CONFIDENTIAL MEMORANDUM
Information Contained herein is Subject to Amendment.
A Registration Statement Relating to these Securities has been Filed and
declared Effective with the SEC on January 3, 1994.
TO ALL OFFICERS, DEPARTMENT HEADS, REGISTERED REPRESENTATIVES, (RR-Sales,
RR-Non Sales). FOR INTERNAL USE ONLY. This information may not be copied,
distributed or shown to clients.
TESORO PETROLEUM CORPORATION
Offer to Exchange 13% Exchange Notes due
December 1, 2000 for up to $54,500,000 of the
Aggregate Principal Amount of its Existing 12-3/4%
Subordinated Debentures due March 15, 2001
1993 Annual Meeting of Stockholders at Which a Vote Will Be Taken to
Reclassify 1,319,563 Shares of $2.16 Cumulative Convertible Preferred Stock
into 6,465,859 Shares of Common Stock and to Approve Amendments to the
Certificate of Incorporation of the Company
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
8, 1994, UNLESS EXTENDED. THE RECLASSIFICATION WILL BE VOTED ON AT THE ANNUAL
MEETING TO BE HELD ON FEBRUARY 9, 1994.
The Recapitalization includes: 1) the Exchange Offer,
2) the Reclassification, 3) the Consent Solicitation,
4) the Charter Amendments and 5) the agreements to be
entered into pursuant to the Amended MetLife
Memorandum.
THE EXCHANGE OFFER
For Each: The Holder Will Receive:
$1,000 principal amount of 12-3/4% $1,000 principal amount of 13%
Subordinated Debentures (the Exchange Notes of the Company.
"Subordinated Debentures") (up to
$54.5 million aggregate principal
amount) of Tesoro Petroleum
Corporation (the "Company").
THE RECLASSIFICATION
1.0 Share of $2.16 Cumulative 4.9 Shares of Common Stock.
Convertible Preferred Stock (the
"$2.16 Preferred Stock"), including
all accrued and unpaid dividends.
The Company will also issue 0.1 share of Common Stock for
each share of $2.16 Preferred Stock on behalf of the holders
of the $2.16 Preferred Stock to pay certain legal fees and
expenses in connection with the settlement of certain
litigation. See "Croyden Associates' Litigation."
THE CONSENT SOLICITATION
The Company is soliciting the consent of holders of
Subordinated Debentures to certain indenture amendments (the
"Indenture Amendments") which will (i) make the Exchange
Notes senior in right of payment to the Subordinated
Debentures and (ii) modify the restriction that currently
prohibits the Company from declaring or paying dividends on
its Common Stock, making any distributions to its
stockholders or purchasing or redeeming its capital stock.
The existing restriction does not prohibit any aspect of the
Recapitalization.
THE CHARTER AMENDMENTS
At the Annual Meeting of Shareholders, holders of the $2.20
Preferred Stock and the $2.16 Preferred Stock, each voting
as a separate class, and holders of the Common Stock, the
$2.20 Preferred Stock and the $2.16 Preferred Stock, voting
as a single class, will vote on: Proposal No. 1, which will
(i) reclassify the $2.16 Preferred Stock into Common Stock,
(ii) amend the Company's charter to eliminate the staggered
terms of directors, and (iii) amend the Company's charter to
place a restriction on amendments to the Amended MetLife
Memorandum or the Company's MetLife Option (as described
below) that are adverse to the Company, and Proposal No. 2,
which is a charter amendment to eliminate, in the event the
Company's MetLife Option terminates without being exercised
in full, the existing requirement that certain transactions
by the Company with a beneficial holder of 10% or more of
the Company's outstanding shares of capital stock be
approved by the holders of at least 80% of the Company's
outstanding shares of capital stock.
METLIFE SECURITY INSURANCE COMPANY OF LOUISIANA ("METLIFE")
The sole holder of the $2.20 Preferred Stock is MetLife.
MetLife, which holds 2,875,000 shares of $2.20 Preferred
Stock and 2,184,085 shares of Common Stock, which together
constitute approximately 28% of the outstanding shares of
capital stock entitled to vote at the Annual Meeting, has
indicated to the Company that it intends to vote all of its
shares in favor of Proposal No. 1 and Proposal No. 2.
MetLife's willingness to vote in favor of Proposal No. 1 is
subject to certain conditions. See "Conditions."
Pursuant to the Amended MetLife Memorandum, MetLife will
agree to waive all mandatory redemption requirements, to
consider all accrued and unpaid dividends on the $2.20
Preferred Stock to have been paid (aggregating approximately
$20.0 million at November 30, 1993), to allow the Company to
pay future dividends on the $2.20 Preferred Stock in Common
Stock in lieu of cash and to waive or refrain from the
exercise of other rights under the $2.20 Preferred Stock.
The Amended MetLife Memorandum also provides that, upon
effectiveness of the Reclassification, MetLife will grant
the Company a three-year option (the "Company's MetLife
Option"), subject to earlier termination if certain minimum
exercise requirements are not satisfied, to acquire all
shares of $2.20 Preferred Stock and Common Stock then held
by MetLife at an initial option price of $51.5 million. The
option price will be increased on the first day of each
quarter, beginning January 1, 1994, by 3% per quarter for
two years and by 3.5% per quarter thereafter.
MetLife's agreements in the Amended MetLife Memorandum are
made in consideration of, among other things, the issuance
by the Company to MetLife of 1,900,075 shares of Common
Stock.
<PAGE>
CONDITIONS
The Exchange Offer is conditioned upon, among other things,
the tender and acceptance of at least $22.5 million
principal amount of outstanding Subordinated Debentures.
The Charter Amendments (including the Reclassification) are
conditioned as follows: Proposal No. 1 is conditioned upon:
1) a majority approval of the outstanding Common Stock,
$2.16 Preferred Stock and the $2.20 Preferred Stock, voting
as a single class, and 2) two-thirds approval of the
outstanding $2.16 Preferred Stock, voting as a separate
class. Proposal No. 2 requires an 80% approval of the
outstanding Common Stock, $2.16 Preferred Stock and the
$2.20 Preferred Stock, voting as a single class. Proposal
No. 2 is conditioned upon the approval of Proposal No. 1.
All of the provisions of the Amended MetLife Memorandum
described above are conditioned on the Reclassification.
The Exchange Offer and Charter Amendments are not
conditioned upon one another. However, MetLife has
conditioned its vote in favor of Proposal No. 1 upon, among
other things, 1) the effectiveness of Proposal No. 2, 2)
consummation of the Exchange Offer and 3) MetLife's
satisfaction with the membership of the Board of Directors
upon effectiveness of the Reclassification.
FAIRNESS OPINION
Jefferies & Company, Inc. has opined and, as a condition to
the Reclassification, will confirm their opinion immediately
prior to the consummation of the Reclassification, to the
effect that the Reclassification is fair from a financial
point of view to the holders of $2.16 Preferred Stock and to
the holders of Common Stock.
CROYDEN ASSOCIATES' LITIGATION
In October 1993, Croyden Associates, a holder of shares of
$2.16 Preferred Stock, filed a class action lawsuit in
Delaware Chancery Court on behalf of itself and all other
holders of the $2.16 Preferred Stock, alleging that the
Company and its directors breached their fiduciary duties to
the holders of the $2.16 Preferred Stock. Croyden
Associates has agreed in principle to recommend that the
court approve a settlement of the class action lawsuit under
the terms set forth in the final Proxy Statement -Prospectus
as filed with the Securities and Exchange Commission on
January 3, 1994. In connection with the above settlement,
the Company has agreed to pay up to $500,000 cash and to
issue 0.1 share of Common Stock for each share of $2.16
Preferred Stock to be available to pay fees and expenses
that the court may award to the attorneys who represented
the holders of the $2.16 Preferred Stock.
THE COMPANY
The Company conducts refining operations in Alaska and sells
refined products to a wide variety of customers in Alaska,
in the area west of the Rocky Mountains and in certain Far
Eastern markets. During 1992, the Company concentrated its
domestic exploration and production activities in the Wilcox
Trend of South Texas, resulting in net proved natural gas
reserves of 102 billion cubic feet at September 30, 1993.
The Company's international exploration and production
activities are concentrated in Bolivia. The Company sells
products providing bioremediation of hydrocarbon
contamination in the environment. The Company also sells
lubricants, fuels and specialty petroleum products,
primarily to onshore and offshore drilling contractors in
Texas and Louisiana.
BACKGROUND AND PURPOSE
The Company's operations over the past several years have
not generated cash sufficient to meet all of the Company's
obligations. These results have primarily been caused by
(i) deterioration of gross margins on sales of its refined
products, particularly residual fuel oil, which has
approximated 40% of the total output of the refinery during
the past three fiscal years, (ii) reduced revenues and
operating profits from the Company's foreign exploration and
production operations, and (iii) lower margins on sales of
products from the Company's oil field supply and
distribution segment.
As a result, the Company has been unable to pay dividends on
the existing preferred stock and has relied, in part, on
cash from the sale of assets to meet its other cash
requirements. The Company continues to be subject to
significant financial requirements, including debt service
requirements, the existing preferred stock dividend and
redemption requirements (including a potentially exercisable
right of MetLife to put all of the $2.20 Preferred Stock to
the Company and mandatory annual partial redemptions of the
$2.20 Preferred Stock), the need to replace the Company's
interim credit arrangements, and significant capital
expenditure requirements. See "Certain Considerations."
In response to the factors described above, the Board of
Directors made changes in senior management of the Company,
and management has implemented a new operational strategy,
has reduced general and administrative expenses, and has
settled a lawsuit brought by the State of Alaska, the
Company's principal supplier of crude oil feedstocks. The
Company now has a market-driven operational strategy, which
is intended to enable the Company to match its refined
product yield more closely to the product demand, reduce
working capital requirements and reduce the volume of
residual fuel oil produced. The new operational strategy
has been implemented only recently, and there can be no
assurance that it will prove successful. General and
administrative expenses have been reduced by approximately
27% for the nine months ended September 30, 1993 compared to
the nine months ended September 30, 1992. In January 1993,
the Company settled its contractual dispute with the State
of Alaska concerning the price paid by the Company to the
State in the past for Alaska North Slope royalty crude oil.
The Recapitalization is intended to improve the financial
condition of the Company and allow the Company to execute
its new operational strategy. The Recapitalization will
satisfy the sinking fund requirements of the Subordinated
Debentures for at least two years and possibly four,
eliminate the existing preferred stock dividend arrearages
and MetLife's put option, replace the mandatory annual
redemption requirements of the $2.20 Preferred Stock with a
deferred repurchase requirement, permit the Company at its
option to make dividend payments on and required repurchases
of the $2.20 Preferred Stock in shares of Common Stock
rather than cash and allow the Company the option, subject
to certain conditions, to repurchase the entire equity
interest in the Company currently held by MetLife.
<TABLE>
<CAPTION> For
documents and
Corporate Finance Contacts procedural information:
San Francisco New York Information Agent
<S> <C> <C>
Thomas Reinhart (415) 955-1604 Andrew Safran (214) 698-3659 Georgeson & Co.
Richard Maisto (415) 955-1698 (212) 440-9800
Frank Brown (415) 955-1665
Matthew Carbone (415) 955-1593
</TABLE>
<PAGE>
CERTAIN CONSIDERATIONS
Debt Service Requirements. The Subordinated
Debentures require sinking fund payments each March 15
sufficient to retire $11.25 million principal amount
of Subordinated Debentures per year through 2000.
Under its settlement agreement with the State of
Alaska, the Company is obligated to make variable
monthly payments for at least nine years plus a
payment of $60 million in 2002, subject to deferral.
Under a consent order with the U.S. Department of
Energy, the Company is obligated to make payments
aggregating $13.2 million, plus interest at the rate
of 6% per annum, during the next nine years. Earnings
were inadequate to cover combined fixed charges and
preferred stock dividend requirements by $49.1 million
and $4.1 million during fiscal 1992 and the nine
months ended September 30, 1993, respectively.
Existing Preferred Stock Requirements. The $2.20
Preferred Stock provides that, if accumulated dividend
arrearages equal or exceed 12 full quarterly
dividends, MetLife has the option to require the
Company to redeem all of the outstanding $2.20
Preferred Stock (an aggregate of $57.5 million), plus
accrued and unpaid dividends. At November 30, 1993,
accrued and unpaid dividends on the $2.20 Preferred
Stock aggregated approximately $20.0 million ($6.97
per share). Dividend arrearages on the $2.20
Preferred Stock exceeded 12 full quarterly dividends
on November 15, 1993; however, Met Life has agreed,
subject to certain conditions, that it will not
exercise the $2.20 Preferred Stock put option before
March 10, 1994. In addition, the $2.20 Preferred
Stock provides for annual mandatory redemptions,
beginning February 15, 1994, of 6-2/3% of the number
of shares of $2.20 Preferred Stock outstanding on
February 15, 1994, at a redemption price of $20 per
share plus accrued and unpaid dividends. Met Life has
also agreed, subject to certain conditions, to defer
the initial mandatory redemption from February 14,
1994 to March 10, 1994.
Working Capital Requirements. On October 29, 1993, in
order to avoid a $700,000 facility fee, the Company
elected to terminate its secured letter of credit
facility with a group of banks. Letters of credit are
issued to obtain crude oil feedstocks for the
Company's refinery and for other operating and
corporate needs. In connection with the termination,
the Company negotiated certain interim credit
arrangements and is in the process of discussions with
several financial institutions with regard to
providing a long-term credit facility to finance the
Company's working capital requirements. Based on
these discussions, the Company believes it will be
able to enter into a long-term credit facility on
terms more favorable than the Company's terminated
letter of credit facility upon successful completion
of the proposed Recapitalization. If the Company is
unsuccessful in completing the Recapitalization, and
is thereafter unable to arrange a long-term credit
facility, or is otherwise unable to arrange such a
facility, the Company may be required to reduce its
refinery throughput to reduce working capital
requirements. The Company is unable to predict if it
would be able to operate the refinery at an
economically viable rate under such circumstances.
Tennessee Gas Litigation. All of the Company's
operating profit during 1992, and approximately 87% of
its operating profit during the nine months ended
September 30, 1993, were attributable to its oil and
gas operations. The Company is currently receiving in
excess of $7.50 per Mcf for a portion of its United
States gas production (approximately 26% for the nine
months ended September 30, 1993) pursuant to a gas
purchase contract with Tennessee Gas Pipeline Company
("Tennessee Gas") that expires in 1999. Tennessee Gas
has sued the Company challenging the validity and
interpretation of the gas purchase contract. The
trial court judgment in favor of the Company was
reversed in part and remanded to the trial court. An
adverse judgment in this case could have a material
adverse effect on the Company.
Effect on the Company. As a result of the
Recapitalization, on a pro forma basis at September
30, 1993, assuming consummation of the
Reclassification and assuming a maximum acceptance of
the Exchange Offer ($54.5 million), total long-term
debt and redeemable preferred stock would decrease
from $257 million to approximately $186 million,
current liabilities (excluding the current portion of
long-term debt and the current amounts due on the
$2.20 Preferred Stock) would decrease from
approximately $77 million to approximately $68 million
and Common Stock and Other Stockholders' Equity would
increase from $44 million to $120 million. Under the
same pro forma assumptions, book value per share of
Common Stock would increase from $.80 to $2.78 and the
number of shares of Common Stock outstanding would
increase from 14,069,799 to 22,567,689. Under the
same assumptions, on a pro forma basis for the year
ending December 31, 1992, interest expense would
decrease from $21.1 million to $20.4 million and
preferred stock dividends would decrease from $9.2
million to $6.3 million.
MetLife Option. Pursuant to the terms of the
Company's MetLife Option, upon completion of the
Recapitalization, the Company will initially be
entitled to purchase from MetLife 2,875,000 shares of
$2.20 Preferred Stock, having a liquidation preference
of $57.5 million, and 4,084,160 shares of Common
Stock, having a pro forma net book value of
approximately $11.4 million at September 30, 1993, in
consideration for cash in the amount of $51.5 million.
Seniority of Exchange Notes. If the required consents
to the Indenture Amendments are obtained, the Exchange
Notes will be senior debt of the Company, pari passu
with all other senior indebtedness and senior to all
subordinated indebtedness of the Company, including
the Subordinated Debentures and the State of Alaska
debt. If requisite consents to the Indenture
Amendments are not obtained, the Exchange Notes will
be pari passu with the other senior indebtedness of
the Company and with the Subordinated Debentures and
senior in right of payment to the State of Alaska debt
and all other subordinated indebtedness of the
Company.
Sinking Fund Requirements. The Company's mandatory
sinking fund requirements under the Subordinated
Debentures will be met to the extent Subordinated
Debentures are tendered and accepted in the Exchange
Offer. Assuming that the minimum tender condition is
met, the Company will have no mandatory sinking fund
requirements until at least 1996. The resulting
increase in the average life of the remaining
Subordinated Debentures could adversely affect their
market price.
Effect of the Indenture Amendments. If the requisite
consents to the Indenture Amendments are obtained, the
Indenture Amendments will make the Exchange Notes
senior in right of payment to the Subordinated
Debentures and modify the restriction in the indenture
governing the Subordinated Debentures which currently
prohibits the Company from declaring and paying
dividends on its Common Stock, making any
distributions to its stockholders, or purchasing or
redeeming its capital stock. The valid tender of
Subordinated Debentures by a Debentureholder pursuant
to the Exchange Offer will include the consent of such
Debentureholder to the Indenture Amendments with
respect to such tendered Subordinated Debentures.
Issuance of Additional Shares of Common Stock. If the
Reclassification is completed 8,497,890 additional
shares of Common Stock will be issued to holders of
existing preferred stock and the attorneys
representing the holders of $2.16 Preferred Stock in
the Croyden Associates' litigation, an increase of
approximately 60% over the 14,069,236 shares of Common
Stock outstanding at December 15, 1993. Accordingly,
approval of the Reclassification will result in
substantial dilution to holders of Common Stock.
Use of Common Stock for Dividends or Purchases.
Pursuant to the Amended MetLife Memorandum, after the
Reclassification, dividends on the $2.20 Preferred
Stock and purchases of the $2.20 Preferred Stock
pursuant to the Company's obligation to make offers to
purchase may, at the election of the Company, be made
in cash or, subject to certain conditions, shares of
Common Stock or any combination thereof.
Voting Concentration. As of December 15, 1993,
MetLife owned Common Stock and $2.20 Preferred Stock
constituting approximately 28% of the outstanding
capital stock of the Company entitled to vote. Upon
completion of the Reclassification, MetLife will own
4,084,160 shares of Common Stock and 2,875,000 shares
of $2.20 Preferred Stock, constituting approximately
27% of the outstanding shares of capital stock of the
Company entitled to vote. If the Company pays
dividends on the $2.20 Preferred Stock in Common Stock
or repurchases shares of $2.20 Preferred Stock with
Common Stock pursuant to its obligation to make offers
to purchase, MetLife's percentage holdings of Common
Stock could increase. In addition, upon effectiveness
of the Reclassification the Board of Directors will be
expanded from 13 to 16 members and three persons
recommended by MetLife will be elected to fill the
vacancies.
Tax Considerations. See "Federal Income Tax
Consequences."
<PAGE>
<TABLE>
SUMMARY OF TERMS OF SECURITIES
<CAPTION>
Exchange Notes Subordinated Debentures $2.16 Preferred Stock
<S> <C> <C> <C>
Coupon/Dividend: 13% 12-3/4% $2.16 per share
Payment Date: June 1, December 1 March 15, September 15 March 15, June 15, September 15,
and December 15
Liquidation Not applicable Not applicable $25 per share
Preference:
Maturity Date: December 1, 2000 March 15, 2001 --
Mandatory None before maturity $11.25 million per year None
Redemption or on March 15, 1994
Offers to through March 15, 2000.
Purchase:
Conversion None None Convertible at the option
Rights: of the holder into 1.7241
shares of Common Stock for
each share of $2.16
Preferred Stock, subject to
adjustment.
Optional At the option of the At the option of the At the option of the
Redemption: Company, at 100% of Company, at 100% of Company, on a pro rata
principal amount plus principal amount plus basis, at $25 per share,
accrued interest, except accrued interest. plus accrued and unpaid
that no optional dividends.
redemption may be made
unless an equal principal
amount of, or
all the outstanding
Subordinated Debentures
are concurrently redeemed.
Ranking: If the requisite Subordinated Senior to Common Stock and
consents to the indebtedness ranking pari passu with $2.20
Indenture Amendments are junior to all Senior Preferred Stock, both as to
obtained, the Exchange Indebtedness (as dividends and upon
Notes will be pari passu defined), including liquidation.
with all other senior indebtedness under the
indebtedness, and senior Company's letter of
to all subordinated credit facilities.
indebtedness of the
Company, including the
Subordinated Debentures
and the State of Alaska
debt. If the requisite
consents to the
Indenture Amendments are
not obtained, the
Exchange Notes will be
pari passu with the
other senior
indebtedness of the
Company and with the
Subordinated Debentures,
and senior in right of
payment to the State of
Alaska debt and all
other subordinated
indebtedness of the
Company.
Voting Rights: None None One vote per share, voting
together with the holders
of shares of Common Stock
and $2.20 Preferred Stock.
If dividends are in arrears
by at least six full
quarterly dividend
payments, the holders of
$2.16 Preferred Stock,
voting together as a single
class with the holders of
$2.20 Preferred Stock, have
the right to elect two
additional directors. As
of December 15, 1993, the
Company had omitted
dividends on the $2.16
Preferred Stock for a total
of 12 1/2 quarters.
Limitation on Prohibition on the Prohibition on the
Dividends: payment of dividends or payment of cash
distributions on, or dividends on the Common
purchasing or acquiring, Stock or making
equity securities of the distributions on or
Company (except stock purchasing or acquiring
dividends) unless, capital stock in an
giving effect to such amount in excess of the
transaction (1) no event sum of (1) consolidated
of default shall occur net income of the
and (2) the aggregate Company subsequent to
amount expended for such September 30, 1982; (2)
purposes subsequent to net proceeds from the
September 30, 1993 is sale of its capital
less than the sum of (a) stock subsequent to
50% of the aggregate September 30, 1982; (3)
consolidated income of net proceeds from the
the Company earned sale of its indebtedness
subsequent to September subsequent to September
30, 1993 or 100% if such 30, 1982 which is
aggregate consolidated subsequently converted
net income for such into capital stock; (4)
period is negative and dividends or
(b) the net proceeds distributions subsequent
from the sale after to September 30, 1982,
September 30, 1993 of or sale proceeds, in
certain equity respect of its interest
securities of the in Trinidad-Tesoro
Company and indebtedness Petroleum Company
which has been converted Limited; and (5)
into certain equity $30,000,000, subject to
securities of the certain limitations;
Company; provided, provided, however, that
however, that the regular cash dividends
Company may make on the $2.20 Preferred
redemptions and Stock and the $2.16
repurchases of Common Preferred Stock may be
Stock and preferred paid.
stock in an aggregate
amount not to exceed The limitation on
$30,465,000 dividends will be
(approximately equal to modified to parallel the
the accrued and unpaid limitation of dividends
dividends that will included in the
exist on the existing indenture governing the
preferred stock at Exchange Notes upon
January 31, 1994) and receipt of the requisite
from the proceeds of consents to the
contemporaneous sales of Indenture Amendments.
certain capital stock
and may make dividend
payments on preferred
stock.
Other Limitations on None None
Significant Transactions with
Restrictive Affiliates
Covenants:
</TABLE>
<PAGE>
SELECTED SUMMARY HISTORICAL AND PRO FORMA DATA
The following summary sets forth selected summary
financial data of the Company on a historical basis
and as adjusted to give effect to the
Recapitalization, assuming (i) the Exchange Offer is
consummated at the maximum tender level, so that $54.5
million in principal amount of Subordinated Debentures
is exchanged for $54.5 million in principal amount of
Exchange Notes; a total of 6,597,815 shares of Common
Stock is issued upon the Reclassification of the $2.16
Preferred Stock, including all accrued and unpaid
dividends, and in payment of certain litigation
settlement fees and expenses; and the holder of the
$2.20 Preferred Stock waives the mandatory redemption
requirements thereof, considers accrued and unpaid
dividends to have been paid and is issued 1,900,075
shares of Common Stock (the Recapitalization), (ii)
only the debt exchange occurs (the Exchange Offer
Only) and (iii) only the waivers and considerations
indicated above relating to the $2.20 Preferred Stock,
the equity exchange relating to the $2.16 Preferred
Stock and the issuance of Common Stock on behalf of
the holders of $2.16 Preferred Stock to pay certain
legal fees and expenses in connection with the
settlement of certain litigation occurs (the
Reclassification Only). In addition, the following
tables set forth certain summary historical operating
data of the Company.
<TABLE>
<CAPTION>
Pro Forma as of or for the 9 Months
Historical Ended September 30, 1993
9 Months
Years Ended Ended
Sept. 30, Dec. 31, Sept. 30, Exchange Reclassification
1991 1992 1993 Recapitalization Offer Only Only (a)
Statement of Operations Data: (Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues (b) . . . . . . . . $1,091,016 $954,372 $627,848 $627,848 $627,848 $627,848
Expenses:
Cost of Sales . . . . . . 1,015,859 926,082 581,536 581,536 581,536 581,536
General and Administrative 17,003 25,849 10,946 10,946 10,946 10,946
Depreciation, Depletion
and Amortization . . . . 15,005 16,552 15,350 15,350 15,350 15,350
Interest Expense . . . . 18,804 21,115 12,801 12,784 12,784 12,801
Other . . . . . . . . . . 5,312 4,636 4,441 4,441 4,441 4,441
---------- -------- -------- -------- -------- --------
Total Costs and Expenses 1,071,983 994,234 625,074 625,057 625,057 625,074
---------- -------- -------- -------- -------- --------
Earnings (Loss) before Income
Taxes and the Cumulative
Effect of Accounting
Changes . . . . . . . . . . 19,033 (39,862) 2,774 2,791 2,791 2,774
Income Tax Provision . . . . 15,094 5,383 2,435 2,435 2,435 2,435
---------- -------- -------- -------- -------- --------
Earnings (Loss) Before the
Cumulative Effect of
Accounting Changes 3,939 (45,245) 339 356 356 339
Cumulative Effect of
Accounting Changes --- (20,630) --- --- --- ---
Net Earnings (Loss) . . . . . 3,939 (65,875) 339 356 356 339
Preferred Stock Dividend
Requirements . . . . . . . . 9,207 9,207 6,906 4,744 6,906 4,744
Net Loss Applicable to
Common Stock $ (5,268) $(75,082) $(6,567) $ (4,388) $ (6,550) $ (4,405)
=========== ========= ======== ========= ========= =========
Loss Per Primary and Fully
Diluted* Share Before the
Cumulative Effect
of Accounting Changes $ (.37) $ (3.87) $ (.47) $ (.19) $ (.47) $ (.19)
=========== ========= ======== ========= ========= ===========
EBITDA (c) . . . . . . . . . $ 53,037 $ (2,000) $31,071 $ 31,071 $ 31,071 $ 31,071
Ratio of Earnings to
Fixed Charges 1.79x (d) 1.15x 1.15x 1.15x 1.15x
* Anti-dilutive
Other Selected Financial Data:
Working Capital . . . . . . $ 95,448 $122,583 $70,173 $108,663 $ 77,423 $ 97,413
Capital Expenditures . . . $ 24,484 $ 15,446 $26,286 $ 26,286 $ 26,286 $ 26,286
Balance Sheet Data, at
end of period:
Current Assets . . . . . . . $ 247,192 $228,377 $185,557 $181,269 $181,269 $ 181,557
Net Property, Plant
and Equipment . . . . . . 207,501 198,482 209,273 209,273 209,273 209,273
Other Assets . . . . . . . 42,133 19,863 19,821 20,564 20,564 19,821
--------- -------- -------- -------- -------- ----------
Total Assets . . . . . $ 496,826 $446,722 $414,651 $411,106 $411,106 $ 410,651
========= ======== ======== ======== ======== ==========
Current Liabilities (e) . $ 93,966 $ 79,507 $ 76,541 $ 67,821 $ 76,253 $ 68,109
Long-Term Debt and Other
Liabilities:
Exchange Notes . . . . --- --- --- 54,500 54,500 ---
Subordinated Debentures 105,138 107,510 97,656 48,716 48,716 97,656
Other (f) . . . . . . . 102,925 137,345 119,818 119,818 119,818 119,818
--------- -------- -------- -------- -------- ----------
Total Long-Term Debt
and Other Liabilities 208,063 244,855 217,474 223,034 223,034 217,474
--------- -------- -------- -------- -------- ----------
$2.20 Preferred Stock . . 57,424 71,695 76,461 --- 76,461 ---
--------- -------- -------- -------- -------- ----------
Common Stock and Other
Stockholders' Equity:
$2.16 Preferred Stock 1,320 1,320 1,320 --- 1,320 ---
$2.20 Preferred Stock . --- --- --- 57,500 --- 57,500
Common Stock . . . . . 2,345 2,345 2,345 3,762 2,345 3,762
Additional Paid-in-Capital 86,664 86,992 86,987 111,683 86,987 111,683
Retained Earnings (Deficit) 47,209 (39,647) (46,214) (52,431) (55,031) (47,614)
Deferred Compensation . (165) (345) (263) (263) (263) (263)
Total Common Stock and Other
Stockholders' Equity . 137,373 50,665 44,175 120,251 35,358 125,068
--------- -------- -------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity $ 496,826 $446,722 $414,651 $411,106 $411,106 $ 410,651
========= ======== ======== ======== ======== ==========
_____________________________________
(a) The Reclassification is effectively conditioned
upon the consummation of the Exchange Offer and
cannot occur unless MetLife waives a related
condition.
(b) The Company is currently receiving in excess of
$7.50 per Mcf for a portion of its United States
gas production (approximately 26% for the nine
months ended September 30, 1993) pursuant to a
gas purchase contract with Tennessee Gas. This
contract is currently the subject of litigation
with Tennessee Gas. See "Certain
Considerations."
(c) EBITDA is equal to earnings (loss) before the
cumulative effect of accounting changes,
interest expense, income taxes and depreciation,
depletion and amortization.
(d) Earnings were inadequate to cover fixed charges
by $39.9 million for the year ended December 31,
1992.
(e) Excludes current portion of long-term debt and
other obligations and the current amounts of
$2.20 Preferred Stock, as such amounts are
included in the respective line items on this
table.
(f) Includes State of Alaska, Department of Energy
and other liabilities.
</TABLE>
<PAGE>
<TABLE>
SELECTED HISTORICAL OPERATING DATA
<CAPTION>
Year Nine Months
Ended Ended
Year Ended September 30, December 31, September 30,
1988 1989 1990 1991 1992 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Refining and Marketing:
Refinery Capacity (average daily barrels) 72,000 72,000 72,000 72,000 72,000 72,000 72,000
Refinery Throughput (average daily barrels) 71,784 65,045 67,904 68,192 61,425 62,574 50,503
Total Product Sales Excluding Residual Fuel
Oil Sales (average daily barrels) 66,735 59,413 65,417 61,426 63,509 64,892 53,551
Residual Fuel Oil Sales
(average daily barrels) 35,536 27,502 28,332 28,729 23,931 22,929 16,290
Oil Field Supply and Distribution:
Product Sales (average daily barrels) 5,943 6,455 7,846 10,470 8,476 8,517 7,114
Natural Gas - United States:
Net Production (average daily Mcf) 12,421 292 727 7,435 13,960 12,618 32,313
Average Sales Prices (dollars per Mcf)(a) $1.89 $1.66 $1.40 $1.88 $3.68 $2.38 $3.45
Natural Gas - Bolivia:
Net Production (average daily Mcf) --- --- 12,668 19,322 19,421 19,502 19,183
Average Sales Prices (dollars per Mcf) $--- $--- $2.74 $3.06 $1.67 $1.82 $1.20
Crude Oil - Indonesia (sold effective
May 1, 1992):
Net Production (average daily barrels) 2,562 1,994 2,565 3,315 2,714 2,714 ---
Net Sales Price (dollars per barrel) $17.65 $15.89 $17.95 $24.39 $18.20 $18.20 $---
Proved Reserves at End of Period:
Natural Gas (millions of cubic feet):
Unites States 208 568 11,118 33,141 73,753 * 101,598
Bolivia --- --- 85,040 115,229 107,008 * (b)
Crude Oil (thousands of barrels):
United States 4 --- 4 5 --- * *
Bolivia --- --- 2,058 2,828 2,263 * (b)
Indonesia --- 3,815 11,226 4,504 --- --- ---
Standardized Measure of Discounted Future
Net Cash
Flows Relating to Proved Reserves (millions
of dollars):
United States(a) $.3 $.5 $6.5 $30.4 $87.1 * *
Bolivia $--- $--- $37.0 $54.3 $23.6 * *
Indonesia $--- $6.3 $58.9 $4.4 $--- $--- $---
_______________________________
(a) The Company is currently receiving in excess of
$7.50 per Mcf for a portion of its United States
gas production (approximately 26% for the nine
months ended September 30, 1993) pursuant to a
gas purchase contract with Tennessee Gas. This
contract is currently the subject of litigation
with Tennessee Gas. See "Certain
Considerations."
(b) At April 30, 1993, proved reserves in Bolivia
were approximately 103,293 million cubic feet of
natural gas and 2,291 thousand barrels of crude
oil.
* Data not available.
FEDERAL INCOME TAX CONSEQUENCES
The Company intends to take the position that the
Reclassification will not result in an ownership
change for purposes of Section 382 of the Internal
Revenue Code; however, no assurance can be given that
the Internal Revenue Service or the courts will agree
with the position of the Company. In addition, the
Reclassification, in combination with other ownership
changes within three years thereof (such as the use of
shares of Common Stock to pay dividends on or
repurchase shares of $2.20 Preferred Stock), may
result in such an ownership change. Such a change
would significantly limit the Company's ability to use
its net operating loss carryforwards.
The federal income tax treatment of the exchange of
Subordinated Debentures for Exchange Notes depends on
whether the Subordinated Debentures and Exchange Notes
are "securities" for federal income tax purposes;
however, in all cases gain may be recognized upon the
exchange. Even if the Subordinated Debentures and
Exchange Notes are securities for such purposes, the
Company estimates that such gain may be as much as
approximately $96 per $1,000 face amount of
Subordinated Debentures (assuming the exchange occurs
on January 31, 1994 and that the issue price of an
Exchange Note on that date equals its face amount; the
amount of gain is subject to change depending on the
fair market value of a Subordinated Debenture at, and
the accrual of original issue discount on a
Subordinated Debenture until, the consummation of the
Exchange Offer). Tax counsel is of the opinion that
adoption of the Indenture Amendments will not be
treated as a taxable exchange by a non-tendering
holder of Subordinated Debentures; however, the issue
is not free from doubt. The Company estimates that
the holder of a share of $2.16 Preferred Stock will
have a taxable dividend as a result of the
Reclassification equal to the lesser of (i) the excess
of the fair market value of the 5.0 shares of Common
Stock received over $25 and (ii) the dividend
arrearages on such share of $2.16 Preferred Stock, in
each case as determined immediately after the
Reclassification. Under certain circumstances, a
holder of $2.16 Preferred Stock may also recognize
gain in connection with the payment by the Company of
the fees and expenses of the attorneys for the holders
of $2.16 Preferred Stock in the Croyden Associates'
litigation. See "Croyden Associates' Litigation."
</TABLE>
