Fixed Assets");
(f) MICROWAVE COMMUNICATION ASSETS. The site leases and other property
and contract rights, the Federal Communications Commission licenses, and
transmitter, receiver, repeater and other equipment and furnishings utilized
for microwave communication related
Ex 10(h) Page 8 of 56
<PAGE>
to the foregoing assets, as described more particularly in Schedule 3 attached
to this Agreement (the "Microwave Communication Assets");
(g) VENTURA OFFICE ASSETS. The equipment, furnishings and vehicles
located at CUSA's Ventura Business Unit office at 646 County Square Drive,
Ventura, California, described more particularly in Schedule 4 attached to
this Agreement (the "Ventura Office Assets");
(h) OFFSITE STORED INVENTORY. The inventory of parts and equipment
associated with the foregoing properties and stored at locations other than
at the foregoing property, as described in Schedule 4A attached to this
Agreement (the "Offsite Stored Inventory");
(i) CUSA APPLICABLE CONTRACTS. The contracts of CUSA relating to the
foregoing assets or the ownership, use, operation, maintenance, improvement
or abandonment thereof, or to the production, treatment, sale, storage or
disposal of hydrocarbons, water or other substances associated therewith,
described in Schedule 5 attached to this Agreement (the "CUSA Applicable
Contracts");
(j) CUSA APPLICABLE PERMITS. The licenses, permits and other
approvals issued by Government Authorities to CUSA relating to the foregoing
assets or the ownership, use, operation, maintenance, improvement or
abandonment thereof, or to the production, treatment, sale, storage or
disposal of hydrocarbons, water or other substances associated therewith,
described in Schedule 6 attached to this Agreement (the "CUSA Applicable
Permits"); and
(k) CUSA RECORDS. Subject to the provisions of Section 12.10 below,
the files, records and other information relating to the Point Arguello
Project owned by CUSA available through CUSA's best efforts to locate such
information and which CUSA is not prohibited from transferring to Buyer by
Laws, Applicable Permits or existing contractual relationship (collectively
the "CUSA Records"), including (i) lease, land and title records (including
abstracts of title, title opinions, certificates of title, title curative
documents, division orders, and division order files), (ii) the CUSA
Applicable Contracts and CUSA Applicable Permits documents, (iii) well logs,
well test data, well production reports, maps, environmental, and production
files, (iv) core samples from wells, (v) input and output data with respect
to engineering simulation models (excluding modeling software), (vi) Sellers'
geological or geophysical data (including magnetic tapes, field notes,
seismic lines, structure maps and isopach maps) relating to properties within
the Point Arguello Project, the Rocky Point Unit, the overriding royalty
interests in State of California leases and the Cojo lease included in the
CUSA Properties and not held by Sellers subject to any obligation of
confidentiality in favor of any third party, and (vii) any of the foregoing
data contained in electronic production databases.
2.2 CPL PROPERTIES. At the Closing, CPL shall sell, transfer and
assign to Buyer and Buyer shall purchase and receive from CPL all right,
title and interest of CPL in and to assets described as follows (collectively
the "CPL Properties"). Notwithstanding the foregoing, certain CPL Properties
are jointly used in the ownership, use, operation, maintenance, improvement
or abandonment of the properties related to the Santa Barbara
Ex 10(h) Page 9 of 56
<PAGE>
Channel and Dos Cuadras Projects (the "SBC/DC Properties") transferred to
Ellwood Pipeline, Inc. ("Ellwood") under the Purchase and Sale Agreement
dated as of November 4, 1998. Such jointly used properties are designated
in the referenced Schedules by a "J," and shall be transferred in accordance
with the provisions of Section 5.5 of this Agreement:
(a) CPL REAL PROPERTY. The fee properties, surface leases, easements
and other real property interests described in Part D-2 of Schedule 2
attached to this Agreement (the "CPL Real Property");
(b) CPL FIXED ASSETS. The pipelines, pump stations, equipment,
machinery, furnishings, vehicles, fixtures, roads, pole lines, appurtenances,
materials, improvements, spare parts, and other property (excluding
Hydrocarbon Inventories defined below) related to the foregoing assets, as
described more particularly in Part E-2 of Schedule 2 attached to this
Agreement (the "CPL Fixed Assets");
(c) CPL APPLICABLE CONTRACTS. The contracts of CPL relating to the
foregoing assets or the ownership, use, operation, maintenance, improvement
or abandonment thereof described in Schedule 5 attached to this Agreement
(the "CPL Applicable Contracts");
(d) CPL APPLICABLE PERMITS. The licenses, permits and other approvals
issued by Government Authorities to CPL relating to the foregoing assets or
the ownership, use, operation, maintenance, improvement or abandonment
thereof described in Schedule 6 attached to this Agreement (the "CPL
Applicable Permits"); and
(e) CPL RECORDS. Subject to the provisions of Section 12.10 below,
the files, records and other information relating to the Point Arguello
Project owned by CPL available through CPL's best efforts to locate such
information and which CPL is not prohibited from transferring to Buyer by
Laws, Applicable Permits or existing contractual relationship (collectively
the "CPL Records"), including (i) lease, land and title records (including
abstracts of title, title opinions, certificates of title, title curative
documents, division orders, and division order files), (ii) the CPL
Applicable Contracts and Applicable Permits documents and (iii) environmental
files.
2.3 HYDROCARBON INVENTORIES. At the Closing, Sellers shall sell,
convey, transfer and assign to Buyer and Buyer shall purchase and receive
from Sellers all right, title and interest of Sellers in and to the crude
oil, natural gas, casinghead gas, drip gasoline, natural gasoline, natural
gas liquids, condensate products and other hydrocarbons, whether gaseous or
liquid, produced from or allocable to the CUSA Properties, the CPL
Properties, or other real property subject to the Unit Agreements that are in
the custody of CUSA or CPL, or in the possession of any of the GGP, PANGL,
PAPCO or PATC partnerships, as of the Closing Date. The portion of the
Hydrocarbon Inventories physically present in the PATC facilities described
in Schedule 8 attached hereto (the "Measured Inventories") shall be measured
as of the Closing Date and valued separately as provided in Section 4.3(a)
below.
Ex 10(h) Page 10 of 56
<PAGE>
2.4 PARTNERSHIP INTERESTS AND CLEAN SEAS INTERESTS.
(a) GGP INTEREST. At the Closing, CUSA shall sell, transfer and
assign to Buyer and Buyer shall purchase and receive from CUSA the
partnership interest of CUSA in GGP, including all of CUSA's rights and
duties under the applicable partnership agreement referenced in part F of
Schedule 2 attached hereto.
(b) PANGL, PAPCO AND PATC INTERESTS. At the Closing, CPL shall sell,
transfer and assign to Buyer and Buyer shall purchase and receive from CPL
the partnership interests of CPL in each of PANGL, PAPCO and PATC, including
all of CPL's rights and duties under the applicable partnership agreements
referenced in part F of Schedule 2 attached hereto.
(c) CLEAN SEAS INTERESTS. At the Closing, CUSA shall sell, transfer
and assign to Buyer and Buyer shall purchase and receive from CUSA the
membership interest of CUSA in Clean Seas. At the Closing, CPL shall sell,
transfer and assign to Buyer and Buyer shall purchase and receive from CPL
the portion of the membership interest of CPL in Clean Seas associated with
the CPL Properties. CPL shall retain the portion of its membership interest
in Clean Seas (including the related portion of its capital account in Clean
Seas) associated with Sellers' Estero, California terminal and related
facilities and vessel and barge movements to and from such terminal. Buyer
shall take all actions necessary for Sellers and Sellers' contractors to
qualify for Clean Seas spill response coverage in the course of performance
of any Abandonment Obligations retained by Sellers hereunder, notwithstanding
any subsequent transfer or disposal of interests by Buyer in the Transferred
Properties. Any capital contributions or other payments of expenses
associated with the requirements for Buyer to receive and maintain a
membership interest in Clean Seas shall be for Buyer's account.
(d) ALLOCATION OF POST-CLOSING DATE PARTNERSHIP AND CLEAN SEAS
EXPENSES. Buyer shall pay the share of operating and capital expenses
associated with the Partnership Interests and the Clean Seas interests
transferred to Buyer hereunder from the Closing Date until the commencement
of the Cold Standby Period for a given platform or other facility. The
operating and capital expenses associated with such interests for a
particular platform or other facility from the beginning of its Cold Standby
Period until the completion of Sellers' Abandonment Obligations with respect
thereto shall be allocated between Sellers and Buyer based on their
respective proportions of Abandonment Obligations during such period. The
same principles shall apply to the allocation of expenses for CUSA Properties
and CPL Properties subject to a unit agreement or operating agreement.
(e) ALLOCATION OF DISTRIBUTIONS, CASH CALLS AND CAPITAL ACCOUNTS.
Any distributions of cash by any of GGP, PANGL, PAPCO, PATC or Clean Seas
resulting from activities prior to the Closing Date shall be for the account
of Sellers. Any distributions of cash by any of GGP, PANGL, PAPCO, PATC or
Clean Seas resulting from activities on or after the Closing Date shall be
for the account of Buyer. Any cash calls by any of GGP, PANGL, PAPCO, PATC
or Clean Seas to fund the payment of accounts payable accruing prior to the
Closing Date shall be for the account of Sellers. Any cash calls by any of
GGP, PANGL, PAPCO, PATC or Clean Seas to fund the payment of accounts payable
accruing on or after the Closing Date shall be for the account of Buyer.
Except as stated above in this Section 2.4, the capital account of Sellers in
each of GGP, PANGL, PAPCO, PATC and
Ex 10(h) Page 11 of 56
<PAGE>
Clean Seas shall be transferred to Buyer as of the Closing Date. The same
principles shall apply to the allocation of distributions, cash calls and
capital accounts (if any) for CUSA Properties and CPL Properties subject to a
unit agreement or operating agreement.
2.5 INCLUDED AND EXCLUDED ITEMS.
(a) INCLUDED ITEMS. Any rights of Sellers to unused emission
reduction credits associated with the Transferred Properties or capital
projects for which Applicable Permits have been obtained or are pending shall
be transferred to Buyer on Closing. To the extent that Buyer holds any such
unused credits at the time Sellers commence performance of their retained
Abandonment Obligations, Buyer shall transfer such credits to Sellers or make
such credits available for use by Sellers at no cost to Sellers.
(b) EXCLUDED ITEMS. Notwithstanding the foregoing Sections of this
Article 2, the following items shall be excluded from the Transferred
Properties: (i) property owned by hydrocarbon buyers or by contractors; (ii)
Sellers' geological or geophysical data not related to the Point Arguello
Project, the Rocky Point Unit, the overriding royalty interest in State of
California leases or the Cojo lease included in the CUSA Properties; (iii)
cash located at the Transferred Properties, deposits with Government
Authorities, contractors and vendors, and other cash equivalents, to the
extent that such cash was generated from transactions occurring prior to the
Closing Date or such deposit was made prior to the Closing Date (provided,
however, that Sellers' interest in any cash held by Clean Seas shall be for
Buyer's account to the extent Sellers' equity interests in Clean Seas are
transferred hereunder); (iv) items used, consumed or disposed of in the
ordinary course of business prior to the Closing; (v) surety bonds posted at
the request of Sellers; (vi) rights under insurance policies held by Sellers
or their Affiliates covering any of the Transferred Properties or Sellers'
interests in any of GGP, PANGL, PAPCO, PATC or Clean Seas; (vii) any software
or other systems used by CPL for monitoring and control of the CPL Properties
from remote locations; (viii) rights to technology, software and other
intellectual property listed on Schedule 14 attached to this Agreement; (ix)
the items of equipment listed on Schedule 14 attached to this Agreement; and
(x) records that are subject to attorney-client privilege, work product
immunity or other privileges against disclosure enjoyed by Sellers or their
representatives.
2.6 CONVEYANCING INSTRUMENTS. The fee real property to be conveyed
at Closing shall be conveyed by means of grant deeds in the form of Exhibit A
attached to this Agreement. The rights-of-way and other easements to be
transferred at Closing shall be transferred by means of assignment and
assumption agreements in the form of Exhibit B attached to this Agreement.
The oil and gas leases, surface leases, unit agreement rights and other
contract rights to be conveyed or transferred at Closing shall be transferred
by means of assignment and assumption agreements in the form of Exhibit C
attached to this Agreement, or such assignment forms as may be prescribed by
applicable Government Authorities. The personal property to be transferred
at Closing shall be transferred by means of bills of sale in the form of
Exhibit D attached to this Agreement. The Partnership Interests and Clean
Seas interests to be transferred at Closing shall be transferred by means of
assignment and assumption agreements conforming in each case to the
requirements of the applicable partnership or limited liability company
agreement. The transferable Applicable Permits will
Ex 10(h) Page 12 of 56
<PAGE>
be transferred by means of appropriate forms consistent with the requirements
of the applicable Government Authority.
ARTICLE 3
ASSUMPTION AND INDEMNIFICATION OF LIABILITIES
3.1 LIABILITIES RETAINED BY SELLERS.
(a) CUSA shall indemnify, defend and hold harmless Buyer from and
after the Closing against any Losses attributable to a breach of CUSA's
representations and warranties or a material breach of CUSA's covenants under
this Agreement, provided that (i) any claim of Buyer for breach of CUSA's
representations and warranties shall be void unless notice of such claim is
given to Sellers within one year after the Closing Date and (ii) any claim of
Buyer for breach of CUSA's representations and warranties must individually
exceed Fifty Thousand Dollars ($50,000).
(b) CPL shall indemnify, defend and hold harmless Buyer from and
after the Closing against any Losses attributable to a breach of CPL's
representations and warranties or a material breach of CPL's covenants under
this Agreement, provided that (i) any claim of Buyer for breach of CPL's
representations and warranties shall be void unless notice of such claim is
given to Sellers within one year after the Closing Date and (ii) any claim of
Buyer for breach of CPL's representations and warranties must individually
exceed Fifty Thousand Dollars ($50,000).
(c) From and after the Closing CUSA agrees that it shall perform when
due the Abandonment Obligations associated with the CUSA Properties that are
allocated to "Chevron" as set forth in Schedule 1 attached hereto, and shall
indemnify, defend and hold harmless Buyer against any Losses attributable to
non-performance or the manner of performance of such Abandonment Obligations.
(d) From and after the Closing CPL agrees that it shall perform when
due the Abandonment Obligations associated with the CPL Properties that are
allocated to "Chevron" as set forth in Schedule 1 attached hereto, and shall
indemnify, defend and hold harmless Buyer against any Losses attributable to
non-performance or the manner of performance of such Abandonment Obligations.
(e) From and after the Closing CUSA agrees that it shall indemnify,
defend and hold harmless Buyer against all Losses that are attributable to
ownership, use, operation, maintenance, improvement or abandonment of any of
the CUSA Properties prior to the Closing, including offsite transportation,
storage, treatment and disposal of Subject Materials from such properties
prior to the Closing, but excluding Abandonment Obligations and other
liabilities and obligations assumed by Buyer under Section 3.2 below.
Ex 10(h) Page 13 of 56
<PAGE>
(f) From and after the Closing CPL agrees that it shall indemnify,
defend and hold harmless Buyer against all Losses that are attributable to
ownership, use, operation, maintenance, improvement or abandonment of any of
the CPL Properties prior to the Closing, including offsite transportation,
storage, treatment and disposal of Subject Materials from such properties
prior to the Closing, but excluding Abandonment Obligations and other
liabilities and obligations assumed by Buyer under Section 3.2 below.
(g) From and after the Closing CUSA agrees to reimburse Buyer for or
directly pay Buyer's share of any cash call or other assessment by the
operator of any unit or pursuant to any operating agreement to which the
Transferred Properties are subject, or by GGP, with respect to (i) the
investigation, funding, remediation, defense or settlement of any Abandonment
Obligations allocated to "Chevron" in Schedule 1 with respect to unit
property or the GGP Partnerships' Facilities, and (ii) any Losses that are
attributable to injuries suffered or casualties occurring on the Transferred
Properties, the property of any unit or operating agreement to which the
Transferred Properties are subject, or the GGP Partnerships' Facilities prior
to the Closing.
(h) From and after the Closing CPL agrees to reimburse Buyer for or
directly pay Buyer's share of any cash call or other assessment by any of
PAPCO, PANGL or PATC with respect to (i) the investigation, funding,
remediation, defense or settlement of any Abandonment Obligations allocated
to "Chevron" in Schedule 1 for the applicable Partnerships' Facilities, and
(ii) any Losses that are attributable to injuries suffered or casualties
occurring at the applicable Partnerships' Facilities prior to the Closing.
(i) In the event the operator of any unit or operating agreement to
which the Transferred Properties are subject or any of GGP, PAPCO, PANGL or
PATC makes a cash call on unit owners or partners or provides other
communications to unit owners or partners with respect to the payment
liabilities retained by Sellers under clauses (h) and (g) above, Buyer shall
promptly forward the cash call or other communication to the applicable
Seller for review and payment. At the Closing, Buyer shall execute and
deliver to Sellers Voting Agreements in the form attached as Exhibit M to
this Agreement, by which Sellers shall have the right to receive information,
attend meetings and direct the casting of Buyer's vote and the exercise of
Buyer's approval or rejection rights in the Point Arguello Unit, the Rocky
Point Unit, lease operating agreements, and each of GGP, PANGL, PAPCO, PATC
and Clean Seas with respect to such payment liabilities retained by Sellers.
If any of the Transferred Properties are subsequently subject to a different
or amended unit, partnership or comparable agreement, Buyer shall grant
Sellers similar information and voting rights with respect to the new
agreement.
(j) Without limitation on liabilities retained by Sellers hereunder,
(i) if applicable Government Authorities require Buyer to take investigatory
or remedial action with respect to the shell mound and oil spotting matters
disclosed by Sellers in the Disclosure Letter, CUSA shall indemnify, defend
and hold harmless Buyer and its Affiliates against the costs of performing
such investigations or remedies, and (ii) the responsibility for defending
against and settling or paying any judgment or arbitration monetary award
issued in any of the litigation or arbitration proceedings filed prior to the
Closing Date and disclosed in the Disclosure Letter shall remain with CUSA or
CPL rather than with Buyer.
Ex 10(h) Page 14 of 56
<PAGE>
3.2 LIABILITIES ASSUMED BY BUYER.
(a) Buyer shall indemnify, defend and hold harmless Sellers from and
after the Closing against any Losses attributable to a breach of Buyer's
representations and warranties or a material breach of Buyer's covenants
under this Agreement, provided that (i) any claim of Sellers for breach of
Buyer's representations and warranties shall be void unless notice of such
claim is given to Buyer within one year after the Closing Date and (ii) any
claims for breach of Buyer's representations and warranties must individually
exceed Fifty Thousand Dollars ($50,000).
(b) From and after the Closing Buyer agrees that it shall perform
when due the Abandonment Obligations associated with the Transferred
Properties that are allocated to "Buyer" as set forth in Schedule 1 attached
hereto, and shall indemnify, defend and hold harmless Sellers against any
Losses attributed to non-performance or the manner of performance of such
Abandonment Obligations.
(c) Buyer shall indemnify, defend and hold harmless Sellers and their
Affiliates from and after the Closing against all Losses that are
attributable to the ownership, use, operation, maintenance, improvement or
abandonment of the Transferred Properties and the Partnerships' Facilities on
and after the Closing Date, including offsite transportation, storage,
treatment and disposal of Subject Materials from such properties on and after
the Closing Date.
(d) Buyer shall indemnify, defend and hold Sellers and their
Affiliates harmless from and against all Losses attributable to (i) Buyer's
employee selection and offer process and actions taken by Buyer and its
Affiliates relating to employees or former employees of Sellers or their
Affiliates, (ii) Buyer's use of employee records or other records maintained
by Sellers or their Affiliates that have been provided to Buyer and (iii) the
actions of any employees of Sellers or their Affiliates acting on Buyer's
behalf and at Buyer's direction in connection with Buyer's employee selection
and offer process.
3.3 GENERAL LIABILITY PROVISIONS.
(a) Notwithstanding the allocation of Abandonment Obligations in
Schedule 1, Buyer shall be responsible to Sellers for any additional or
increased costs of performing and paying Abandonment Obligations resulting
from any material expansions or modifications to the applicable platforms,
facilities or other property to be abandoned, or from any material
modifications to the underlying permits, rights-of-way or other contract
rights or land use rights granted by any Persons, if such modifications were
made by Buyer or its representatives after the Closing Date.
(b) For purposes of allocating liability between Sellers and Buyer
under the indemnity provisions of this Agreement, Losses shall be deemed to
be attributable to ownership, use, operation, maintenance, improvement or
abandonment as of the time that an injury or alleged injury is suffered by a
Person, and not as of the time that a claim or legal action is filed or as of
the time that an allegedly deficient condition was created.
Ex 10(h) Page 15 of 56
<PAGE>
3.4 CLAIMS PROCEDURES.
(a) Any party entitled to indemnification hereunder (the
"Indemnitee") shall notify the party liable for such indemnification (the
"Indemnitor") in writing of any Loss which the Indemnitee has determined has
given or could give rise to a claim for indemnification under this Agreement.
Such notice (a "Notice of Claim") shall specify in reasonable detail, so far
as the Indemnitee is able to do so, the nature and any particulars of any
such claim giving rise to a right of indemnification (including the amount
thereof, so far as the Indemnitee is able to do so). Any Notice of Claim
shall be given promptly after Indemnitee has actual knowledge of the Loss,
and in no event more than 45 calendar days after such knowledge (or, in the
case of a Loss involving filing of a complaint or other pleading, such Notice
of Claim shall be given to allow reasonable time for the Indemnitor to answer
or otherwise respond to such pleading). Failure or delay of the Indemnitee
to give such notice shall relieve the Indemnitor of any liability to the
extent actual prejudice results. The Indemnitee shall permit access (or
ensure that any relevant Affiliate permits access) by the Indemnitor or its
representatives to all personnel, records and other materials reasonably
required by them for their use in connection with any Claim, and shall
cooperate with the Indemnitor in connection with all such Claims as
reasonably required by the Indemnitor.
(b) With respect to any suit, cause of action, legal or
administrative proceeding, arbitration, demand or claim by a third party (a
"Claim") that could give rise to indemnification under this Agreement, the
Indemnitor shall defend (in the name of the Indemnitee, if necessary), at its
own expense with attorneys of its own selection (and who shall be reasonably
satisfactory to the Indemnitee), any such Claim, and the Indemnitee shall not
settle any such Claim without the Indemnitor's written consent; provided,
that if any Indemnitor is not defending such Claim within 30 calendar days
after having been afforded the opportunity to do so in accordance with this
Section, then the Indemnitee shall have the right to reasonably defend the
Claim in such manner as it may deem appropriate at the cost and expense of
the Indemnitor, and the Indemnitor shall promptly reimburse the Indemnitee
therefor in accordance with this Agreement, and the Indemnitor's consent to
any proposed settlement shall not be unreasonably withheld. Notwithstanding
the assumption by the Indemnitor of the defense of any Claim as provided in
this Section 3.4, the Indemnitee shall be permitted to participate in the
defense of such Claim and to employ counsel at its own expense (subject to
the right of the Indemnitor to control and direct such defense).
(c) If the Indemnitor does not assume the defense of any Claim, then
any failure of the Indemnitee to defend shall not relieve the Indemnitor of
its obligations hereunder; provided that the Indemnitee shall have given the
Indemnitor notice of its intention not to defend and afforded the Indemnitor
the opportunity to assume the defense within such period as may be reasonable
(taking into consideration when determining whether such period is
reasonable, the time when notice was given to the Indemnitee by the
Indemnitor that such Indemnitor did not intend to assume the defense
thereof). Notwithstanding any other provision of this Section 3.4, no
Indemnitor shall settle any Claim without the consent of the Indemnitee if
such settlement would involve an admission by the Indemnitee of criminal
liability, the consent to any equitable order or injunction or otherwise
materially and adversely affect the Indemnitee or its subsidiaries.
Ex 10(h) Page 16 of 56
<PAGE>
3.5 SECURITY FOR SELLERS' LIABILITIES. On the Closing, Sellers shall
deliver to Buyer a Guaranty Agreement executed by Chevron Corporation in the
form attached as Exhibit J to this Agreement, by which Chevron Corporation
shall guarantee to Buyer the performance and payment when due by each of
Sellers of certain obligations arising under this Agreement.
3.6 SECURITY FOR BUYER'S LIABILITIES.
(a) On the Closing, Buyer shall deliver to the MMS a supplemental
performance bond in the penal sum required by the MMS executed and
acknowledged by Buyer and sureties acceptable to CUSA and the MMS in the form
of supplemental bond prescribed by the MMS attached as Exhibit K to this
Agreement (the "MMS Performance Bond"), guaranteeing performance and payment
when due by Buyer of its Abandonment Obligations with respect to the
interests in the offshore MMS oil and gas leases transferred hereunder. A
duplicate original of the MMS Performance Bond shall be provided to Sellers
on the Closing. Buyer shall not enter into any amendment, waiver, assignment
or termination of the MMS Performance Bond without the prior written consent
of CUSA. CUSA's consent shall not be unreasonably withheld for amendments of
such bond that do not materially impact CUSA's security, or for substitution
of a surety that has on the substitution date credit ratings from Standard &
Poor's or the equivalent that are as good as or better than the credit
ratings for the surety or sureties accepted by CUSA on the Closing. CUSA may
otherwise withhold its consent to amendments, waivers, assignments or
terminations of the bond in its sole discretion, except as described in
clauses (e) and (f) below. Sellers and Buyer shall endeavor to cause the MMS
to agree that in the event of any default with respect to Buyer's Abandonment
Obligations, the MMS would proceed against the MMS Performance Bond before
proceeding against CUSA. CUSA and the sureties providing the MMS Performance
Bond shall enter into a similar agreement.
(b) On the Closing, Buyer shall deliver to Sellers a performance bond
in favor of Sellers in a penal sum equal to Five Million Dollars ($5,000,000)
minus the penal sum required for the MMS Performance Bond in clause (a)
above, executed and acknowledged by Buyer and sureties acceptable to Sellers
in the form attached as Exhibit L to this Agreement ("Sellers' Performance
Bond"), guaranteeing to Sellers the performance and payment when due by Buyer
of the Buyer's Abandonment Obligations arising under this Agreement.
Seller's Performance Bond shall be maintained by Buyer in full force and
effect at all times until the earlier of (i) the date on which all
Abandonment Obligations assumed by Buyer have been completely performed and
satisfied or (ii) the date Buyer's Abandonment Obligation expenditures are
fully credited against the penal sum of such bond, as described in clauses
(c) and (d) below. Sellers' consent shall not be unreasonably withheld for
substitution of a surety that has on the substitution date credit ratings
from Standard & Poor's or the equivalent that are as good as or better than
the credit ratings for the surety or sureties accepted by Sellers on the
Closing.
(c) Buyer shall maintain accurate records of their actual
expenditures incurred in performing its Abandonment Obligations, and shall
deliver to Sellers reports of such expenditures promptly after each calendar
year in which Abandonment Obligations are performed. For purposes of this
Agreement, any expenditures for an Abandonment Obligation completion of which
requires approval from a Governmental Authority or contract
Ex 10(h) Page 17 of 56
<PAGE>
party shall not be deemed expended until the calendar year in which such
approval is obtained. Sellers or their authorized representatives may audit
Buyer's records for the purpose of verifying the actual expenditures incurred
in performing Buyer's Abandonment Obligations. Any disputes concerning the
amount of such expenditures or their attribution to performance of
Abandonment Obligations shall be resolved in accordance with Section 12.6
below.
(d) Sellers and Buyer shall jointly maintain an account of Buyer's
Abandonment Obligation expenditures determined in accordance with clause (c)
above. In such account, Buyer's expenditures for those Abandonment
Obligations covered by the MMS Performance Bond shall be credited against the
penal sum of the MMS Performance Bond. Buyer's other Abandonment Obligation
expenditures shall be credited against the penal sum of Sellers' Performance
Bond until an amount equal to such penal sum is attained. At any time after
any calendar year in which Abandonment Obligation expenditures are credited
against the penal sum under the MMS Supplemental Performance Bond under this
clause (d), Buyer may require that CUSA consent to partial reduction of such
penal sum in the amount of such credit, conditioned on the consent of MMS to
such partial reduction. At any time after any calendar year in which
Abandonment Obligation expenditures are credited against the penal sum under
the Sellers' Performance Bond under this clause (d), Buyer may require that
Sellers consent to partial reduction of such penal sum in the amount of such
credit.
(e) Until a consent to reconveyance or surety bond termination is
executed by Sellers, the performance bonds described in this Section 3.6
shall remain in full force and effect and Sellers shall have all remedies
available under such instruments or applicable Laws to enforce performance of
Buyer's obligations and to execute on such security in the event of any
default in performance or payment of such obligations when due. Buyer waives
the right to require Sellers to proceed against or exhaust any particular
security or make any election of remedies.
(f) Buyer shall not sell, assign, pledge, grant a security interest
in or otherwise transfer ("transfer") any interest in the real property
interests included in the Transferred Properties, and Plains Resources Inc.
shall not transfer any interest in any subsidiary designated to hold title to
the Transferred Properties or the interests transferred hereunder in GGP,
PANGL, PAPCO or PATC, without first obtaining the written consent of Sellers.
Sellers shall not withhold their consent to such transfer if the transfer
will meet each of the following criteria to Sellers' reasonable satisfaction:
(i) The transfer will not increase the cost or time for
performance of Sellers' then remaining retained Abandonment
Obligations.
(ii) The transfer will not impair the ability or likelihood of
performance of Buyer's then remaining assumed Abandonment
Obligations.
(iii) Sellers will continue to hold unimpaired all rights granted
by Buyer in accordance with this Agreement applicable to
performance of Sellers' then remaining retained Abandonment
Obligations, including rights to use of emission reduction
credits, rights to Clean Seas spill response commitments,
Ex 10(h) Page 18 of 56
<PAGE>
rights as an additional insured under Buyer's insurance, and
rights under the MMS Performance Bond and Sellers' Performance
Bond required hereunder.
Notwithstanding the foregoing, Sellers hereby consent to Buyer's granting of
security interests in the Transferred Properties to the lenders providing
acquisition funding for the Closing of this Agreement and to the sureties
providing the MMS Performance Bond and the Sellers' Performance Bond, and
their respective successors or assigns or substitute parties (provided that
Sellers' consent based on the above criteria shall be required for any
execution, foreclosure, trustee sale or other transfer by or on behalf of
such lenders or sureties, which would result in a party other than the lender
or sureties acquiring an interest). If Sellers' consent based on the above
criteria is obtained with respect to a transfer in which the transferee
provides Sellers with bonds in forms and from sureties satisfying the
requirements for the MMS Performance Bond and Sellers' Performance Bond
hereunder, Sellers shall consent to the release of the respective bond or
bonds furnished by Buyer.
ARTICLE 4
DEPOSIT AND PURCHASE PRICE
4.1 DEPOSIT. Within three Business Days after the Execution Date,
Buyer shall deliver to Sellers a deposit of One Hundred Thousand Dollars
($100,000) (the "Deposit"). The Deposit shall be made in Dollars by transfer
of immediately available funds to Sellers' Bank Account. Sellers need not
segregate the Deposit and shall not hold the Deposit in trust. If the
Closing occurs, the principal amount of the Deposit shall be credited against
the Purchase Price. If the Closing does not occur, the Deposit shall be
applied pursuant to Section 5.4 below. Buyer shall not be entitled to any
interest on the Deposit, whether the Closing occurs or the Agreement is
terminated.
4.2 PURCHASE PRICE. As consideration for the sale of the Transferred
Properties and Sellers' other obligations hereunder, Buyer shall transfer the
following amounts (collectively the "Purchase Price") subject to adjustment
as set forth in Section 4.3 below:
(i) the Deposit shall be paid to Sellers in accordance with
Section 4.1 above;
(ii) an amount equal to One Million Thirty-Seven Thousand Five
Hundred Dollars ($1,037,500) shall be paid to Sellers on the Closing
Date;
(iii) an amount equal to One Million Twenty-Six Thousand Two
Hundred Ninety-Four Dollars ($1,026,294) shall be paid to Sellers on
the later of the Closing Date or the date on which the Application for
Expenditure defined in Section 9.7 below relating to the Reconfiguration
2 Project is approved by the PAPCO and PATC partnerships; and
(iv) the estimated positive or negative total amount of the
adjustments calculated by Sellers in the Settlement Estimate delivered
in accordance with Section
Ex 10(h) Page 19 of 56
<PAGE>
4.3 below, shall be credited to or debited from the amount transferred
by Buyer to Sellers on the Closing Date under clause (ii) above.
All transfers to Sellers shall be paid in Dollars by transfer of immediately
available funds to Sellers' Bank Account.
4.3 PURCHASE PRICE ADJUSTMENTS.
(a) MEASURED INVENTORIES. Sellers shall calculate, using records and
other means of account, the value of the Hydrocarbon Inventories physically
present in the PATC facilities described in Schedule 8 as of the Closing Date
(the "Measured Inventories"). The estimated value of Measured Inventories
shall be calculated in accordance with the Valuation Procedure attached as
Schedule 9 to this Agreement. Buyer shall have the right to have their
representatives audit the records used by Sellers in calculating such
measurement and valuation.
(b) PAYABLES. All credits and payment obligations associated with
the Transferred Properties (including accounts payable and prepayments) which
have been paid by Sellers and their Affiliates or which have accrued on or
before the Closing Date and which relate to liabilities that have been
assumed by Buyer or for which Buyer is otherwise responsible shall be
prorated to CUSA or CPL, as applicable, for the period prior to the Closing
Date and to Buyer, for the period on and after the Closing Date. Sellers
shall pay all such items due prior to the Closing Date and Buyer shall pay
for all such items due on and after the Closing Date.
(c) RECEIVABLES. Accounts receivable or other rights to revenue
associated with the Transferred Properties, to the extent that such accounts
receivable and rights to revenue are attributable to transactions prior to
the Closing Date, shall not be part of the sale but shall remain the property
of Sellers whenever collected.
(d) TAXES. The allocation between Sellers and Buyer of
responsibility for and payment of all property and excise taxes shall be made
in accordance with the provisions of Article 10 below.
4.4 SETTLEMENT STATEMENT. A preliminary estimate of the value of the
Measured Inventories as of the Closing Date under Section 4.3(a) above shall
be calculated by Sellers and set forth in a settlement estimate (the
"Settlement Estimate") delivered to Buyer not later than five (5) Business
Days prior to the scheduled date for Closing. A final determination of the
value of the Measured Inventories as of the Closing Date under Section 4.3(a)
above shall be calculated by Sellers and set forth in a settlement statement
(the "Settlement Statement") delivered to Buyer not later than 180 calendar
days after the Closing. The Settlement Statement shall contain information
detailing the basis for Sellers' calculations, and Buyer and its
representatives shall have access to such records of Sellers as may be
reasonably requested
Ex 10(h) Page 20 of 56
<PAGE>
for verifying the measurements and calculations. If Buyer gives to Sellers
written notice of dispute of any element of the Settlement Statement within
60 calendar days after receiving the Settlement Statement, (i) Sellers or
Buyer, as the case may be, shall pay all undisputed amounts to the other
within 75 calendar days after receiving the Settlement Statement and (ii) the
disputed amount shall be negotiated between Sellers and Buyer. If such
negotiations do not result in a resolution of the dispute within fifteen
calendar days after Buyer's notice of dispute, the disputed amount shall be
determined by one partner of an independent accounting firm jointly selected
by Sellers and Buyer, whose determination shall be consistent with the
provisions of this Agreement and shall be final and conclusive. The disputed
amount shall be payable by the parties owing such amount within five Business
Days following settlement or resolution of the dispute. Any amounts owing
under the Settlement Statement shall bear interest at the Interest Rate from
the Closing Date until paid.
4.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Transferred Properties potentially subject to rights of
first refusal in accordance with Schedule 10 attached to this Agreement.
ARTICLE 5
CLOSING
5.1 TIME AND PLACE OF CLOSING. The consummation of the sale of the
Transferred Properties and other transactions contemplated by this Agreement
(the "Closing") shall be deemed to have occurred at 12:01 a.m. California
time on the Closing Date. The meeting at which execution or delivery of
Closing documents shall take place shall be held at the Ventura, California
office of CUSA at 8:00 a.m. on the Closing Date, or such other location or
date as Sellers and Buyer may mutually agree in writing.
5.2 SCHEDULED CLOSING DATE. The Closing Date is scheduled for July
1, 1999. If the conditions for Closing have not been satisfied by July 1,
1999, the Closing Date may be extended until August 20, 1999 by written
notice by Sellers to Buyer given not later than July 1, 1999. Alternatively,
Sellers and Buyer may mutually agree to schedule the Closing Date on a
different date.
5.3 TERMINATION. If the Closing has not occurred on or before the
later of (i) July 1, 1999 or (ii) the later Closing Date established by
extension notice or mutual agreement in accordance with Section 5.2 above,
either Sellers or Buyer, by written notice to the other, may elect to
terminate their respective obligations to close the transactions contemplated
by this Agreement; provided that no party may so terminate its obligations if
it is then in default of any of its obligations under this Agreement.
5.4 CONSEQUENCES OF TERMINATION.
(a) No termination of this Agreement shall relieve any party hereto of
any liability for any breach hereof occurring prior to such termination.
Ex 10(h) Page 21 of 56
<PAGE>
(b) If the Closing does not occur because of material breach of
Buyer's obligations and this Agreement is terminated as contemplated herein,
Sellers shall retain the Deposit as liquidated damages in lieu of all other
damages and as Sellers' sole remedy against Buyer for such failure to close.
THE PARTIES AGREE THAT THE AMOUNT OF THE LIQUIDATED DAMAGES IS REASONABLE
CONSIDERATION FOR SELLERS' HOLDING THE TRANSFERRED PROPERTIES OFF THE MARKET
FOR THE PERIOD GOVERNED BY THIS AGREEMENT, AND THAT THE EXTENT OF DAMAGES TO
SELLERS OCCASIONED BY FAILURE TO CLOSE WOULD BE EXTREMELY IMPRACTICABLE TO
ASCERTAIN.
(c) If the Closing does not occur because of material breach of
Sellers' obligations and this Agreement is terminated as contemplated herein,
Sellers shall return to Buyer the Deposit, and in addition shall reimburse to
Buyer the verified expenditures incurred by Buyer in conducting due diligence
reviews of the Transferred Properties and negotiating the transaction, all as
liquidated damages in lieu of all other damages and as Buyer's sole remedy
against Sellers for such failure to close. THE PARTIES AGREE THAT THE AMOUNT
OF THE LIQUIDATED DAMAGES IS REASONABLE CONSIDERATION FOR BUYER'S COMMITMENT
TO PURCHASE THE TRANSFERRED PROPERTIES, AND THAT THE EXTENT OF DAMAGES TO
BUYER OCCASIONED BY FAILURE TO CLOSE WOULD BE EXTREMELY IMPRACTICABLE TO
ASCERTAIN.
(d) If the Closing does not occur for reasons other than material
breach of Buyer's or Sellers' obligations and this Agreement is terminated as
contemplated herein, Buyer shall be entitled to the immediate return of the
Deposit. In such event, the recovery of such Deposit shall be Buyer's sole
remedy against Sellers arising out of this Agreement or the termination
hereof.
(e) By initialing where indicated below, the parties specifically
agree to this liquidated damages provision.
<TABLE>
<CAPTION>
<S> <C>
CUSA __________ BUYER __________
(Initials) (Initials)
CPL __________
(Initials)
</TABLE>
5.5 JOINTLY USED ASSETS. Certain of the assets, contracts and
permits (designated with a "J" in the Schedules) are jointly used in
ownership, use, operation, maintenance, improvement or abandonment of the
Transferred Properties and the SBC/DC Properties previously transferred to
Venoco and/or Ellwood ("Jointly Used Assets"). All right, title and interest
in the Jointly Used Assets are currently held by Sellers subject to
arrangements for shared usage with Venoco and/or Ellwood. During the period
between the Execution Date and the Closing Date, Sellers shall facilitate
negotiations among Sellers, Venoco, Ellwood and Buyer for mutually acceptable
arrangements for shared usage of the Jointly Used Assets and determination of
which party or parties will have ownership of the Jointly Used Assets. If
such arrangements have not been entered into and executed five (5) calendar
days prior to the Closing Date, or waiver in the sole discretion of Buyer,
Buyer may terminate this Agreement and obtain a full reimbursement of its
Deposit.
Ex 10(h) Page 22 of 56
<PAGE>
ARTICLE 6
CLOSING CONDITIONS PRECEDENT
6.1 SELLERS' CLOSING CONDITIONS PRECEDENT. The obligations of
Sellers to be performed at the Closing shall be subject to the satisfaction
of the following conditions precedent, each of which may be waived by Sellers
except as otherwise required by Law:
(a) PAYMENTS. Buyer shall make the payments required by Article 4
above to be made on or before the Closing Date.
(b) ACCURACY AND PERFORMANCE OF BUYER'S REPRESENTATIONS AND
COVENANTS. The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects both as of the
Execution Date and as of the Closing Date as if made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement or
otherwise consented to by Sellers in writing. Each of the covenants of Buyer
required by this Agreement to be performed and complied with at or prior to
the Closing shall have been duly performed and validly complied with at or
prior to the Closing. Sellers shall have received a certificate executed by
an officer of Buyer certifying the substance of this clause (b).
(c) AUTHORIZATION OF BUYER. All corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly
taken by Buyer.
(d) OPINION OF BUYER'S COUNSEL. Sellers shall have received an
opinion of the General Counsel of Buyer, in the form of Exhibit G attached to
this Agreement.
(e) DELIVERY OF BUYER'S SECURITY AGREEMENTS. Sellers shall have
received the performance bonds as required by Section 3.6 above executed and
acknowledged by the sureties (and Buyer, if applicable), and, if any rights
and duties under this Agreement have been assigned by Buyer to its
subsidiaries as permitted by Section 12.5 below, Sellers shall have received
the parent guaranty required by Section 12.5 executed and acknowledged by
Plains Resources Inc., guaranteeing to Sellers performance and payment when
due of such subsidiaries' obligations.
(f) ABSENCE OF RESTRAINING LITIGATION. No action or proceeding by or
before any Government Authority shall have been instituted or threatened (and
not subsequently dismissed, settled or otherwise terminated) which might
prohibit, invalidate or materially restrain the transactions contemplated by
this Agreement, other than an action or proceeding instituted or threatened
by Sellers or any of their Affiliates.
(g) ASSIGNMENT AND ASSUMPTION AGREEMENTS. Buyer shall have executed
and delivered to Sellers the assignment and assumption agreements with respect
to the transfer of
Ex 10(h) Page 23 of 56
<PAGE>
rights-of-way and other easements and mineral and surface leases and contract
rights in the forms described in Section 2.6 above.
(h) REQUIRED CONSENTS. Sellers and Buyer shall have received all
consents from the parties to the Point Arguello Unit unit agreement and the
partners in each of GGP, PANGL, PAPCO and PATC necessary for Buyer to succeed
to Sellers' interests as a unit owner in the Point Arguello Unit, as operator
of the Point Arguello Unit, and as a partner or limited liability company
member holding Sellers' interest in each of GGP, PANGL, PAPCO, PATC and Clean
Seas.
(i) TRANSFER OF PARTNERSHIP INTERESTS AND CLEAN SEAS INTERESTS.
Buyer shall have executed and delivered to Sellers the assignment and
assumption agreements with respect to the transfer of the Partnership
Interests and interests in Clean Seas to be transferred hereunder, conforming
in each case to the requirements of the applicable partnership or limited
liability company agreement.
(j) SERVICES AGREEMENT. Buyer shall have executed and delivered to
Sellers the Services Agreement in the form of Exhibit E attached to this
Agreement.
(k) VOTING AGREEMENTS. Buyer shall have executed and delivered to
Sellers the Voting Agreements in the forms of Exhibit M to this Agreement.
(m) AUTHORIZATION OF SELLERS. All corporate approvals necessary to
authorize the performance of this Agreement and the consummation of the
transactions contemplated hereby shall have been duly taken by Sellers.
Sellers shall use their commercially reasonable efforts to secure such
approvals within thirty (30) calendar days after the Execution Date, and
shall promptly notify Buyer in writing after successfully obtaining such
approvals.
6.2 BUYER'S CLOSING CONDITIONS PRECEDENT. The obligations of Buyer
to be performed at the Closing shall be subject to the satisfaction of the
following conditions precedent, each of which may be waived by Buyer except
as otherwise required by Law:
(a) DELIVERY OF CONVEYANCING INSTRUMENTS. Sellers shall have
executed, acknowledged where applicable, and delivered to Buyer the
conveyancing instruments defined in Section 2.6 above.
(b) ACCURACY AND PERFORMANCE OF SELLERS' REPRESENTATIONS AND
COVENANTS. The representations and warranties of Sellers contained in this
Agreement shall be true and correct in all material respects both as of the
Execution Date and as of the Closing Date as if made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement or
otherwise consented to by Buyer in writing. Each of the covenants of Sellers
required by this Agreement to be performed and complied with at or prior to
the Closing shall have been duly performed and validly complied with at or
prior to the Closing. Buyer shall have received a certificate executed by an
officer of each of CUSA and of CPL certifying the substance of this clause
(b).
Ex 10(h) Page 24 of 56
<PAGE>
(c) AUTHORIZATION OF SELLERS. All corporate approvals necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly
taken by Sellers.
(d) OPINION OF SELLERS' COUNSEL. Buyer shall have received an
opinion of Pillsbury Madison & Sutro LLP, legal counsel for Sellers, in the
form of Exhibit H attached to this Agreement.
(e) GUARANTY AGREEMENT. Sellers shall have delivered the Guaranty
Agreement executed by Chevron Corporation as required by Section 3.5 above.
(f) ABSENCE OF RESTRAINING LITIGATION. No action or proceeding by or
before any Government Authority shall have been instituted or threatened (and
not subsequently dismissed, settled or otherwise terminated) which might
prohibit, invalidate or materially restrain the transactions contemplated by
this Agreement, other than an action or proceeding instituted or threatened
by Buyer or any of their Affiliates.
(g) APPROVAL DATE. Buyer shall not have given written notice of a
Material Discovery to Sellers on or before the Approval Date under Section
8.1 below; provided, however, that if Buyer did timely give any such notice,
and if Sellers shall have provided the undertaking in favor of Buyer to cure
or indemnify Buyer against the matters identified in such notice as
contemplated by Section 8.1, then this condition shall be deemed to have been
satisfied.
(h) REQUIRED CONSENTS. Sellers and Buyer shall have received all
consents from the parties to the Point Arguello Unit unit agreement and the
partners in each of GGP, PANGL, PAPCO, PATC and Clean Seas necessary for
Buyer to succeed to Sellers' interests as a unit owner in the Point Arguello
Unit, as operator of the Point Arguello Unit, and as a partner or limited
liability company member holding Sellers' interests in each of GGP, PANGL,
PAPCO, PATC and Clean Seas.
(i) SERVICES AGREEMENT. Sellers shall have executed and delivered to
Buyer the Services Agreement in the form of Exhibit E attached to this
Agreement.
(j) AFFIDAVITS OF SELLERS' NON-FOREIGN STATUS. Buyer shall have
received affidavits of non-foreign status of each of CUSA and CPL in the form
of Exhibit I attached to this Agreement.
(k) AUTHORIZATION OF BUYER. All corporate approvals necessary to
authorize the performance of this Agreement and the consummation of the
transactions contemplated hereby shall have been duly taken by Buyer. Buyer
shall use its commercially reasonable efforts to secure such approvals within
thirty (30) calendar days after the Execution Date, and shall promptly notify
Sellers in writing after successfully obtaining such approvals.
(l) JOINT USE AGREEMENT. Buyer shall have received the executed
joint use agreements contemplated in Section 5.5 above.
Ex 10(h) Page 25 of 56
<PAGE>
(m) PREFERENTIAL RIGHTS. No more than ten percent (10%) of the
Purchase Price has been reduced due to the exercise by third parties of
preferential rights pursuant to Section 8.5 below.
(n) UNIT OPERATORSHIP. Buyer shall have received the necessary votes
or approvals to become the unit operator of the Point Arguello Unit.
(o) PARTNERSHIP SUCCESSION. Buyer shall be entitled to succeed to
the general partner, managing general or operator status that CPL and CUSA
enjoyed in GGP, PANGL, PAPCO and PATC.
(p) CURRENT INVENTORY LISTS. Buyer shall have received from Sellers
the most current inventory lists for equipment, spare parts and similar items
located at the Gaviota warehouse, stored offsite, and such other locations in
the Transferred Properties and Partnerships' Facilities as Sellers regularly
maintain inventory records.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 CUSA'S REPRESENTATIONS AND WARRANTIES. CUSA represents and
warrants the following to Buyer with respect to the transfer of CUSA
Properties and Partnership Interests of CUSA as of the Execution Date. As
used herein, "to the knowledge of CUSA's management" means to the best
knowledge and belief, after due inquiry within his respective area of
responsibility, of George Steinbach, Vega Sankur, Steven Merritt, Gary Gray,
David Patterson, Delmar Clement and Ralph Mayo.
(a) DUE INCORPORATION. CUSA is a corporation duly organized, validly
existing and in good standing under the Laws of the Commonwealth of
Pennsylvania. CUSA has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. CUSA is in good standing as a foreign corporation authorized to
transact intrastate business in the State of California.
(b) DUE AUTHORIZATION. CUSA has full power and authority to enter
into this Agreement and the instruments and agreements hereunder and to
consummate the transactions contemplated hereby and thereby. Except for the
approvals contemplated in Section 6.1(m) above, the execution, delivery and
performance of this Agreement and the instruments and agreements hereunder
have been duly approved, and no other corporate proceedings on the part of
CUSA is necessary to authorize this Agreement, the instruments and agreements
hereunder or the transactions contemplated hereby and thereby. This
Agreement and the instruments and agreements hereunder have been duly and
validly executed and delivered by CUSA and are enforceable in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency,
Ex 10(h) Page 26 of 56
<PAGE>
moratorium, reorganization or similar laws from time to time in effect which
affect creditors' rights generally and by legal and equitable limitations on
the availability of specific remedies.
(c) PARTNERSHIP AUTHORITY. The GGP partnership is a California
general partnership duly organized and validly existing under California law
and has all requisite power to carry on its business as now being conducted,
to own and operate the assets now owned and being operated by it, and has no
assets and conducts no business in any state other than California.
(d) DEFAULTS. To the knowledge of CUSA's management and except as
disclosed to Buyer in the Disclosure Letter, the Unit Agreements and the CUSA
Applicable Contracts are in full force and effect and no royalties or other
lease or contractual payments are outstanding and past due; there are no
defaults by CUSA, or events that with notice or the lapse of time, or both,
would constitute a default by CUSA or any other party thereto; and CUSA has
not received any notice that any party to any of the Unit Agreements or the
CUSA Applicable Contracts intends to terminate such agreement.
(e) NOTICES OF VIOLATION. Except as disclosed to Buyer in the
Disclosure Letter, CUSA has not received between January 1, 1996 and the
Execution Date in written form a notice from any Government Authority
claiming violation of any Law (including any building, zoning or other
ordinance) or CUSA Applicable Permits or requiring any substantial work,
construction or expenditure, or asserting any tax penalty, with respect to
the CUSA Properties or the Partnerships' Facilities of GGP.
(f) COMPLIANCE WITH LAWS AND PERMITS. Except as disclosed to Buyer
in the Disclosure Letter and except for noncompliance matters as to which a
fine or other penalty would not be applicable, to the knowledge of CUSA's
management the CUSA Properties and the Partnerships' Facilities of GGP are in
compliance with Laws and Applicable Permits.
(g) STRUCTURAL CONDITIONS. Except as disclosed to Buyer in the
Disclosure Letter, to the knowledge of CUSA's management CUSA has not
identified Structural Conditions with respect to the platforms included in
the CUSA Properties.
(h) LITIGATION. Except as disclosed to Buyer in the Disclosure
Letter, there are no actions, suits or other litigation, proceedings or
governmental investigations pending or, to the knowledge of CUSA's
management, threatened by, against or affecting CUSA, or any of its officers,
directors, employees or the stockholders thereof in their capacity as such,
or any of the properties or businesses of CUSA, arising out of CUSA's
ownership or operation of the Transferred Properties or the Partnerships'
Facilities of GGP, or which in any manner challenge or seek to prevent,
enjoin, alter or delay the transactions contemplated hereby, and CUSA's
management is not aware of any facts or circumstances which may give rise to
any of the foregoing. Except as disclosed to Buyer in the Disclosure Letter
and except for the Applicable Permits, CUSA is not subject to any order,
judgment, decree, stipulation or consent of or with any court or other
governmental authority which has or could have a material adverse effect.
Ex 10(h) Page 27 of 56
<PAGE>
(i) INCLUSION OF PROPERTIES. Except for the items specifically
excluded in Section 2.5(b) and Schedule 14, the Transferred Properties
include all the real and personal properties owned by CUSA that are necessary
for the production and transportation from the Transferred Properties of
crude oil, natural gas, casinghead gas, drip gasoline, natural gasoline,
natural gas liquids, condensate products and other hydrocarbons whether
gaseous or liquid to the sales connection with third party carriers.
(j) ENCUMBRANCES CREATED BY CUSA. CUSA has not conveyed any right,
title or interest in the Transferred Properties to any third party except as
described in the Disclosure Letter or the Schedules attached hereto. All of the
Transferred Properties and the Partnerships' Facilities of GGP are free and
clear of mortgages, mechanics' liens, tax liens and other forms of security
interests securing financial obligations of CUSA, except for those disclosed in
the Disclosure Letter and Permitted Encumbrances; or, if such liens exist, they
have been bonded or otherwise secured against.
(k) NO BROKERS. CUSA has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement by which Buyer or any of the Transferred
Properties would be liable.
7.2 CPL'S REPRESENTATIONS AND WARRANTIES. CPL represents and warrants
the following to Buyer with respect to the transfer of CPL Properties and
Partnership Interests of CPL as of the Execution Date. As used herein, "to
the knowledge of CPL's management" means to the best knowledge and belief,
after due inquiry within his respective area of responsibility, of Jerry
Bowman, James Foster and Michael Orlind.
(a) DUE INCORPORATION. CPL is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. CPL has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. CPL is in good
standing as a foreign corporation authorized to transact intrastate business in
the State of California.
(b) DUE AUTHORIZATION. CPL has full power and authority to enter into
this Agreement and the instruments and agreements hereunder and to consummate
the transactions contemplated hereby and thereby. Except for the approvals
contemplated by Section 6.1(m) above, the execution, delivery and performance of
this Agreement and the instruments and agreements hereunder have been duly
approved, and no other corporate proceedings on the part of CPL are necessary to
authorize this Agreement, the instruments and agreements hereunder or the
transactions contemplated hereby and thereby. This Agreement and the
instruments and agreements hereunder have been duly and validly executed and
delivered by CPL and are enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to time in
effect which affect creditors' rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) PARTNERSHIP AUTHORITY. Each of the PANGL, PAPCO and PATC
partnerships is a California general partnership duly organized and validly
existing under California law and has all requisite power to carry on its
business as now being conducted, to own and operate
Ex 10(h) Page 28 of 56
<PAGE>
the assets now owned and being operated by it, and has no assets and conducts
no business in any state other than California.
(d) DEFAULTS. To the knowledge of CPL's management and except as
disclosed to Buyer in the Disclosure Letter, the CPL Applicable Contracts are in
full force and effect; there are no defaults by CPL and no royalties or other
lease or contractual payments are outstanding and past due, or events that with
notice or the lapse of time, or both, would constitute a default by CPL or (to
the knowledge of CPL's management) any other party thereto; and CPL has not
received any notice that any party to any of the CPL Applicable Contracts
intends to terminate such agreement.
(e) NOTICES OF VIOLATION. Except as disclosed to Buyer in the
Disclosure Letter, CPL has not received between January 1, 1996 and the
Execution Date in written form a notice from any Government Authority claiming
any substantial violation of any Law (including any building, zoning or other
ordinance) or CPL Applicable Permits, or requiring any substantial work,
construction or expenditure, or asserting any tax penalty, with respect to the
CPL Transferred Properties or the Partnerships' Facilities of partnerships in
which CPL has an interest.
(f) COMPLIANCE WITH LAWS AND PERMITS. Except as disclosed to Buyer in
the Disclosure Letter and except for noncompliance matters as to which a fine or
other penalty would not be applicable, to the knowledge of CPL's management the
CPL Properties and the Partnerships' Facilities of PANGL, PAPCO and PATC are in
compliance with applicable Laws and Permits.
(g) LITIGATION. Except as disclosed to Buyer in the Disclosure Letter,
there are no actions, suits or other litigation, proceedings or governmental
investigations pending or, to the knowledge of CPL's management, threatened by,
against or affecting CPL, or any of its officers, directors, employees or the
stockholders thereof in their capacity as such, or any of the properties or
businesses of CPL, arising out of CPL's ownership or operation of the
Transferred Properties, or which in any manner challenge or seek to prevent,
enjoin, alter or delay the transactions contemplated hereby, and CPL's
management is not aware of any facts or circumstances which may give rise to any
of the foregoing. Except as disclosed to Buyer in the Disclosure Letter, CPL is
not subject to any order, judgment, decree, stipulation or consent of or with
any court or other governmental authority which has or could have a
substantially adverse effect.
(h) INCLUSION OF PROPERTIES. Except for the items specifically excluded
in Section 2.5(b) and Schedule 14, the Transferred Properties include all the
real and personal property owned by CPL that is necessary for the
transportation from the oil and gas production interests included in the
Transferred Properties of crude oil, natural gas, casinghead gas, drip
gasoline, natural gasoline, natural gas liquids, condensate products and
other hydrocarbons whether gaseous or liquid to the sales connection with
third party carriers.
(i) ENCUMBRANCES CREATED BY CPL. CPL has not conveyed any right, title
or interest in the Transferred Properties to any third party except as described
in the Disclosure Letter or in the Schedules attached hereto. All of the
Transferred Properties and the
Ex 10(h) Page 29 of 56
<PAGE>
Partnerships' Facilities of partnerships in which CPL has an interest are
free and clear of mortgages, mechanics' liens, tax liens and other forms of
security interests securing financial obligations of CPL, except for those
disclosed to Buyer in the Disclosure Letter and Permitted Encumbrances; or,
if such liens exist, they have been bonded or secured against.
(i) NO BROKERS. CPL has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement by which Buyer or any of the Transferred
Properties would be liable.
7.3 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants the following to Sellers as of the Execution Date:
(a) DUE INCORPORATION. Each of Buyer and any subsidiary designated by
it to receive assets in accordance with Section 12.5 below is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of Buyer and such subsidiaries has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. Each of Buyer and such subsidiaries is in
good standing as a foreign corporation authorized to transact intrastate
business in the State of California.
(b) DUE AUTHORIZATION. Each of Buyer and any subsidiary designated by
it to receive assets in accordance with Section 12.5 below has full power and
authority to enter into this Agreement and the instruments and agreements
hereunder and to consummate the transactions contemplated hereby and thereby.
Except for the approvals contemplated by Section 6.2(m), the execution, delivery
and performance of this Agreement and the instruments and agreements hereunder
have been duly and validly approved and no other corporate proceedings on the
part of Buyer or such subsidiaries is necessary to authorize this Agreement, the
instruments and agreements hereunder or the transactions contemplated hereby and
thereby. This Agreement and the instruments and agreements hereunder have been
duly and validly executed and delivered by Buyer and are enforceable in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which affect creditors' rights
generally and by legal and equitable limitations on the availability of specific
remedies.
(c) NO BROKERS. Buyer has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement by which Sellers or any of their Affiliates would
be liable.
(d) FINANCIAL STATEMENTS. The audited financial statements for Buyer
and its consolidated subsidiaries as of December 31, 1998 previously delivered
to Sellers, including the balance sheets and the related statements of earnings
and cash flows, have been prepared in accordance with generally accepted
accounting principles. The unaudited financial statements for Buyer as of March
31, 1999 previously delivered to Sellers constitute the financial statements
that Buyer has provided to its senior lenders in accordance with the
requirements of applicable loan agreements.
Ex 10(h) Page 30 of 56
<PAGE>
(e) FURTHER DISTRIBUTION. Buyer is acquiring their respective
Partnership Interests for their own account for investment and not with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act of 1933, as amended, and the rules and regulations pertaining
to such Act, or in connection with any distribution thereof in violation of any
applicable state securities laws.
(f) BUYER'S BUSINESSES. Buyer is and has been during at least the
preceding two years engaged primarily in the business of drilling for or
producing oil or gas, transporting oil or gas and owning interests in and
operating oil or gas pipelines.
(g) EXPERIENCED INVESTOR. Buyer is an experienced and knowledgeable
investor in the oil and gas business. Prior to entering into this Agreement,
Buyer was advised by its own legal, tax and other professional counsel
concerning this Agreement, the Transferred Properties and the value thereof.
Buyer is aware of the risks and uncertainties of an investment in oil and gas
properties and is able to absorb a loss of its entire investment.
(h) ALLOCATIONS OF PURCHASE PRICE. The portion of the Purchase Price
allocated to each property listed in Schedules 10 and 11 as being potentially
subject to a right of first refusal constitutes the amount which Buyer would
be willing to pay if it were only acquiring such property.
7.4 SURVIVAL. The representations and warranties of Sellers in Section
7.1 and 7.2 and the representations and warranties of Buyer in Section 7.3 shall
survive the Closing of the transaction contemplated by this Agreement, but shall
expire one year after the Closing except to the extent that a notice of claim
under this Article 7, filed in accordance with Article 3, shall have been given
to the party obligated thereunder within such one-year period.
7.5 EXCLUSIVITY OF WARRANTIES AND SPECIFIC DISCLAIMERS.
(a) Buyer acknowledges that at Closing that it will acquire the
Transferred Properties on the basis of its own investigation of the physical
condition of the Transferred Properties and assume the risk that adverse
conditions outside the scope of Sellers' representations and warranties set
forth in Section 7.1 and 7.2 may not be revealed by Buyer's own investigation.
Buyer acknowledges that, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, (i) THE
TRANSFERRED PROPERTIES ARE SOLD "AS IS" AND "WITH ALL FAULTS," (ii) NO WARRANTY,
EXPRESS OR IMPLIED IN FACT OR BY LAW, WHETHER OF MERCHANTABILITY, FITNESS FOR
ANY PARTICULAR PURPOSE, CONDITION OR OTHERWISE, CONCERNING THE TRANSFERRED
PROPERTIES HAS BEEN MADE TO BUYER, AND (iii) BUYER'S REMEDIES AGAINST SELLERS
AND SELLERS' LIABILITIES TO BUYER FOR CONDITIONS ASSOCIATED WITH THE TRANSFERRED
PROPERTIES ARE LIMITED TO THOSE PROVIDED IN THIS AGREEMENT.
(b) In connection with the waivers, releases and limitations of
liability set forth in this Agreement, each of Buyer and Sellers expressly
waives any rights under section 1542 of the California Civil Code, which
provides:
Ex 10(h) Page 31 of 56
<PAGE>
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR."
(c) Without limiting (a) and (b) above, Buyer acknowledge and assume
the following specific disclaimers:
(i) Buyer has made their own estimates of prospective data such as
future production rates, value of exploration prospects, operating
costs and abandonment liabilities based on Buyer's own abilities
and skills to explore, produce, operate, and abandon these
properties, and is not relying on Sellers' own estimates of such
data.
(ii) Low levels of naturally occurring radioactive material ("NORM") may
be present at some locations where the Transferred Properties or
Partnerships' Facilities are located.
(iii) Pursuant to the California Safe Drinking Water and Toxic
Enforcement Act of 1986 (Proposition 65), Buyer is on notice that
detectable amounts of chemicals known to the State of California to
cause cancer, birth defects and other reproductive harm may be
found in, on or around the Transferred Properties and the
Partnerships' Facilities.
(iv) California Health and Safety Code Section 25359.7 provides that any
owner of nonresidential real property who knows, or has reasonable
cause to believe, that any release of hazardous substances, as
defined under California law, has come to be located on or beneath
that real property shall, prior to the sale of that real property
by that owner, give written notice of that condition to the buyer
of that real property. Buyer acknowledges that one or more
hazardous substances as defined under California law may have come
to be located in or on the Transferred Properties or the
Partnerships' Facilities.
(v) The Transferred Properties and the Partnerships' Facilities are or
may be deemed to be within a Seismic Hazard Zone as designated
under the Seismic Hazards Mapping Act (California Public Resources
Code Sections 2690-2699.6).
(vi) The Transferred Properties and the Partnerships' Facilities are or
may be deemed to be within an Earthquake Fault Zone as designated
under the Alquist-Priolo Earthquake Fault Zoning Act (California
Public Resources Code Sections 2621-2630) and the construction or
development on the Transferred Properties or the Partnerships'
Facilities of any structure for human occupancy may be subject to
the findings of a geologic report prepared by a geologist
registered in California.
Ex 10(h) Page 32 of 56
<PAGE>
(vii) Portions of the Transferred Properties or the Partnerships'
Facilities are or may be located in a "Wetland" as defined in the
"Federal Manual for Determining Jurisdictional Wetland" or relevant
Laws.
(viii) Portions of the Transferred Properties or the Partnerships'
Facilities are or may be located in a "Flood Zone" as defined by
the U.S. Federal Emergency Management Administration or other
Government Authorities.
(ix) Sellers do not warrant that ownership, use, operation, maintenance,
improvement or abandonment of the Transferred Properties would not
infringe any patent, copyright, trademark or trade secret rights of
any Person.
By initialing where indicated below, the parties specifically agree to the
foregoing acknowledgements, disclaimers and releases in this Section 7.5.
CUSA ___________ BUYER ____________
(Initials) (Initials)
CPL ___________
(Initials)
7.6 YEAR 2000 DISCLAIMER, RELEASE AND INDEMNITY.
(a) In addition to, and not in alteration, amendment or limitation of,
any other provisions of this Agreement, Buyer expressly acknowledges and agrees
that: (1) Sellers either have not assessed, or, if they have assessed, have
not (or may not have or not fully have) modified, replaced or otherwise
remediated, the Transferred Properties, including any components thereof or
systems related thereto or embedded therein, to determine whether they are Year
2000 Compliant, as defined herein. (2) If the Transferred Properties are not
operated by Sellers, Sellers are either unaware of, or have not verified any
statements or representations made by the operator pertaining to, whether or not
the operator has made any such assessment or taken any actions relating thereto,
including modification, replacement or other remediation. (3) IF ANY OF THE
TRANSFERRED PROPERTIES, INCLUDING ANY COMPONENTS THEREOF OR SYSTEMS RELATED
THERETO OR EMBEDDED THEREIN, ARE NOT YEAR 2000 COMPLIANT, THEIR ABILITY TO
MAINTAIN PRODUCTION OR OTHERWISE FUNCTION OR OPERATE MAY BE AFFECTED. (4) As
between Buyer and Sellers, Buyer assumes, releases Sellers from, and agrees to
defend, indemnify and hold Sellers harmless from and against, any and all
responsibility and liability for any Losses or problems relating to or arising
from the Year 2000 Compliance status of the Transferred Properties, including
any components thereof or systems related thereto or embedded therein, and
Sellers shall have no liability whatsoever for any Losses or problems Buyer may
incur or encounter arising from or associated in any way with the Year 2000
Compliance status of the Transferred Properties, including any components
thereof or systems related thereto or embedded therein. (5) Any disclosures
made by Sellers as to Year 2000 Compliance (including but not limited to
disclosures as to
Ex 10(h) Page 33 of 56
<PAGE>
Sellers' or the operator's or a manufacturer's/supplier's assessments,
inventories, testing, modification, replacement, etc.), whether made orally
or in writing, and whether made before or after Closing, are for
informational purposes only and Buyer relies and depends on and uses any and
all such disclosures exclusively and entirely at its own risk and without any
recourse to Sellers whatsoever. SUCH DISCLOSURES DO NOT AND SHALL NOT CREATE
OR BE CONSTRUED TO CREATE ANY EXPRESS OR IMPLIED WARRANTIES ON THE PART OF
SELLERS, AND ANY SUCH EXPRESS OR IMPLIED WARRANTIES ARE EXPRESSLY DISCLAIMED,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. This Section 7.6 and the Disclosure Letter
constitute "Year 2000 Readiness Disclosures" for purposes of the Year 2000
Information and Readiness Disclosure Act of 1998. (6) "Year 2000 Compliant"
means the Transferred Properties, including any components thereof or systems
related thereto or embedded therein, would: (i) Correctly process date
information before and after midnight, December 31, 1999. This would include
accepting date input, providing date output, and performing calculations and
comparisons on dates or portions of dates. Date interpretation would be
correct for all valid date values within the applicable domain; (ii)
Function accurately and without interruption before and after January 1, 2000
without any change in operations associated with any date change and/or the
advent of the new century; (iii) Respond to two-digit input in a way that
would resolve the ambiguity as to the century in a disclosed, defined, and
predetermined manner. Interfacing software would make the same century
assumptions when processing the two-digit years; (iv) Process the Year 2000
as a leap year; (v) Correctly handle date fields containing non-date
information and correctly handle a date held in a non-date field; and (vi)
Correctly process any date with a year specified as "99" and "00", regardless
of other subjective meanings attached to these values.
(b) Sellers shall be responsible for funding their share (based on
percentage ownership in applicable units and partnerships) of the expenditure
to third-party contractors incurred by the units and partnerships in which
interests are transferred under this Agreement to perform preventive and
replacement work with respect to Year 2000 Compliance conditions prior to
January 1, 2000, as such work requirements are detailed in the document
entitled "Point Arguello Y2K Work Schedule" dated June 2, 1999 prepared by
Sellers and delivered to Buyer. Sellers shall provide at no cost to Buyer the
services of supervisory personnel under the Services Agreement to monitor the
work of such third-party contractors, but without any warranty by Sellers as
to the performance of such work. Sellers shall use their best faith efforts
to achieve completion of the work requirements in accordance with the
schedule defined in the June 2, 1999 document, subject to any revisions
mutually agreeable to Sellers and Buyer. Buyer shall be responsible for
funding the share of the units' and partnerships' expenditures allocated to
the unit and partnership interests transferred hereunder for work related to
Year 2000 Compliance that is not contemplated by the June 2, 1999 document
and that is performed on or after the Closing Date. This allocation of the
costs of preventive and replacement work shall not affect in any way the
indemnifications, releases and assumptions of liabilities with respect to
Year 2000 Compliance conditions set forth in Section 7.6(a) above.
Ex 10(h) Page 34 of 56
<PAGE>
ARTICLE 8
PRE-CLOSING COVENANTS
8.1 BUYER'S DUE DILIGENCE REVIEW.
(a) "AS IS" SALE. Following the execution of this Agreement by Buyer
and Sellers, Buyer and its employees, agents and consultants shall have the
right and opportunity as provided in this Article 8 to enter upon the
Transferred Properties and the Partnerships' Facilities and to make such
inspections of the Transferred Properties and the Partnerships' Facilities and
matters related thereto as Buyer and its representatives desire, all at Buyer's
sole cost, risk and expense, including but not limited to all of Sellers'
records and files related to the Transferred Properties or the Partnerships'
Facilities. Buyer acknowledges that it is experienced in oil and gas matters
generally, and in the acquisition and operation of oil and gas properties, and
in making the decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer has evaluated the merits and risks of
purchasing the Transferred Properties from Sellers and have formed an opinion
based solely on Buyer's own knowledge, experience, independent investigation,
research and analysis of the Transferred Properties and not upon any
representations or warranties by Sellers, except the express written
representations of Sellers set forth in Article 7.
EXCEPT TO THE EXTENT, IF ANY, EXPRESSLY SET FORTH IN ARTICLE 7 HEREOF OR
IN THE CONVEYANCES, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES AND
DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY,
STATEMENT OR INFORMATION ORALLY OR IN WRITING MADE OR COMMUNICATED TO BUYER,
INCLUDING, BUT NOT LIMITED TO, ANY OPINION, INFORMATION OR ADVICE WHICH MAY
HAVE BEEN PROVIDED TO BUYER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT,
CONSULTANT OR REPRESENTATIVE OF SELLERS, ANY ENGINEER OR ENGINEER FIRM, OR
ANY OTHER AGENT, CONSULTANT OR REPRESENTATIVE. IN ADDITION, BUYER
ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND SELLERS HEREBY EXPRESSLY
DISCLAIM AND NEGATE, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY,
FITNESS FOR PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OR
MATERIALS AND ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR
IMPLIED RELATING TO THE TRANSFERRED PROPERTIES. EXCEPT AS EXPRESSLY SET FORTH
IN ARTICLE 7, AND WITHOUT LIMITATION ON THE DISCLAIMERS SET FORTH IN ARTICLE
7, BUYER IS ACQUIRING THE TRANSFERRED PROPERTIES IN AN "AS-IS, WHERE-IS"
CONDITION WITH ALL FAULTS.
(b) DUE DILIGENCE. Subject to Section 8.2, Buyer shall have the right
to conduct its own due diligence review of the Transferred Properties and the
Partnerships' Facilities, the title and other public records applicable thereto,
and the records made available by Sellers to Buyer pursuant to the
Confidentiality Agreement with respect to (i) the quality and validity of
Sellers' title to the Transferred Properties and the Partnerships' Facilities,
(ii) the
Ex 10(h) Page 35 of 56
<PAGE>
environmental condition of the Transferred Properties and the Partnerships'
Facilities, (iii) the structural condition of the Transferred Properties and
the Partnerships' Facilities, and (iv) confirmation that financial and
operational results for 1998 and the portion of 1999 through the Approval
Date are consistent with previously disclosed financial and operating
information. Such due diligence shall be conducted in substantial compliance
with a timetable and plan to be agreed upon in writing by Sellers and Buyer.
If Buyer's examination results in a Material Discovery of Title Defects,
Environmental Conditions, Structural Conditions or adverse condition revealed
by the confirmation described in clause (iv) above (an "Item (iv) Condition")
of the Transferred Properties and the Partnerships' Facilities, then Buyer
shall have the right to bring the results of its examination and
investigation to the attention of Sellers by written notice if and only if
such notice is given to Sellers by the earlier of (i) 15 days prior to the
scheduled Closing Date in accordance with Section 5.2 above or (ii) June 15,
1999 (the "Approval Date"). For purposes of this Section 8.1, a "Material
Discovery" shall mean the discovery of Title Defects, Environmental
Conditions, Structural Conditions or Item (iv) Conditions not known to Buyer
as of the Execution Date, or not set forth with reasonable specificity in the
data room or Disclosure Letter, which could reasonably be expected to reduce
the economic value of the Transferred Properties and the Partnerships'
Facilities by (or impose a liability on Buyer of) at least Fifty Thousand
Dollars ($50,000) per individual Title Defect, Environmental Condition,
Structural Condition or Item (iv) Condition and total at least One Hundred
Thousand Dollars ($100,000) in the aggregate in order to cure or remediate
such matters.
(c) RECOURSE FOR DUE DILIGENCE MATTERS. If written notice of such facts
constituting a Material Discovery is given to Sellers on or before the Approval
Date, the parties agree to discuss appropriate remedial actions or adjustments
to this Agreement to take into account the individual Title Defects,
Environmental Conditions, Structural Conditions or Item (iv) Conditions
constituting such Material Discovery. If (i) Sellers receive such timely notice
from Buyer and (ii) Sellers undertake to Buyer's reasonable satisfaction to cure
or indemnify Buyer against the individual Title Defects, Environmental
Conditions, Structural Conditions or Item (iv) Conditions constituting such
Material Discovery, then the closing condition specified in Section 6.2(g) shall
be deemed satisfied. If Sellers do not provide such an undertaking and the
parties cannot agree on an appropriate amendment to this Agreement within 15
calendar days after such written notice is given, then Buyer shall have the
right to terminate this Agreement within 10 calendar days after such written
notice by giving written notice of termination to Sellers; otherwise, Buyer
shall accept the Transferred Properties and the Partnerships' Facilities in
their "as is" condition and the parties shall proceed with the Closing without
exclusion of assets or reduction of Purchase Price.
(d) SELLERS' ADDITIONAL DISCLOSURES. Sellers may similarly conduct
such examination or investigation as it may choose with respect to the
Transferred Properties and should it determine that a matter exists which should
have been disclosed in any of the schedules or in any other written disclosure
made prior to the execution of this Agreement, it shall add such matter (any
matter so added being called a "Sellers Defect") to the appropriate schedule or
disclosure by giving written notice of such addition to Buyer promptly after
Sellers' discovery thereof but in no event less than 15 calendar days prior to
the Closing Date, and for the purposes of Sellers' representations and
warranties, each such Sellers Defect shall be deemed to have been disclosed on
such schedule or disclosure on the Execution Date. If
Ex 10(h) Page 36 of 56
<PAGE>
any such Sellers Defect is a Title Defect, Environmental Condition,
Structural Condition or Item (iv) Condition that would result in or be part
of a Material Discovery, Buyer shall have the right to include the Sellers
Defect in a notice of Material Discovery given to Sellers within 10 calendar
days after Buyer is notified of the Sellers Defect.
8.2 BUYER'S RIGHT TO ENTER.
(a) As contemplated to facilitate Buyer's due diligence review under
Section 8.1 above, Sellers hereby grant to Buyer and its representatives the
right at Buyer's sole risk to enter onto the Transferred Properties from time to
time upon reasonable notice to Sellers, for the purposes of inspection of the
Transferred Properties, including both internal and external inspection,
evaluation and appraisal of such facilities. If Buyer plans to perform any
excavation, take soil samples, or conduct other activities on the Transferred
Properties which may affect Sellers' operations, Buyer shall provide Sellers
with written notification of such plans and shall obtain Sellers' written
approval and all necessary approvals from Government Authorities prior to
conducting any such activities. Buyer shall restore the Transferred Properties
to their condition existing prior to Buyer's operations or activities upon the
Transferred Properties pursuant hereto, including repairs or maintenance as such
are required as a result of Buyer's operations or activities. When and as
reasonably requested by Buyer, Sellers shall endeavor to secure comparable
rights for Buyer to enter onto and to conduct due diligence activities with
respect to the Partnerships' Facilities, on terms and conditions protecting the
partnerships and their partners (including Sellers) comparable to those set
forth in this Article 8.
(b) Buyer shall obtain and maintain at a minimum the following types
and amounts of insurance with respect to the exercise by Buyer and its
representatives of the rights granted in this Section 8.2:
(i) comprehensive public liability and property damage insurance with
limits of not less than $2,000,000 combined single limit per
occurrence;
(ii) automobile, aircraft and watercraft liability insurance with a
$2,000,000 limit;
(iii) workers' compensation insurance with limits as required by law; and
(iv) employer's liability insurance with a $2,000,000 limit.
Prior to any exercise of the rights granted hereby, Buyer shall furnish to
Sellers a certificate evidencing the existence of the insurance required
hereunder, confirming that the insurance:
(v) is obtained from and maintained with an insurer acceptable to
Sellers;
(vi) covers Buyer's obligations under the indemnity provisions of this
Agreement;
Ex 10(h) Page 37 of 56
<PAGE>
(vii) names Chevron Corporation and its Affiliates as additional insureds
(or, in the case of workers' compensation insurance, provides a
waiver of subrogation to any rights against Chevron Corporation and
its Affiliates); and
(viii) contains a provision pursuant to which the insurer agrees not to
cancel or modify the insurance coverage without furnishing at least
thirty (30) days' prior written notice to Sellers.
(c) Buyer waives and releases all claims against Chevron Corporation
and its Affiliates, and their directors, officers, employees and agents, for
injury to or death of any persons or damage to property arising in any way from
the exercise of rights granted to Buyer by this Section 8.2 or the activities
performed pursuant to this Section 8.2 by Buyer or its representatives on the
Transferred Properties and the Partnerships' Facilities.
(d) Buyer shall release, defend, indemnify and hold harmless Chevron
Corporation and its Affiliates, and their directors, officers, employees and
agents, from and against any and all Losses arising out of (i) any and all
statutory or common law liens or other encumbrances for labor or materials
furnished in connection with such rights granted hereunder, including but not
limited to samplings, studies or surveys that Buyer may conduct with respect to
the Transferred Properties pursuant to this Section, or (ii) any injury to or
death of persons or damage to property occurring in, on or about the Transferred
Properties as a result of such exercise of the rights granted hereunder or
activities conducted pursuant to this Section 8.2. Such indemnity shall apply
whether or not an indemnitee was or is claimed to be passively, concurrently, or
actively negligent, and regardless of whether liability without fault is imposed
or sought to be imposed on one or more of the indemnitees. This indemnity shall
not apply to the extent that it is void or otherwise unenforceable under
applicable law in effect on or validly retroactive to the execution date of this
Agreement and shall not apply where such loss, cost, damage, injury, liability
or claim is the result of the sole negligence or willful misconduct of any
indemnitee.
(e) Buyer agrees not to permit its activities permitted by this Section
to unreasonably interfere with the business and operations of the Transferred
Properties, and agrees that such inspections and all such documents shall be
subject to the Confidentiality Agreement. Such activities shall also be
conducted in compliance with Laws and Sellers' reasonable safety regulations.
8.3 OPERATION OF TRANSFERRED PROPERTIES PRIOR TO CLOSING.
(a) Sellers shall promptly notify Buyer of any casualty to the
Transferred Properties or the Partnerships' Facilities, or any eminent domain or
other condemnation proceeding commenced with respect to such properties, between
the Execution Date and the Closing. If any such Losses relate to or may result
in the loss of any material portion of the Transferred Properties or the
Partnerships' Facilities ("material" for purposes of this Section 8.3 shall mean
a net loss incurred by or allocated to Sellers' interest in excess of $500,000),
either Sellers or Buyer may, at their option, elect to terminate this Agreement
by written notice to the other parties given within 15 calendar days after
becoming aware of such
Ex 10(h) Page 38 of 56
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casualty or condemnation proceeding, in which event Sellers shall refund the
Deposit as provided in Article 4, and none of the parties shall have any
further rights or obligations hereunder. If no such notice of termination is
timely given, the Agreement shall continue in effect, and upon the Closing,
Buyer shall be entitled to any property insurance proceeds, compensation,
awards, or other payments or relief resulting from such casualty or
condemnation proceeding (other than proceeds or other relief expended by
Sellers in remedying the casualty).
(b) Except as otherwise provided herein, Sellers will not, without the
prior written approval of Buyer, sell, transfer or abandon any portion of the
Transferred Properties belonging to them other than the sale, transfer or
abandonment in the ordinary course of the operations consistent with past
practices of (i) Hydrocarbon Inventories of any value or (ii) other items having
a per item fair market value of less than Twenty-Five Thousand Dollars ($25,000)
of materials, supplies, spare parts, inventories, furniture, motor vehicles,
rolling stock, tools, implements, appliances, machinery, equipment, improvements
or other tangible personal property or fixtures forming a part of the
Transferred Properties.
(c) Sellers shall use commercially reasonable efforts to cause the
PAPCO, PANGL, PATC and GGP partnerships to distribute to their partners,
including Sellers, prior to Closing, any cash that is not necessary for the
ordinary course of business funding requirements of the applicable entity.
Such cash shall be allocated between Sellers and Buyer in accordance with
Section 2.4 above.
8.4 ANNOUNCEMENTS. Except for disclosures that Sellers or Buyer
reasonably believe are required by Law or any securities exchange to which
Sellers or Buyer may be subject, neither Sellers nor Buyer shall issue any press
release or otherwise make any public announcement on or prior to the Closing
Date with respect to this transaction without the prior written consent of the
other parties, which shall not be unreasonably withheld or delayed.
8.5 REQUIREMENTS FOR TRANSFER OF TRANSFERRED PROPERTIES.
(a) RIGHTS OF FIRST REFUSAL. Certain of the Transferred Properties,
identified in Schedules 10 and 11 attached to this Agreement, are potentially
subject to rights of first refusal. Sellers and Buyer have in good faith
allocated the Purchase Price among the Transferred Properties potentially
subject to such rights of first refusal in Schedule 10 attached to this
Agreement. Sellers and Buyer shall cooperate and shall promptly undertake such
action as may be required to satisfy obligations under any rights of first
refusal with respect to the Transferred Properties; provided that neither
Sellers nor Buyer shall be required to pay any additional consideration beyond
that contemplated (if any is contemplated) by the terms of such rights. If a
third party shall properly exercise any such right, the Transferred Properties
shall be excluded from the sale to Buyer hereunder and the Purchase Price
reduced by the consideration received by Sellers from the third party in
exercise of such right; provided, however, that should the Purchase Price be
reduced more than ten percent (10%) due to the exercise of such rights of first
refusal, Buyer may terminate this Agreement and receive a full reimbursement of
its Deposit.
Ex 10(h) Page 39 of 56
<PAGE>
(b) TRANSFER OF APPLICABLE CONTRACTS. At and effective as of the
Closing, Sellers shall assign all their rights and delegate performance of all
their duties to Buyer under the contracts included in the Applicable Contracts
as described in Schedule 5, and Buyer shall assume and agree to perform all
duties of Sellers under each such contract. Without limitation, this assumption
by Buyer includes their assumption of any termination charges associated with a
termination of any such contract made after the Closing. Notwithstanding the
foregoing, if any contract provides that any notice to or consent by any third
party is required as a condition of assignment, such contract shall not be
assigned until and unless such requirements shall have been satisfied. Buyer
and Sellers shall use their commercially reasonable efforts, each as to matters
within its control, to satisfy such requirements as of the Closing Date. If any
such requirement is not satisfied as of the Closing and the Closing occurs,
Sellers and Buyer shall consider whether to exclude the affected contracts from
the transfer hereunder or to enter into alternative arrangements with each other
or with third parties, but in no event shall the Purchase Price be adjusted in
respect of exclusion of any contract.
(c) TRANSFER OF APPLICABLE PERMITS. Buyer and Sellers shall use their
commercially reasonable efforts, each as to matters within its control, to
obtain all regulatory approvals, including the Applicable Permits as described
in Schedule 6, to be transferred or reissued in favor of Buyer as soon as
practicable following the Closing Date and, if possible, during the four-month
transition period under the Services Agreement. If the transfer or reissuance of
regulatory approvals in favor of Plains has not been obtained or is not
reasonably likely to be obtained within such time period, Chevron and Plains
shall make alternative arrangements for operatorship that shall be sufficient to
ensure that ongoing operational services and responsibilities are transferred to
the fullest extent permitted by law. Such alternative arrangements may include,
but are not limited to, (i) transfer of the applicable regulatory approvals to a
party mutually acceptable to Chevron, Plains, the applicable unit or partnership
and regulatory agencies, or (ii) Chevron's and Plains's entering into an agency
or contractor relationship in which Chevron remains the named operator or
permittee of record. Notwithstanding the continuation of Chevron as a named
operator or permittee of record, for purposes of the applicable Unit and
Partnership Agreements, Plains shall be recognized as the duly designated
operator and manager of the unit and partnership facilities.
(d) TRANSFER OF CONTRACTS AND PERMITS TO PARTNERSHIPS AND SUCCESSOR
OPERATORS. Certain additional contracts and permits identified in Schedule 7
attached to this Agreement have been issued in the name of CUSA or CPL but
are associated with assets or operations now owned or conducted by PANGL,
PAPCO, PATC or GGP. Such contracts and permits are not to be transferred to
Buyer, but Sellers and Buyer shall use their commercially reasonable efforts,
each as to matters within its control, to cause such contracts and permits to
be transferred or reissued in favor of the applicable partnership or
successor operator. Notwithstanding the foregoing, if any contract or permit
provides that any notice to or consent by any Government Authority is
required as a condition of assignment, such contract or permit shall not be
assigned until and unless such requirements shall have been satisfied.
Sellers and Buyer shall use their commercially reasonable efforts, each as to
matters within its control, to satisfy such requirements as soon as reasonably
practicable following the Closing, during the transition period in which Sellers
continue as permittee or operator of record under the Services Agreement.
Ex 10(h) Page 40 of 56
<PAGE>
(e) COSTS OF TRANSFER OF APPLICABLE PERMITS. Buyer shall bear all
costs and expenses incurred in connection with the transfer, amendment,
reissuance or issuance of Applicable Permits to Buyer. Buyer, at its sole
expense, shall provide bonds or other security as may be required by Government
Authorities for the transfer or reissuance of the Applicable Permits to Buyer.
These bonds or other security shall be independent of the security furnished by
Buyer to Sellers under Section 3.6. Sellers shall bear all costs and expenses
incurred in the transfer, amendment, reissuance or issuance of the contracts and
permits identified in Schedule 7 to the applicable partnerships.
(f) ADMISSION TO PARTNER OR MEMBER STATUS. It is understood that the
transfer of the Partnership Interests or the interests in Clean Seas does not
automatically result in Buyer's being admitted to partner status under the terms
of the applicable partnership or limited liability company agreements. Sellers
and Buyer shall use their commercially reasonable efforts, each as to matters
within its control, to cause Buyer to be admitted to partner status under each
such partnership or limited liability company agreement effective as of the
Closing Date.
(g) UNIT OPERATORSHIP. CUSA is the current operator of the Point
Arguello Unit pursuant to the applicable unit operating agreements identified in
Part B of Schedule 2. Sellers and Buyer shall use their commercially reasonable
efforts, each as to matters within its control, to cause Buyer to be designated
as the successor operator for such unit effective as of the Closing Date.
(h) MANAGING PARTNER AND OPERATOR SUCCESSION. CPL is the current
managing general partner of PATC, and the managing general partner and operator
of PAPCO and PANGL, and CUSA is the current managing general partner and
operator of GGP pursuant to the applicable partnership agreements and management
services agreements between each partnership and CPL or CUSA. Sellers and Buyer
shall use their commercially reasonable efforts, each as to matters within its
control, to cause Buyer to be designated as the successor managing general
partner and operator for each such partnership effective as of the Closing Date.
8.6 OTHER GOVERNMENT AUTHORITY REVIEWS AND APPROVALS.
(a) PRE-MERGER NOTIFICATION. The consummation of the transactions
contemplated by this Agreement may be subject to the premerger notification
requirements of Section 7A of the Clayton Act (15 U.S.C. Section 18a) as enacted
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Sellers and Buyer
shall cooperate and promptly undertake all filings and other actions as may be
required to comply with such requirements. Should the reviewing agency advise
any party of its need for additional information, that party, with the
cooperation of the other parties if appropriate, shall promptly respond to the
reviewing agency's request. Should the reviewing agency or another interested
governmental agency advise any party of its opposition to the transactions
contemplated herein, the parties shall diligently endeavor to persuade the
agency concerned to abandon its opposition and, failing to do so, the parties
shall take such additional action as they may agree.
Ex 10(h) Page 41 of 56
<PAGE>
(b) TARIFFS FILED WITH FERC. Certain of the Transferred Properties
being conveyed hereunder are operated as a common carrier pipeline system
subject to tariffs filed with the Federal Energy Regulatory Commission ("FERC")
identified in Schedule 13. Buyer shall adopt such FERC tariffs as of the
Closing or, upon notification by Buyer, Sellers shall withdraw such tariffs as
Buyer may designate.
(c) CHANGE OF OPERATOR. To the extent that Buyer is designated and
approved as operator of any of the Transferred Properties, Buyer shall promptly
and diligently make all necessary filings and satisfy all necessary requirements
with the MMS and any other appropriate Government Authorities in order to
transfer operations of such Transferred Properties from Sellers to Buyer.
ARTICLE 9
POST-CLOSING COVENANTS
9.1 TERMINATION OF RIGHTS TO SELLERS' INSURANCE.
(a) Sellers and Buyer acknowledge that Chevron Corporation has
maintained worldwide programs of property and liability insurance coverage for
itself and its Affiliates, including with respect to the Partnership Interests
owned by its Affiliates and the other Transferred Properties. Such programs
have been designed to achieve a cost-effective, coordinated risk-management
package for the entire corporate group. All of the insurance policies through
which such worldwide programs of coverage are presently or have previously been
provided are herein called the "Chevron Corporation Policies."
(b) It is the understanding and intention of Sellers and Buyer that:
(i) from and after the Closing, no insurance coverage shall be
provided for Buyer under the Chevron Corporation Policies
relating to the Transferred Properties; and
(ii) from and after the Closing, no claims regarding any matter
whatsoever, whether or not arising from events occurring
prior to the Closing, shall be made against or with respect
to the Chevron Corporation Policies by Buyer.
(c) Buyer, on behalf of itself and its successors and assigns, hereby
releases, to the extent permitted by applicable Law, Sellers and their
Affiliates from any claim made after the Closing against or with respect to any
of the Chevron Corporation Policies by or through Buyer (except for Buyer's
entitlement to proceeds of insurance with respect to casualties as provided in
Section 8.3(a)).
(d) Nothing contained in the foregoing provision of this Section 9.1
shall in any
Ex 10(h) Page 42 of 56
<PAGE>
way limit, impair or constitute a release or discharge of any right of Buyer
or obligation of Sellers with respect to any representation, warranty,
covenant, agreement, indemnity or other obligation of Sellers contained in
this Agreement (regardless of whether the same was, is or may be covered by
any insurance described herein), all of which rights and obligations shall
continue in full force and effect.
9.2 BUYER'S INSURANCE. Prior to the Closing Date, Buyer shall purchase
and shall thereafter maintain in full force and effect Commercial General
Liability Insurance (Claims Made Basis) including, but not limited to, pollution
liability coverage for sudden and accidental leaks or spills covering Buyer's
ownership and operation of the Transferred Properties (including Sellers'
obligations under any Applicable Permit pertaining to the Transferred Properties
and any liability of Seller as a result of being named on or the holder of such
Applicable Permit) of $250,000,000 per accident or occurrence with a policy
aggregate totaling $250,000,000 onshore and offshore, with a deductible not in
excess of $1,000,000, from insurance carriers having a claims payment rating of
A or better from Standard & Poor's, and having an endorsement naming Sellers as
the additional insureds with severability of interest clause (cross liability)
and waiving subrogation against Sellers, which shall be primary as to any other
existing, valid and collectible insurance, self-insurance or fronting policy of
insurance of Buyer and/or Sellers or their Affiliates. Such insurance shall
specifically provide that covered liabilities include those indemnities and
other obligations assumed by Buyer pursuant to Article 3 above. Such insurance
shall specifically provide that the insurer agrees not to cancel or materially
reduce the insurance coverage without furnishing at least thirty (30) days'
prior written notice to Sellers. Such insurance is to remain in effect until
all necessary federal, state or local agencies and contract parties have
approved the completion of all Abandonment Obligations assumed by Buyer
hereunder. Such insurance in no way limits Buyer's obligation with respect to
any claim, damage or loss resulting from Buyer's ownership and operation of the
Transferred Properties, oil spills, abandonment of wells, facilities and
remediation of the surface, subsurface and waters as required herein or Buyer's
obligations and agreements (including indemnity obligations) under any provision
of this Agreement.
9.3 REMOVAL OF PROPRIETARY TECHNICAL INFORMATION. Except as provided
in any third party license included in the Transferred Properties, Sellers may
remove all proprietary technical information in written form that is owned by a
third party (or is not in use or has not been in use within one (1) year prior
to Closing) at the Transferred Properties or that is proprietary to Sellers or
their Affiliates. Schedule 14 identifies the items containing such proprietary
technical information as of the Execution Date.
Ex 10(h) Page 43 of 56
<PAGE>
9.4 REPLACEMENT OF SELLERS' IDENTIFICATION. Buyer shall, at its own
expense and in a timely manner not exceeding three months after the Closing,
remove or cause to be removed all signs and placards which identify Sellers as
prior owner or operator of each of the Transferred Properties, including any
usage of trademarks or trade names of Sellers and their Affiliates. Buyer
shall, at its own expense and in a timely manner not to exceed one week after
the Closing, erect or install signs and placards as may be required by state or
other governmental agencies identifying Buyer as the owner and/or operator of
each of the Transferred Properties.
9.5 ACCESS BY SELLERS AFTER CLOSING. In the event of Closing, Buyer
shall grant to Sellers a right of entry to the Transferred Properties to perform
retained Abandonment Obligations at Sellers' sole cost, risk and expense, if
Sellers, in their sole discretion, determine that such action is necessary to
reduce alleged future liabilities of Sellers. Sellers agree to indemnify, hold
harmless, and defend Buyer from and against all loss, liability, claims, fines,
expenses, costs (including attorneys' fees and expenses), and causes of action
caused by or arising out of Sellers' use of the right of entry granted hereby
and/or Sellers' performance of retained Abandonment Obligations hereunder. Any
such entry or action on the Transferred Properties by Sellers shall not be
construed as an admission of responsibility by Sellers, nor shall Sellers'
action lessen or reduce Buyer's responsibility for liability. A perpetual right
of entry for retained Abandonment Obligations shall be incorporated in the final
documents transferring title to Buyer. Promptly after all Abandonment
Obligations allocated to Sellers have been completed, Sellers shall execute,
acknowledge and deliver such documents as Buyer may reasonably request to
terminate such rights of entry.
9.6 ABANDONMENT PROJECT PERMITTING, PLANNING AND EXECUTION SERVICES.
Effective on the Closing Date, Sellers and Buyer shall each perform certain
project permitting, planning and execution services as described in Schedule
13 attached to this Agreement.
9.7 SERVICES AGREEMENT. Effective on the Closing Date, Sellers and
Buyer shall enter into a Services Agreement for (a) the provision of
administrative and operational services by Sellers and their Affiliates to Buyer
during a transition period not exceeding four months commencing on the Closing
Date (provided that Sellers' Y2K supervisory services shall be provided for the
full duration of the Y2K work program described in Section 7.6(b) above), and
(b) the provision of project management services by Sellers to Buyer with
respect to the Reconfiguration 2 Project defined in the letter dated April 29,
1999 from Sellers to the PAPCO and PATC partners attaching a proposed
Application for Expenditure, effective when an Application for Expenditure
relating to such project is approved by the PAPCO and PATC partnerships. The
Services Agreement shall be substantially in the form of Exhibit E attached
hereto. Sellers and Buyer shall negotiate mutually satisfactory definitions of
the transition services and Reconfiguration 2 Project services, and the
compensation applicable to such services, promptly following the Execution Date
and in any event prior to the Closing Date. In connection with CUSA's
performance of transition services, CUSA will not terminate its retained Point
Arguello Unit Contract Personnel Agreement (the "Texaco Personnel Agreement")
dated as of October 1, 1996 with Texaco Exploration and Production, Inc.
("Texaco") until CUSA's operatorship of Platform Harvest is transferred to Buyer
or until the end of the transition period under the Services Agreement,
whichever occurs earlier.
Ex 10(h) Page 44 of 56
<PAGE>
ARTICLE 10
TAXES
10.1 TRANSFER TAXES. Any recording fees, transfer taxes and other
charges imposed on the conveyance of the Transferred Properties by any
governmental body shall be paid by Buyer or reimbursed to Sellers by Buyer in
accordance with the Law or Government Authority levying such tax or fee.
10.2 PROPERTY AND EXCISE TAXES.
(a) All real estate, occupation, ad valorem, personal property taxes
and charges (e.g., direct assessments) on any of the Transferred Properties
shall be prorated as of the Closing Date. Sellers shall pay all such items for
all periods prior to such date and shall be entitled to all refunds and rebates
with regard to such periods. Sellers shall be responsible for all oil and gas
production taxes and any other similar taxes applicable to oil and gas
production occurring prior to the Closing Date and Buyer shall be responsible
for all such taxes applicable to oil and gas production occurring on and after
the Closing Date.
(b) Buyer shall be responsible for all sales, use and similar taxes
arising out of the sale of the Transferred Properties. At the Closing Date,
Buyer shall pay Sellers all state and local sales or use taxes determined by
Buyer's independent accounting firm, PricewaterhouseCoopers LLP, to be
applicable, and Sellers shall remit such amount to the appropriate taxing
authority in accordance with applicable law, provided, however, that if Buyer
hold a direct payment permit which is valid on the Closing Date, Buyer shall
assume all responsibility for remitting to the appropriate taxing authority the
state and local sales and use taxes due and shall provide Sellers with any
exemption certificates or other documentation required under applicable Law in
lieu of paying Sellers the taxes due. Buyer shall hold harmless and shall
indemnify Sellers for any sales or use taxes assessed against Sellers by any
taxing authority in respect of this sale including the amounts of any penalties,
interest and attorney's fees.
(c) In the event that the transferor or transferee of any of the
Transferred Properties receives a notice of liability for additional taxes or
charges (the party receiving such notice of liability will hereafter be referred
to as the liable party) which are assessed upon or levied against any of the
Transferred Properties after the Closing Date with respect to any period for
which the liable party is not responsible for payment under the above terms then
the other party (being the transferee or transferor, respectively) (hereafter
referred to as the responsible party) after receiving such notice of liability
shall have the option of either:
Ex 10(h) Page 45 of 56
<PAGE>
(i) Paying the tax directly, including payment under protest to
preserve the right to contest the liability, or
(ii) Challenging the liability asserted in such notice, taking all
action necessary and incident to such challenge. If the responsible party
elects to challenge the validity of such bill or any portion thereof, the
liable party shall extend reasonable cooperation to the responsible party
in such efforts at no expense to the responsible party.
Notwithstanding the foregoing, the liable party may elect to pay such notice of
liability; however, the responsible party will not have to reimburse such
payment unless the responsible party has consented to that payment and
reimbursement and the responsible party's right to contest such liability is
preserved.
(d) Should this purchase and sale constitute an isolated or occasional
sale and not be subject to sales or use tax with any of the taxing authorities
having jurisdiction over this transaction, no sales tax will be collected by
Sellers from Buyer at the Closing Date. Sellers agree to cooperate with Buyer
in demonstrating that the requirements for an isolated or occasional sale or any
other sales tax exemption have been met.
10.3 PARTNERSHIPS AND PARTNERSHIP INTERESTS. Sellers shall be
responsible for the discharge of all notice requirements contained in the
partnership agreements related to the transferred partnership interests. These
responsibilities include notifying the Tax Matters Partner or equivalent person
regarding the change of ownership of the partnership interest. Sellers will
provide any relevant documentation requested by the Tax Matters Partner.
10.4 REFUNDS. Other than taxes covered in Section 10.2, Sellers shall be
entitled to any refund of taxes (associated with operations related to the
assets and entities subject to this agreement) paid by Sellers to any
governmental entity. Other than taxes covered in Section 10.2, Buyer shall be
entitled to any refund of taxes (associated with operations related to the
assets and entities subject to this agreement) paid by Buyer to any governmental
entity. The party receiving a refund shall make a good faith effort to
ascertain the source of the refund and to resolve by mutual consent the
ownership of any refunds related to the subject properties.
10.5 COMPLIANCE AND CONTESTS. Subject to the reimbursement of reasonable
out-of-pocket expenses, the parties hereto will provide each other such records
and assistance as may be reasonably requested by any of them in connection with
the preparation of any tax return, and audit or other examination by any taxing
authority, and any judicial and administrative proceedings related to the
liability for taxes (including without limitation, any additions to or refund of
taxes).
ARTICLE 11
[INTENTIONALLY OMITTED]
Ex 10(h) Page 46 of 56
<PAGE>
ARTICLE 12
GENERAL TERMS
12.1 COSTS AND EXPENSES. Buyer shall pay the cost of title insurance if
they desire to acquire title insurance. In addition, Buyer shall pay all filing
fees, costs of assignments of Applicable Contracts and Applicable Permits and
costs of recording required in connection with the Closing. Each party shall
pay its own attorneys' fees related to the preparation and execution of this
Agreement.
12.2 BULK TRANSFER LAW. Buyer waives compliance with the provisions of
any applicable bulk sales or bulk transfers Law. Sellers shall indemnify and
hold Buyer harmless from any claims, loss or liability incurred by Buyer as a
result of the failure to so comply; provided, however, such indemnity shall not
apply to obligations and liabilities assumed by Buyer.
12.3 FURTHER ASSURANCES. Sellers and Buyer will cause to be executed and
delivered from time to time at the request of the other parties all such further
instruments of conveyance, assignments and further assurances as reasonably may
be required to transfer and assign the Sellers' interest in the Transferred
Properties or otherwise to implement the provisions and intent of this
Agreement.
12.4 NOTICES. All notices and other communications required or
permitted to be given or delivered hereunder shall be in writing and shall be
delivered personally, transmitted by facsimile with answerback confirmed or sent
by recognized overnight courier service or United States mail, postage prepaid
and return receipt requested, directed to the party intended at the address set
forth below, or at such other address as may be designated by such party by
notice given to the other party in the manner aforesaid, and shall be effective
upon receipt:
Ex 10(h) Page 47 of 56
<PAGE>
If to Sellers: If to Buyer:
Chevron U.S.A. Production Company Plains Resources Inc.
1301 McKinney Street One Allen Center
Houston, Texas 77002 500 Dallas Street, Suite 700
Attention: Ms. Melody Meyer Houston, Texas 77010
Facsimile: (713) 754-3088 Attention: Mr. W. C. Egg, Jr.,
Executive Vice President
Facsimile: (713) 654-4915
With a copy to:
Chevron Pipe Line Company
1400 Woodloch Forest Drive
The Woodlands, Texas 77380
Attention: Mr. Dave Rogers
Facsimile: (281) 363-7214
12.5 ASSIGNMENT. Buyer shall not assign any right granted them under
this Agreement or delegate performance of any duty to be performed by them
hereunder without the express written consent of Sellers, which consent shall
not be unreasonably withheld. Subject to the foregoing, all rights and duties
of each party hereunder shall inure to the benefit of and be binding upon its
successors and assigns. Notwithstanding the foregoing, Buyer shall have the
right, prior to the Approval Date and effective on notice given to Sellers, to
designate one or more of its wholly-owned subsidiaries, or Plains All American
Pipeline, L.P. or its affiliated partnerships, to receive all or designated
portions of the Transferred Properties and interests in GGP, PANGL, PAPCO, PATC
and Clean Seas to be transferred at the Closing Date, PROVIDED that at the
Closing Buyer shall furnish Sellers with (i) a Guaranty Agreement in
substantially the form of Exhibit J attached hereto executed by Plains Resources
Inc. in favor of Sellers, guaranteeing full payment and performance when due of
any obligations hereunder assumed by such subsidiaries, and (ii) certificates by
officers of such designated subsidiaries certifying the accuracy of the matters
required to be certified by Buyer under Article 7 above and evidencing each such
subsidiary's assumption of the duties of Buyer under this Agreement associated
with the Transferred Properties and partnership or limited liability company
interests to be transferred to such subsidiary; and PROVIDED FURTHER that Buyer
shall be solely responsible for securing any consents required from unit
members, partners or Government Authorities for designation of such subsidiaries
as owners, partners or operators of the applicable units and partnerships.
12.6 GOVERNING LAW AND DISPUTE RESOLUTION.
(a) The interpretation and enforcement of this Agreement, and any
arbitration and arbitral decision pursuant to subparagraph (c) below, shall
be governed by the substantive law of the State of California, without the
application of its conflict of law rules; provided, however, questions
concerning arbitrability under the dispute resolution provision hereof shall
be governed exclusively by the United States Arbitration Act.
Ex 10(h) Page 48 of 56
<PAGE>
(b) Should any party hereto institute any arbitration or court
proceeding permitted under this Section 12.6 to enforce any provision hereof or
for damages by reason of the breach, default or liability of the other party
arising out of any provision of this Agreement or otherwise, the prevailing
party (as determined by the arbitral panel or court) shall be entitled to
recover costs of the arbitration or court proceeding and reasonable attorneys'
fees to be fixed by the arbitral panel or court.
(c) The parties desire to avoid all forms of traditional litigation and
therefore agree that all disputes, controversies or claims arising out of or
relating to this Agreement (collectively "Disputes") shall be resolved in
accordance with the following procedures:
(i) The parties shall use all commercially reasonable efforts to
resolve Disputes through direct discussions. The management of each party
commits itself to respond promptly to any communications concerning
Disputes.
(ii) Within thirty (30) days of written notice that there is a
Dispute, representatives of the parties with authority to settle the matter
shall meet at a mutually acceptable time and place in San Francisco,
California, or such other location as may be agreed, and as often
thereafter as they deem reasonably necessary in an effort to reach an
amicable resolution. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator shall be given at least
three (3) Business Days' notice of such intention and may also be
accompanied by an attorney.
(iii) If no amicable resolution is reached as a result of the
procedure in subparagraph (ii) hereof,
(A) Within sixty (60) days of the written notice
referenced in subparagraph (ii), the parties shall exchange
written statements of their positions concerning the Dispute,
and thereafter shall participate in a final meeting for the
purpose of attempting to settle such Dispute. Each party's
written statement of position shall state whether the party
desires to present live witnesses (and, if so, who) at the
next meeting to resolve the Dispute (described hereinafter);
(B) Within three (3) weeks of the exchange of written
statements, the parties represented by the respective
presidents or vice presidents of Sellers and Buyer and with
the assistance of such counsel, experts and others as may be
appropriate, shall meet and again attempt to reach an amicable
resolution or settlement of the Dispute.
(iv) If no amicable resolution or settlement is reached as a result
of the procedures in subparagraph (i), (ii) or (iii) herein, the Dispute
shall be finally resolved through binding arbitration which shall be
conducted expeditiously. The parties and arbitration panel shall endeavor
to complete the arbitration process within one hundred twenty (120) days of
the conclusion of the procedures set forth in paragraph (iii) hereof.
Unless otherwise agreed to by the parties, such arbitration shall be
conducted in accordance with the Center for Public Resources ("CPR") Rules
of Non-Administered
Ex 10(h) Page 49 of 56
<PAGE>
Arbitration of Business Disputes (the "CPR Rules"), with Sellers
collectively being considered one "party" and Buyer and any of its
subsidiaries collectively being considered one "party" for purposes of
the CPR Rules. A panel of three (3) arbitrators shall be selected in
accordance with the CPR Rules, provided that if the parties fail to
select three arbitrators from one or more panels submitted by CPR, CPR
shall not have the power to make appointments but shall continue to
submit additional panels until all three arbitrators have been selected.
Unless the parties agree otherwise, the place of arbitration shall be
San Francisco, California. The arbitrators shall not be empowered to
award any form of exemplary or punitive damages. As part of any
arbitral award pursuant to this paragraph, the arbitrators shall render
a reasoned award. The parties consent to judgment on such award being
entered in any court having jurisdiction.
(d) All negotiations, discussions and documents pursuant to or in
furtherance of this dispute resolution are confidential and shall be treated as
compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
(e) Each party is required to continue to perform its obligations under
this Agreement pending final resolution of any Dispute.
(f) Any judicial proceedings permitted to be brought with respect to
this Agreement shall be brought in any state or federal court of competent
jurisdiction in the State of California, and the parties generally and
unconditionally accept the exclusive jurisdiction of such courts. The parties
waive, to the fullest extent permitted by applicable law, any objection which
they may now or hereafter have to the bringing of any such action or proceeding
in such jurisdiction.
BINDING ARBITRATION
NOTICE: BY INITIALING IN THE SPACE PROVIDED BELOW YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "GOVERNING LAW AND
DISPUTE RESOLUTION" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE
THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALLING IN THE
SPACE PROVIDED BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY
AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THIS
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
Ex 10(h) Page 50 of 56
<PAGE>
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "GOVERNING LAW AND DISPUTE
RESOLUTION" PROVISON TO NEUTRAL ARBITRATION.
CUSA _____________ BUYER _____________
CPL _____________
12.7 ENTIRE AGREEMENT AND MODIFICATIONS.
(a) This Agreement constitutes the entire agreement between Sellers and
Buyer with respect to the subject matter hereof, superseding all prior
statements, representations, discussions, agreements and understandings relating
to such subject matter; provided, however, that the Confidentiality Agreement
shall remain in effect until and unless the Closing occurs.
(b) Except as otherwise specifically provided in this Agreement, all
covenants, agreements, representations, guaranties, indemnities, and warranties
shall survive the Execution Date of this Agreement, the Closing Date, and the
delivery and recordation of deeds, assignments or bills of sale which convey the
Transferred Properties to Buyer.
(c) No modification to this Agreement shall be binding unless in
writing and signed by representatives of all parties hereto. The waiver or
failure of any party to enforce any provision of this Agreement shall not be
construed or operate as a waiver of any further breach of such provision or of
any other provision of this Agreement.
12.8 PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision of this Agreement give any third persons any
right of subrogation or action over and against any party to this Agreement.
12.9 SEVERABILITY. In the event any provision of this Agreement is
held to be invalid by a court or arbitrator of competent jurisdiction, the
invalidity of any such provision shall in no way affect any other provision
contained herein; provided, however, that any such invalidity does not
materially prejudice either Buyer or Sellers in their respective rights and
obligations contained in the valid provisions of this Agreement.
12.10 RECORDS AND ASSISTANCE.
(a) For a period of seven years after the Closing Date, Buyer will
retain the CUSA Records and the CPL Records defined in Sections 2.1 and 2.2
above (the "Records") and will make such Records available to Sellers for
inspection and copying upon reasonable notice at
Ex 10(h) Page 51 of 56
<PAGE>
Buyer's headquarters (or at such other location in the United States as Buyer
shall designate in writing to Sellers) at reasonable times and during regular
office hours. Following the expiration of such seven-year period, Buyer shall
provide Sellers with 60 days' prior written notice of Buyer's intent to
destroy any Records transferred to Buyer pursuant to this Agreement. If
Sellers do not consent to the proposed destruction of Records, Buyer shall
either continue to retain the Records and continue to make them available to
Sellers as provided in the preceding sentence or require Sellers to remove
such records at Sellers' cost and expense. To the extent Buyer receive copies
of the Records because such Records relate to both the Transferred Properties
and properties excluded from the Transferred Properties, Buyer shall maintain
those portions of the Records which do not relate solely to the Transferred
Properties strictly confidential and shall not disclose any such Records to
any person or agency, unless such disclosure is required by Law.
(b) In the event of any dispute with respect to the ownership or
operation of the Transferred Properties arising out of events which occurred
prior to Closing, Buyer shall cooperate with Sellers, at no cost to Buyer, in
the resolution of such dispute, including, without limitation, appearing in any
litigation which may result therefrom; provided, however, that Buyer's agreement
so to cooperate shall not be deemed an acceptance by Buyer of any liability
arising from such dispute, as to which the other provisions of this Agreement
shall control. Buyer, acknowledging that Sellers have continuing obligations
with respect to outstanding lawsuits and claims associated with the Transferred
Properties and that Sellers may be parties to claims and litigation asserted
after Closing arising out of ownership or operations prior to Closing, shall
make available to Sellers, upon Sellers' request at all reasonable times, but at
no cost to Buyer, any and all files and business records in Buyer's custody or
control transferred by Sellers to Buyer hereunder and, except in the case of a
conflict of interest between the parties, any and all individuals employed by
Buyer whose testimony or knowledge in the opinion of Sellers' counsel may be
necessary or useful to it respecting the issues involved in such claims or
litigation or in anticipation thereof.
(c) While Sellers are transferring books and records pertaining to the
Transferred Properties to Buyer, Sellers by such act in no way intend to waive
their attorney-client and work product privileges as to such documents which may
be contained in such books and records and in particular with respect to those
files associated with outstanding claims and lawsuits which have been identified
in this Agreement. Buyer shall continue to maintain the confidential status of
those files or turn them over to Sellers if so requested.
12.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, all of which
shall be considered one and the same agreement, and each of which shall be
deemed an original.
Ex 10(h) Page 52 of 56
<PAGE>
IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to be
executed by their duly authorized representatives as of the Execution Date.
CHEVRON U.S.A. INC.,
a Pennsylvania corporation
By /s/ G. R. STEIBACH
-------------------------------------
G. R. Steibach
CHEVRON PIPE LINE COMPANY,
a Delaware corporation
By /s/ M. L. ELLINGSON
-------------------------------------
M. L. Ellingson
PLAINS RESOURCES INC.,
a Delaware corporation
By /s/ JIM HESTER
-------------------------------------
Ex 10(h) Page 53 of 56
<PAGE>
POINT ARGUELLO PROJECT ASSETS AND RELATED PROPERTIES
PURCHASE AND SALE AGREEMENT
AMONG
CHEVRON U.S.A. INC.,
CHEVRON PIPE LINE COMPANY
AND
PLAINS RESOURCES INC.
JUNE 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 2 PURCHASE AND SALE OF TRANSFERRED PROPERTIES . . . . . . . . . . . . 8
2.1 CUSA Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 CPL Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Hydrocarbon Inventories. . . . . . . . . . . . . . . . . . . . . . .10
2.4 Partnership Interests and Clean Seas Interests . . . . . . . . . . .11
2.5 Included and Excluded Items. . . . . . . . . . . . . . . . . . . . .12
2.6 Conveyancing Instruments . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE 3 ASSUMPTION AND INDEMNIFICATION OF LIABILITIES . . . . . . . . . . .13
3.1 Liabilities Retained by Sellers. . . . . . . . . . . . . . . . . . .13
3.2 Liabilities Assumed by Buyer . . . . . . . . . . . . . . . . . . . .15
3.3 General Liability Provisions . . . . . . . . . . . . . . . . . . . .15
3.4 Claims Procedures. . . . . . . . . . . . . . . . . . . . . . . . . .16
3.5 Security for Sellers' Liabilities. . . . . . . . . . . . . . . . . .17
3.6 Security for Buyer's Liabilities . . . . . . . . . . . . . . . . . .17
ARTICLE 4 DEPOSIT AND PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . .19
4.1 Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.3 Purchase Price Adjustments . . . . . . . . . . . . . . . . . . . . .20
4.4 Settlement Statement . . . . . . . . . . . . . . . . . . . . . . . .20
4.5 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . .21
ARTICLE 5 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.1 Time and Place of Closing. . . . . . . . . . . . . . . . . . . . . .21
5.2 Scheduled Closing Date . . . . . . . . . . . . . . . . . . . . . . .21
5.3 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.4 Consequences of Termination. . . . . . . . . . . . . . . . . . . . .21
5.5 Jointly Used Assets. . . . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE 6 CLOSING CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . .23
6.1 Sellers' Closing Conditions Precedent. . . . . . . . . . . . . . . .23
6.2 Buyer's Closing Conditions Precedent . . . . . . . . . . . . . . . .24
ARTICLE 7 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . .26
7.1 CUSA's Representations and Warranties. . . . . . . . . . . . . . . .26
7.2 CPL's Representations and Warranties . . . . . . . . . . . . . . . .28
7.3 Buyer's Representations and Warranties . . . . . . . . . . . . . . .30
7.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
7.5 Exclusivity of Warranties and Specific Disclaimers . . . . . . . . .31
7.6 Year 2000 Disclaimer, Release and Indemnity. . . . . . . . . . . . .33
ARTICLE 8 PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . .35
8.1 Buyer's Due Diligence Review . . . . . . . . . . . . . . . . . . . .35
8.2 Buyer's Right to Enter . . . . . . . . . . . . . . . . . . . . . . .37
8.3 Operation of Transferred Properties Prior to Closing . . . . . . . .38
8.4 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
8.5 Requirements for Transfer of Transferred Properties. . . . . . . . .39
8.6 Other Government Authority Reviews and Approvals . . . . . . . . . .41
Ex 10(h) i
<PAGE>
ARTICLE 9 POST-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . . . .42
9.1 Termination of Rights to Sellers' Insurance. . . . . . . . . . . . .42
9.2 Buyer's Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .43
9.3 Removal of Proprietary Technical Information . . . . . . . . . . . .43
9.4 Replacement of Sellers' Identification . . . . . . . . . . . . . . .44
9.5 Access by Sellers After Closing. . . . . . . . . . . . . . . . . . .44
9.6 Abandonment Project Permitting, Planning and Execution Services. . .44
9.7 Services Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .44
ARTICLE 10 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
10.1 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .45
10.2 Property and Excise Taxes . . . . . . . . . . . . . . . . . . . . .45
10.3 Partnerships and Partnership Interests. . . . . . . . . . . . . . .46
10.4 Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
10.5 Compliance and Contests . . . . . . . . . . . . . . . . . . . . . .46
ARTICLE 11 [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . .46
ARTICLE 12 GENERAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . .47
12.1 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . .47
12.2 Bulk Transfer Law . . . . . . . . . . . . . . . . . . . . . . . . .47
12.3 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . .47
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
12.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
12.6 Governing Law and Dispute Resolution. . . . . . . . . . . . . . . .48
12.7 Entire Agreement and Modifications. . . . . . . . . . . . . . . . .51
12.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . .51
12.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .51
12.10 Records and Audits . . . . . . . . . . . . . . . . . . . . . . . .51
12.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .52
</TABLE>
Ex 10(h) ii
<PAGE>
SCHEDULES
Schedule 1 Abandonment Obligations
Schedule 2 Point Arguello Assets
Schedule 3 Microwave Communication Assets
Schedule 4 Ventura Office Assets
Schedule 4A Offsite Stored Inventory
Schedule 5 Applicable Contracts
Schedule 6 Applicable Permits
Schedule 7 Contracts and Permits for Transfer to Partnerships
Schedule 8 Measured Inventories
Schedule 9 Valuation Procedure for Measured Inventories
Schedule 10 Allocation of Purchase Price
Schedule 11 Rights of First Refusal
Schedule 12 FERC Tariffs
Schedule 13 Project Permitting, Planning and Execution
Schedule 14 Excluded Items
EXHIBITS
Exhibit A Grant Deed for Fee Property
Exhibit B Assignment and Assumption Agreement for Easements
Exhibit C Assignment and Assumption Agreement for Leases and Contracts
Exhibit D Bill of Sale for Personal Property
Exhibit E Services Agreement
Exhibit F [INTENTIONALLY OMITTED]
Exhibit G Opinion of Buyer's Counsel
Exhibit H Opinion of Sellers' Counsel
Exhibit I Affidavits of Sellers' Non-Foreign Status
Exhibit J Chevron Corporation Guaranty in Favor of Buyer
Exhibit K Supplemental Performance Bond in Favor of MMS
Exhibit L Performance Bond in Favor of Sellers
Exhibit M Voting Agreements for Units and Partnership Interests
Ex 10(h) iii
<PAGE>
EXHIBIT 10(p)
THIRD AMENDMENT TO
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT") dated as of the 21st day of June, 1999, by and among PLAINS
RESOURCES INC., a Delaware corporation (the "COMPANY"), ING (U.S.) CAPITAL LLC,
successor in interest to ING (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 Fourth
Amended and Restated Credit Agreement dated as of May 22, 1998, as amended by a
First Amendment to Fourth Amended and Restated Credit Agreement dated November
17, 1998 and a Second Amendment to Fourth Amended and Restated Credit Agreement
dated March 15, 1999 (as amended, the "ORIGINAL AGREEMENT") for the purposes and
consideration therein expressed, pursuant to which Lenders became obligated to
make and made 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
Section 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.
Section 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 Section 1.2.
"AMENDMENT" means this Third Amendment to Fourth Amended and Restated
Credit Agreement.
"AMENDMENT DOCUMENTS" means this Amendment.
"CREDIT AGREEMENT" means the Original Agreement as amended hereby.
1
<PAGE>
ARTICLE II. -- AMENDMENTS
Section 2.1. DEFINITIONS. The definition of "Revolving Credit
Termination Date" set forth in Section 1.01 of the Original Agreement is hereby
amended in its entirety to read as follows:
"REVOLVING CREDIT TERMINATION DATE" shall mean the earlier of (a) July
1, 2001 and (b) the date on which the Commitment is reduced to zero or
terminated pursuant to Section 2.03 hereof.
Section 2.2. 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 sixteen
installments payable on each Quarterly Date beginning October 1, 2001, with
the final installment being due and payable on or before July 1, 2005.
Each such installment shall be equal to one-sixteenth 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 July 1, 2005. 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.
ARTICLE III. -- CONDITIONS OF EFFECTIVENESS
Section 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, and (ii) Agent shall have additionally received all of
the following documents, each document (unless otherwise indicated) being dated
the date of receipt thereof by Agent, duly authorized, executed and delivered,
and in form and substance satisfactory to Agent:
(A) 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.
(B) SUPPORTING DOCUMENTS. Such supporting documents as Agent may
reasonably request.
ARTICLE IV. -- REPRESENTATIONS AND WARRANTIES
Section 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 7 of the
Original Agreement, are true and correct at and as of the time of the
effectiveness hereof, subject
2
<PAGE>
to the amendment of certain of the Schedules to the Credit Agreement as
attached hereto. No Default has occurred and is continuing.
(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
Section 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.
3
<PAGE>
Section 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 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.
Section 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.
Section 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.
Section 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.
Section 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/ Michael R. Patterson
--------------------------------------
Name: Michael R. Patterson
Title: Vice President
4
<PAGE>
ING (U.S.) CAPITAL LLC,
as Agent and a Lender
By: /s/ Peter Y. Clinton
--------------------------------------
Name: Peter Y. Clinton
Title: Senior Vice President
BANKBOSTON, N.A., Lender
By: /s/ Terrence Ronan
--------------------------------------
Terrence Ronan, Vice President
DEN NORSKE BANK ASA, Lender
By: /s/ Byron L. Cooley
--------------------------------------
Name: Byron L. Cooley
Title: Senior Vice President
By: /s/ J. Morten Kreutz
--------------------------------------
Name: J. Morten Kreutz
Title: First Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, Lender
By: /s/ Ann M. Rhoads
--------------------------------------
Name: Ann M. Rhoads
Title: Vice President
CHASE BANK OF TEXAS, N.A., Lender
By: /s/ Russell A. Johnson
--------------------------------------
Name: Russell A. Johnson
Title: Vice President
COMERICA BANK-TEXAS, Lender
By: /s/ Daniel G. Steele
--------------------------------------
Name: Daniel G. Steele
Title: Senior Vice President
MEESPIERSON CAPITAL CORP., Lender
5
<PAGE>
By: /s/ Darrell W. Holley
--------------------------------------
Name: Darrell W. Holley
Title: Senior Vice President
By: /s/ Richard F. Herrick
--------------------------------------
Name: Richard F. Herrick
Title: Senior Vice President
BANK OF SCOTLAND, Lender
By: /s/ Annie Glynn
--------------------------------------
Name: Annie Glynn
Title: Senior Vice President
U.S. BANK NATIONAL ASSOCIATION, Lender
By: /s/ Charles S. Searle
--------------------------------------
Name: Charles S. Searle
Title: Senior Vice President
HIBERNIA NATIONAL BANK
By: /s/ Spencer Gagnet
--------------------------------------
Name: Spencer Gagnet
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Eric A. Schaefer
--------------------------------------
Name: Eric A. Schaefer
Title: Manager - Operations
6
<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) acknowledges and agrees that any and all indebtedness, liabilities or
obligations arising under or in connection with the Notes are Obligations and
are secured indebtedness under, and are 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, (iii) ratifies and confirms its Amended and Restated
Guaranty dated May 22, 1998 made by it for the benefit of Agent and Lenders, and
(iv) expressly acknowledges and agrees that such Subsidiary Guarantor guarantees
all indebtedness, liabilities and obligations arising under or in connection
with the 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.
PLAINS RESOURCES INTERNATIONAL INC.
STOCKER RESOURCES, INC.
CALUMET FLORIDA, INC.
PLAINS ILLINOIS INC.
By: /s/ Michael R. Patterson
--------------------------------------
Name: Michael R. Patterson
Title: Vice President
STOCKER RESOURCES, L.P.
By: Stocker Resources, Inc.,
its General Partner
By: /s/ Michael R. Patterson
----------------------------------
Name: Michael R. Patterson
Title: Vice President
7
<PAGE>
EXHIBIT 10(q)
SECOND AMENDMENT TO
PLAINS RESOURCES INC.
1996 STOCK INCENTIVE PLAN
Plains Resources Inc., having heretofore adopted the Plains Resources Inc.
1996 Stock Incentive Plan (the "Plan") and having reserved the right under
Section 9 thereof to amend the Plan, does hereby amend the Plan, effective as of
May 20, 1999, as follows:
Section 8.1 of Plains Resources Inc. 1996 Stock Incentive Plan shall be amended
to read as follows:
8.1 AWARD On the date of the Company's annual stockholder's
meeting at which the Non-employee Director is elected or re-elected to
serve on the Board, each Non-employee Director shall be granted a Non-
qualified Stock Option to purchase 10,000 Shares, provided that the
Plan is in effect on that day.
Adopted by the Board of Directors of Plains Resources Inc. on May 20, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES, INC. AND SUBSIDIAIRIES CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999
AND CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,058
<SECURITIES> 0
<RECEIVABLES> 346,493
<ALLOWANCES> 0
<INVENTORY> 60,510
<CURRENT-ASSETS> 425,045
<PP&E> 1,210,808
<DEPRECIATION> 389,833
<TOTAL-ASSETS> 1,399,525
<CURRENT-LIABILITIES> 431,342
<BONDS> 0
92,655
22,613
<COMMON> 1,693
<OTHER-SE> 52,085
<TOTAL-LIABILITY-AND-EQUITY> 1,399,525
<SALES> 1,363,941
<TOTAL-REVENUES> 1,364,248
<CGS> 1,327,277
<TOTAL-COSTS> 1,342,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,517
<INCOME-PRETAX> 11,690
<INCOME-TAX> 4,559
<INCOME-CONTINUING> 7,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,131
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
