UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 1-3473
TESORO PETROLEUM CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-0862768
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8700 Tesoro Drive
San Antonio, Texas 78217
(Address of Principal Executive Offices)
(Zip Code)
210-828-8484
(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
----- -----
There were 24,565,889 shares of the Registrant's Common Stock outstanding at
October 31, 1995.
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Consolidated Operations - Three
Months and Nine Months Ended September 30, 1995 and 1994 . . 4
Condensed Statements of Consolidated Cash Flows - Nine
Months Ended September 30, 1995 and 1994 . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands except per share amounts)
September 30, December 31,
1995 1994<F1>
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . $ 59,370 14,018
Receivables, less allowance for doubtful accounts
of $2,075 ($1,816 at December 31, 1994) (Note 5). 69,126 91,140
Inventories:
Crude oil and wholesale refined products, at LIFO 54,046 58,798
Merchandise and retail refined products . . . . . 3,987 5,934
Materials and supplies. . . . . . . . . . . . . . 3,843 3,570
Prepaid expenses and other . . . . . . . . . . . . 11,066 8,648
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . 201,438 182,108
PROPERTY, PLANT AND EQUIPMENT, Net of Accumulated
Depreciation, Depletion and Amortization of
$207,650 ($205,782 at December 31, 1994) . . . . . 256,345 273,334
RECEIVABLE FROM TENNESSEE GAS PIPELINE COMPANY
(Note 5). . . . . . . . . . . . . . . . . . . . . 42,689 -
INVESTMENT IN TESORO BOLIVIA PETROLEUM COMPANY . . . 12,735 10,295
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 20,492 18,623
----------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . $ 533,699 484,360
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . $ 48,600 53,573
Accrued liabilities. . . . . . . . . . . . . . . . 38,676 35,266
Current portion of long-term debt and other
obligations. . . . . . . . . . . . . . . . . . . 9,084 7,404
----------- -----------
Total Current Liabilities . . . . . . . . . . . . 96,360 96,243
----------- -----------
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 5,193 4,582
----------- -----------
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . 36,417 30,593
----------- -----------
LONG-TERM DEBT AND OTHER OBLIGATIONS, LESS
CURRENT PORTION. . . . . . . . . . . . . . . . . . 187,869 192,210
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common Stock, par value $.16-2/3; authorized
50,000,000 shares; 24,545,889 shares issued and
outstanding (24,389,801 in 1994) . . . . . . . . 4,091 4,065
Additional paid-in capital . . . . . . . . . . . . 176,618 175,514
Retained earnings (accumulated deficit). . . . . . 27,151 ( 18,847)
----------- -----------
Total Stockholders' Equity. . . . . . . . . . . . 207,860 160,732
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . $ 533,699 484,360
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<F1> The balance sheet at December 31, 1994 has been taken from the audited
consolidated financial statements at that date and condensed.
</TABLE>
3
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Gross operating revenues . . . . . . . . . . $ 245,132 251,811 744,962 651,558
Gain on sales of assets. . . . . . . . . . . 33,057 18 33,055 2,359
Interest income. . . . . . . . . . . . . . . 192 627 616 1,602
Other income . . . . . . . . . . . . . . . . 138 219 349 941
----------- ----------- ----------- -----------
Total Revenues. . . . . . . . . . . . . . . 278,519 252,675 778,982 656,460
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of sales and operating expenses. . . . 215,237 235,638 660,349 594,471
General and administrative . . . . . . . . . 4,372 3,480 12,371 10,484
Depreciation, depletion and amortization . . 9,436 9,493 32,763 23,888
Interest expense, net of capitalized interest
in 1994 of $367 and $607, respectively. . . 5,471 4,483 16,132 13,989
Other expense. . . . . . . . . . . . . . . . 5,557 1,409 7,572 4,852
----------- ----------- ----------- -----------
Total Costs and Expenses. . . . . . . . . . 240,073 254,503 729,187 647,684
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT . . . . . . . . . . . 38,446 ( 1,828) 49,795 8,776
Income Tax Provision . . . . . . . . . . . . . 1,664 1,435 3,797 3,607
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
LOSS ON EXTINGUISHMENT OF DEBT. . . . . . . 36,782 ( 3,263) 45,998 5,169
Extraordinary Loss on Extinguishment of Debt . - - - ( 4,752)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS). . . . . . . . . . . . . . 36,782 ( 3,263) 45,998 417
Dividend Requirements on Preferred Stocks. . . - - - 2,680
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK . . . . . . . . . . . . . . . . $ 36,782 ( 3,263) 45,998 ( 2,263)
=========== =========== =========== ===========
EARNINGS (LOSS) PER PRIMARY AND
FULLY DILUTED SHARE:
Earnings (Loss) Before Extraordinary Loss on
Extinguishment of Debt. . . . . . . . . . . $ 1.47 ( .13) 1.83 .11
Extraordinary Loss on Extinguishment of Debt - - - ( .21)
----------- ----------- ----------- -----------
Net Earnings (Loss). . . . . . . . . . . . . $ 1.47 ( .13) 1.83 ( .10)
=========== =========== =========== ===========
AVERAGE OUTSTANDING COMMON AND
COMMON EQUIVALENT SHARES . . . . . . . . . . 25,093 25,011 25,140 22,584
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . $ 45,998 417
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation, depletion and amortization. . . . . 32,763 23,888
Gain on sales of assets . . . . . . . . . . . . . ( 33,055) ( 2,359)
Amortization of deferred charges. . . . . . . . . 1,311 1,187
Loss on extinguishment of debt. . . . . . . . . . - 4,752
Changes in assets and liabilities:
Receivable from Tennessee Gas Pipeline Company. ( 29,465) ( 1,443)
Receivables, other trade. . . . . . . . . . . . 9,916 ( 1,463)
Inventories . . . . . . . . . . . . . . . . . . 6,006 21,315
Investment in Tesoro Bolivia Petroleum Company. ( 2,440) ( 3,980)
Other assets . . . . . . . . . . . . . . . . . ( 1,994) ( 1,090)
Accounts payable and other current liabilities. ( 349) 11,108
Obligation payments to State of Alaska . . . . ( 2,129) ( 2,011)
Other liabilities and obligations . . . . . . . 3,719 2,309
---------- ----------
Net cash from operating activities. . . . . . 30,281 52,630
---------- ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . ( 48,881) ( 73,260)
Acquisition of Kenai Pipe Line Company . . . . . . ( 3,029) -
Proceeds from sales of assets. . . . . . . . . . . 69,711 2,526
Sales of short-term investments . . . . . . . . . - 5,952
Purchases of short-term investments. . . . . . . . - ( 1,974)
Other. . . . . . . . . . . . . . . . . . . . . . . ( 172) 3,950
---------- ----------
Net cash from (used in) investing activities . . 17,629 ( 62,806)
---------- ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Repayments, net of borrowings of $262,500 in 1995
and $5,000 in 1994, under revolving credit
facilities . . . . . . . . . . . . . . . . . . . - ( 5,000)
Payments of long-term debt . . . . . . . . . . . . ( 2,262) ( 1,097)
Issuance of long-term debt . . . . . . . . . . . . - 10,206
Proceeds from issuance of common stock, net. . . . - 56,967
Repurchase of common and preferred stock . . . . . - ( 52,948)
Dividends on preferred stocks. . . . . . . . . . . - ( 1,684)
Costs of recapitalization and other. . . . . . . . ( 296) ( 2,424)
---------- ----------
Net cash from (used in) financing activities . . ( 2,558) 4,020
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . 45,352 ( 6,156)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . 14,018 36,596
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . $ 59,370 30,440
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of $607 capitalized in 1994 . . $ 13,600 13,220
========== ==========
Income taxes paid . . . . . . . . . . . . . . . . $ 3,262 3,855
========== ==========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
5
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The interim condensed consolidated financial statements of Tesoro Petroleum
Corporation and its subsidiaries (collectively, the "Company" or "Tesoro") are
unaudited but, in the opinion of management, incorporate all adjustments
necessary for a fair presentation of results for such periods. Such adjustments
are of a normal recurring nature. The preparation of these condensed
consolidated financial statements required the use of management's best
estimates and judgment. The results of operations for any interim period are
not necessarily indicative of results for the full year. The accompanying
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Acquisitions and Divestitures
In September 1995, the Company sold, effective April 1, 1995, certain interests
in its U.S. onshore producing and non-producing oil and gas properties located
in the Bob West Field in South Texas. The interests sold included the Company's
approximate 55% net revenue interest and 70% working interest in Units C, D and
E and a convertible override in Unit F of the Bob West Field. These units do
not include acreage related to the Company's natural gas sales contract with
Tennessee Gas Pipeline Company, which, as discussed in Note 5, is the subject of
current litigation. Also excluded from the sale were the Company's interests in
the State Park and Sanchez-O'Brien leases and the Ramirez USA E-6 well within
the field. In total, the sale included interests in 14 gross producing wells,
or approximately 40% of the Company's total proved domestic reserves. For the
three months and nine months ended September 30, 1995, natural gas production
from the interests sold had contributed approximately $1.3 million and $4.2
million, respectively, to the Company's Exploration and Production segment
operating profit. For information regarding changes in proved domestic
reserves, see Note 6. Consideration for the sale was $74 million, which was
adjusted on a preliminary basis for production, capital expenditures and certain
other items after the effective date to approximately $68 million in cash
received at closing, resulting in a gain of approximately $33 million, or $1.34
per share, in the 1995 third quarter. No income taxes were provided on this
gain due to the utilization of previously unrecognized net operating loss and
other carryforwards. The consideration received by the Company, which is
subject to final post-closing adjustments, is expected to be used to redeem a
portion of the Company's outstanding 12-3/4% Subordinated Debentures, reduce
borrowings under the Company's Revolving Credit Facility and improve corporate
liquidity (see Note 4). The Company does not expect any final post-closing
adjustments to be material.
In September 1995, the Company signed a letter of intent to acquire all of the
outstanding capital stock of Coastwide Energy Services, Inc. ("Coastwide") for
approximately $21 million, to be paid 40% in cash and 60% in Tesoro Common
Stock. Coastwide is a wholesale distributor of diesel fuel and lubricants and a
provider of services to the offshore drilling industry in the U.S. Gulf of
Mexico. Upon completion of this acquisition, which is subject to regulatory
approvals and approval by Coastwide shareholders, the Company would merge its
existing marine petroleum distribution operations with Coastwide, forming a
Marine Services segment. If this acquisition is consummated, it would be
accounted for using the purchase method.
In March 1995, the Company acquired all of the outstanding stock of Kenai Pipe
Line Company ("KPL") for approximately $3 million. The Company transports its
crude oil and a substantial portion of its refined products utilizing KPL's
pipeline and marine terminal facilities in Kenai, Alaska. The acquisition was
accounted for using the purchase method.
(3) Employee Terminations and Other Costs
In September 1995, the Company incurred a pretax charge of $4.7 million, or $.19
per share, primarily for employee termination costs associated with
restructuring the Company's organization and operations. Other expense included
$3.8 million of this charge, representing primarily severance and related
benefits resulting from a reduction in administrative workforce and other
employee terminations together with settlements and curtailments under the
Company's executive security plan. Operating expenses and other included the
remaining $.9 million of this charge which was related to employee terminations
and exit costs in the Company's operating segments. The Company's Consolidated
Balance Sheet as of September 30, 1995 included an accrual of approximately $2.5
million relating to these costs, the majority of which will be paid by year-end
1995.
6
(4) Credit Arrangements
Revolving Credit Facility
The Company has financing and credit arrangements under a three-year corporate
Revolving Credit Facility ("Facility") dated April 20, 1994, with a consortium
of ten banks. The Facility, which is subject to a borrowing base, provides for
(i) the issuance of letters of credit up to the full amount of the borrowing
base and (ii) cash borrowings up to the amount of the borrowing base
attributable to domestic oil and gas reserves. Outstanding obligations under
the Facility are secured by liens on substantially all of the Company's trade
accounts receivable and product inventory and by mortgages on the Company's
refinery and South Texas natural gas reserves. Under the terms of the Facility,
which has been amended from time to time, the Company is required to maintain
specified levels of working capital, tangible net worth, consolidated cash flow
and refining and marketing cash flow, as defined. Among other matters, the
Facility contains certain restrictions with respect to (i) capital expenditures,
(ii) incurrence of additional indebtedness, and (iii) dividends on capital
stock. The Facility contains other covenants customary in credit arrangements
of this kind. Future compliance with certain financial covenants is primarily
dependent on the Company's maintenance of specified levels of cash flows from
operations, capital expenditures, levels of borrowings and the value of the
Company's domestic oil and gas reserves. In October 1995, the Facility was
amended which, among other matters, (i) reduced available commitments from $100
million to $90 million, (ii) permits the Company to redeem a portion of its
outstanding 12-3/4% Subordinated Debentures, and (iii) reduced the required
level of refining and marketing cash flow. If the Company's refining and
marketing cash flow, as defined, does not meet required levels, the $90 million
availability will be incrementally reduced, but not below $80 million.
At September 30, 1995, the Company had available commitments under the Facility
of $100 million which were fully supported by the borrowing base as defined.
Included in the borrowing base at September 30, 1995 was a domestic oil and gas
reserve component of $40 million. At September 30, 1995, the Company had
outstanding letters of credit under the Facility of approximately $50 million
with no cash borrowings outstanding. For the nine months ended September 30,
1995, the Company's gross borrowings and repayments under the Facility totaled
$262.5 million, which were used on a short-term basis to finance working capital
requirements and capital expenditures.
Partial Redemption of 12-3/4% Subordinated Debenture
The Company has given notice of its intention to redeem approximately $34.6
million of its outstanding 12-3/4% Subordinated Debentures ("Subordinated
Debentures"). The redemption date will be December 1, 1995 at a price equal to
100% of the principal amount, plus accrued interest to the redemption date. In
the fourth quarter of 1995, the Company expects to record a noncash
extraordinary loss of approximately $3 million from this early extinguishment of
debt, reflecting a write-off of unamortized bond discount and issue costs.
Following this partial redemption, which will satisfy all future sinking fund
requirements, the Company will have $30 million principal amount of Subordinated
Debentures outstanding, due on March 15, 2001.
(5) Commitments and Contingencies
Gas Purchase and Sales Contract
The Company is selling a portion of the gas from its Bob West Field to Tennessee
Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales Agreement
("Tennessee Gas Contract") which provides that the price of gas shall be the
maximum price as calculated in accordance with Section 102(b)(2) ("Contract
Price") of the Natural Gas Policy Act of 1978 ("NGPA"). In August 1990,
Tennessee Gas filed suit against the Company in the District Court of Bexar
County, Texas, alleging that the Tennessee Gas Contract is not applicable to the
Company's properties and that the gas sales price should be the price calculated
under the provisions of Section 101 of the NGPA rather than the Contract Price.
During September 1995, the Contract Price was in excess of $8.00 per Mcf and the
average spot market price was $1.45 per Mcf. Tennessee Gas also claimed that the
contract should be considered an "output contract" under Section 2.306 of the
Texas Uniform Commercial Code ("UCC")
7
and that the increases in volumes tendered under the contract exceeded those
allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, determined that the Tennessee Gas Contract was an
output contract and remanded the case to the trial court for determination of
whether gas volumes tendered by the Company to Tennessee Gas were tendered in
good faith and were not unreasonably disproportionate to any normal or otherwise
comparable prior output or stated estimates in accordance with the UCC. In
addition, the Supreme Court affirmed that the price under the Tennessee Gas
Contract is the Contract Price. The Company filed a motion for rehearing before
the Texas Supreme Court on the issue of whether the Tennessee Gas Contract is an
output contract. Through September 30, 1995, under the Tennessee Gas Contract,
the Company recognized cumulative net revenues in excess of spot market prices
(in excess of a $3.00 per Mcf nonrefundable Bond Price, as defined below, from
September 18, 1994 through August 13, 1995) totaling approximately $96.6
million. The Company's noncurrent receivable from Tennessee Gas totaled $42.7
million at September 1995, representing the difference between the Contract
Price and the Bond Price, as defined below. The Company and its outside counsel
are evaluating the impact of various aspects of the Supreme Court decision. The
Company believes that, if this issue is tried, the gas volumes tendered to
Tennessee Gas will be found to have been in good faith and otherwise in
accordance with the requirements of the UCC. However, there can be no assurance
as to the ultimate outcome at trial. An adverse outcome of this litigation
could require the Company to reverse some or all of the incremental revenue and
repay Tennessee Gas all or a portion of $53.9 million for amounts received above
spot market prices, plus interest if awarded by the court.
In September 1994, the court ordered that, effective until August 1, 1995,
Tennessee Gas (i) take at least its entire monthly take-or-pay obligation under
the Tennessee Gas Contract, (ii) pay for gas at $3.00 per Mmbtu, which
approximates $3.00 per Mcf ("Bond Price"), and (iii) post a $120 million bond
with the court representing an amount which, together with anticipated sales of
natural gas to Tennessee Gas at the Bond Price, will equal the anticipated value
of the Tennessee Gas Contract during this interim period. The Bond Price for
this period is nonrefundable by the Company. On August 10, 1995, a hearing was
held before the trial court regarding the extension of the Tennessee Gas bond.
Pursuant to agreement of the parties, the court ordered that Tennessee Gas, for
the period August 14, 1995, until the earlier of October 16, 1995, or the date
the Supreme Court issues its rulings on motions for rehearing, (i) continue to
take at least its entire take-or-pay volume obligation, (ii) pay for gas at a
price of $3.00 per Mmbtu subject to potential refund of amounts in excess of
market prices if Tennessee Gas should ultimately prevail in the litigation, and
(iii) post a $25 million bond in addition to the $120 million bond presently in
place. On November 8, 1995, pursuant to agreement of the parties, the court
ordered that Tennessee Gas will, for the period October 16, 1995, until the
earlier of January 31, 1996, or the date the Supreme Court issues its ruling on
motions for rehearing, (i) continue to take at least its entire take-or-pay
volume obligation, (ii) pay for gas at a price of $3.00 per Mmbtu subject to
potential refund of amounts in excess of market prices if Tennessee Gas should
ultimately prevail in the litigation, and (iii) post a $35 million bond in
addition to the $145 million bond presently in place. Tennessee Gas had
previously agreed to pay the Company the nonrefundable Bond Price until August
14, 1995. Under the provisions of the bond agreement, the Company retains the
right to receive the full Contract Price for all gas sold to Tennessee Gas.
8
Environmental
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which change frequently, regulate the discharge of
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of petroleum or chemical
substances at various sites or install additional controls or other
modifications or changes in use for certain emission sources. The Company is
currently involved with waste disposal sites near Abbeville, Louisiana and in
Grand Junction, Colorado, at which it has been named a potentially responsible
party under the Federal Superfund law. Although this law might impose joint and
several liability upon each party at each site, the extent of the Company's
allocated financial contributions to the cleanup of both sites is expected to be
limited based upon the number of companies and the volumes of waste involved.
The Company believes that its liability at the Abbeville, Louisiana site will be
limited based upon the payment by the Company of a de minimis settlement amount
of $2,500 at a similar site in Louisiana. With respect to the Grand Junction,
Colorado site, the Company has executed an Administrative Order on Consent for
De Minimis Settlement with the EPA in which the Company has agreed to settle all
claims at the site for approximately $1,400. The Company is also involved in
remedial responses and has incurred cleanup expenditures associated with
environmental matters at a number of sites, including certain of its own
properties. In addition, the Company is holding discussions with the Department
of Justice ("DOJ") concerning the assessment of penalties with respect to
certain alleged violations of regulations promulgated under the Clean Air Act as
discussed below.
In March 1992, the Company received a Compliance Order and Notice of Violation
from the Environmental Protection Agency ("EPA") alleging violations by the
Company of the New Source Performance Standards under the Clean Air Act at its
Alaska refinery. These allegations include failure to install, maintain and
operate monitoring equipment over a period of approximately six years, failure
to perform accuracy testing on monitoring equipment, and failure to install
certain pollution control equipment. From March 1992 to July 1993, the EPA and
the Company exchanged information relevant to these allegations. In addition,
the EPA conducted an environmental audit of the Company's refinery in May 1992.
As a result of this audit, the EPA is also alleging violation of certain
regulations related to asbestos materials. In October 1993, the EPA referred
these matters to the DOJ. The DOJ contacted the Company to begin negotiating a
resolution of these matters. The DOJ has indicated that it is willing to enter
into a judicial consent decree with the Company and that this decree would
include a penalty assessment. Negotiations on the penalty are in progress. The
DOJ has currently proposed a penalty assessment of approximately $2.1 million.
The Company is continuing to negotiate with the DOJ but cannot predict the
ultimate outcome of the negotiations.
At September 30, 1995, the Company's accruals for environmental matters,
including the alleged violations of the Clean Air Act, amounted to $10.5
million. Also included in this amount is an approximate $4 million noncurrent
liability for remediation of the KPL properties, which liability has been funded
by the former owners of KPL through a restricted escrow deposit. Based on
currently available information, including the participation of other parties or
former owners in remediation actions, the Company believes these accruals are
adequate. In addition, to comply with environmental laws and regulations, the
Company anticipates that it will be required to make capital improvements in
1995 of approximately $1 million, primarily for the removal and upgrading of
underground storage tanks, and approximately $10 million during 1997 for the
installation of dike liners required under Alaska environmental regulations.
Conditions that require additional expenditures may exist for various Company
sites, including, but not limited to, the Company's refinery, retail gasoline
outlets (current and closed locations) and petroleum product terminals, and for
compliance with the Clean Air Act. The amount of such future expenditures cannot
currently be determined by the Company.
Crude Oil Purchase Contract
The Company's contract with the State of Alaska ("State") for the purchase of
royalty crude oil expires on December 31, 1995. In May 1995, the Company
renegotiated a new three-year contract with the State for the period January 1,
1996 through December 31, 1998. The new contract provides for the purchase of
approximately 40,000 barrels per day of Alaska North Slope ("ANS") royalty crude
oil, the primary feedstock for the Company's
9
refinery, and is priced at the weighted average price reported to the State by a
major North Slope producer for ANS crude oil as valued at Pump Station No. 1 on
the Trans Alaska Pipeline System. Under this agreement, the Company is required
to utilize in its refinery operations volumes equal to at least 80% of the ANS
crude oil to be purchased from the State. This contract contains provisions
that, under certain conditions, allow the Company to temporarily or permanently
reduce its purchase obligations.
Other Contingencies
In July 1994, a former customer of the Company ("Customer"), filed suit against
the Company in the United States District Court for the District of New Mexico
for a refund in the amount of approximately $1.2 million, plus interest of
approximately $4.4 million and attorney's fees, related to a gasoline purchase
from the Company in 1979. The Customer also alleges entitlement to treble
damages and punitive damages in the aggregate amount of $16.8 million. The
refund claim is based on allegations that the Company renegotiated the
acquisition price of gasoline sold to the Customer and failed to pass on the
benefit of the renegotiated price to the Customer in violation of Department of
Energy price and allocation controls then in effect. In May 1995, the court
issued an order granting the Company's motion for summary judgment and dismissed
with prejudice all the claims in the Customer's complaint. In June 1995, the
Customer filed a notice of appeal with the U.S. Court of Appeals for the Federal
Circuit. The Company cannot predict the ultimate resolution of this matter but
believes the claim is without merit.
Sales Commitment
The Company has entered into an agreement with another company for the sale of
approximately 8.25 Bcf of the Company's anticipated U.S. natural gas production
for the period April 1, 1995 through December 31, 1995 at a fixed price of
approximately $1.56 per Mcf. For the three months and nine months ended
September 30, 1995, the Company's average spot market sales prices, which
included the effect of this agreement, were $1.44 and $1.47 per Mcf,
respectively.
(6) Changes in Proved Domestic Reserves
The Company's mid-year reserve report, prepared by the Company's independent
petroleum consultants, estimated that, during the first half of 1995, Tesoro's
proved domestic natural gas reserves increased 53%, from 129 Bcf of natural gas
at December 31, 1994, to 198 Bcf at June 30, 1995, after net production during
this period of approximately 23 Bcf. Subsequently, in September 1995, the
Company sold approximately 40% of its proved domestic natural gas reserves (see
Note 2).
10
Item 2. TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994
A consolidated summary of the Company's operations for the three and nine months
ended September 30, 1995 and 1994 is presented below (in millions except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------------------ -----------------
<S> <C> <C> <C> <C>
Summary of Operations
Segment Operating Profit (Loss), Including Gain
on Sales of Assets<F1>:
Refining and Marketing . . . . . . . . . . . . . . $ 2.8 ( 5.1) ( 4.5) ( 3.7)
Exploration and Production - United States . . . . 49.5 9.4 86.1 35.2
Exploration and Production - Bolivia . . . . . . . 2.2 3.0 6.2 7.4
Oil Field Supply and Distribution. . . . . . . . . ( .7) ( .2) ( 2.5) ( 1.8)
------- ------- ------- -------
Total Segment Operating Profit. . . . . . . . . . 53.8 7.1 85.3 37.1
Corporate and Unallocated Costs:
General and administrative expenses. . . . . . . . 4.4 3.5 12.4 10.5
Interest expense . . . . . . . . . . . . . . . . . 5.4 4.5 16.1 14.0
Interest income. . . . . . . . . . . . . . . . . . ( .2) ( .6) ( .6) ( 1.6)
Other. . . . . . . . . . . . . . . . . . . . . . . 5.7 1.6 7.6 5.4
------- ------- ------- -------
Earnings (Loss) Before Income Taxes and
Extraordinary Loss . . . . . . . . . . . . . . . . 38.5 ( 1.9) 49.8 8.8
Income Tax Provision . . . . . . . . . . . . . . . . 1.7 1.4 3.8 3.6
------- ------- ------- -------
Earnings (Loss) Before Extraordinary Loss. . . . . . 36.8 ( 3.3) 46.0 5.2
Extraordinary Loss on Extinguishment of Debt . . . . - - - ( 4.8)
------- ------- ------- -------
Net Earnings (Loss). . . . . . . . . . . . . . . . . 36.8 ( 3.3) 46.0 .4
Dividend Requirements on Preferred Stocks. . . . . . - - - 2.7
------- ------- ------- -------
Net Earnings (Loss) Applicable to Common Stock . . . $ 36.8 ( 3.3) 46.0 ( 2.3)
======= ======= ======= =======
Earnings (Loss) per Primary and Fully Diluted Share:
Earnings (Loss) Before Extraordinary Loss. . . . . $ 1.47 ( .13) 1.83 .11
Extraordinary Loss on Extinguishment of Debt . . . - - - ( .21)
------- ------- ------- -------
Net Earnings (Loss). . . . . . . . . . . . . . . . $ 1.47 ( .13) 1.83 ( .10)
======= ======= ======= =======
<FN>
<F1> Operating profit (loss) represents pretax earnings (loss) before certain corporate
expenses, interest income and interest expense.
</TABLE>
Net earnings of $36.8 million, or $1.47 per share, for the three months ended
September 30, 1995 ("1995 quarter") compare with a net loss of $3.3 million, or
$.13 per share, for the three months ended September 30, 1994 ("1994 quarter").
Net earnings for the 1995 quarter included an after-tax gain of approximately
$33 million, or $1.34 per share, from the sale of certain interests in the Bob
West Field and a charge of nearly $5 million, or $.19 per share, for employee
terminations and other restructuring costs. Excluding these items, net earnings
for the 1995 quarter would have been $8 million, or $.32 per share, reflecting
significantly higher results attributable primarily to the successful drilling
program and increased natural gas production from the Company's exploration and
production operations in South Texas together with improved operating results
from the Company's refining and marketing operations.
Net earnings applicable to common stock of $46.0 million, or $1.83 per share,
for the nine months ended September 30, 1995 ("1995 period") compare to a net
loss applicable to common stock of $2.3 million, or $.10 per share, for the nine
months ended September 30, 1994 ("1994 period"). The comparability between
these two periods was impacted by certain significant transactions. As
discussed above, the 1995 period included an after-tax gain of approximately $33
million from the sale of certain interests in the Bob West Field. In addition,
11
the Company benefited from a reduced depletion rate resulting from increases to
its estimates of proved reserves in the 1995 second quarter and the elimination
of future development costs associated with the interests that were sold in the
1995 third quarter. As discussed above, employee terminations and other
restructuring costs of approximately $5 million were incurred during the 1995
period. Net earnings for the 1994 period were reduced by $2.7 million of
dividend requirements on preferred stock. Also included in the 1994 period was
a noncash extraordinary loss of $4.8 million, or $.21 per share, attributable to
the early extinguishment of debt in connection with a recapitalization in 1994.
Earnings applicable to common stock before the extraordinary loss were $2.5
million, or $.11 per share, for the 1994 period. The 1994 period was favorably
impacted by a net gain of $2.4 million, or $.11 per share, from the sale of
assets. Excluding these significant transactions from both periods, the
increase in net earnings during the 1995 period was largely due to increased
natural gas production from the Company's exploration and production activities
in South Texas, partially offset by lower operating results from the Company's
refining and marketing segment and lower spot market prices for sales of natural
gas.
12
<TABLE>
<CAPTION>
Refining and Marketing Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions except per barrel amounts)
<S> <C> <C> <C> <C>
Gross Operating Revenues:
Refined products . . . . . . . . . . . . . . . . . $ 176.3 176.7 499.6 430.8
Other, primarily crude oil resales
and merchandise . . . . . . . . . . . . . . . . . 19.8 30.4 89.1 92.8
--------- --------- --------- ---------
Gross Operating Revenues. . . . . . . . . . . . . $ 196.1 207.1 588.7 523.6
========= ========= ========= =========
Operating Profit (Loss):
Gross margin - refined products. . . . . . . . . . $ 23.2 15.6 57.2 54.3
Gross margin - other . . . . . . . . . . . . . . . 3.7 3.7 9.3 9.7
--------- --------- --------- ---------
Gross margin. . . . . . . . . . . . . . . . . . . 26.9 19.3 66.5 64.0
Operating expenses . . . . . . . . . . . . . . . . 21.3 21.8 62.0 62.4
Depreciation and amortization 2.8 2.6 8.8 7.8
Other, including (gain) on asset sales . . . . . . - - .2 ( 2.5)
--------- --------- --------- ---------
Operating Profit (Loss) . . . . . . . . . . . . . $ 2.8 ( 5.1) ( 4.5) ( 3.7)
========= ========= ========= =========
Capital Expenditures . . . . . . . . . . . . . . . . $ 1.9 8.6 7.2 22.9
========= ========= ========= =========
Refining and Marketing - Total Product Sales
(average daily barrels)<F1>:
Gasoline . . . . . . . . . . . . . . . . . . . . . 26,330 27,000 25,562 23,603
Middle distillates . . . . . . . . . . . . . . . . 38,925 40,489 38,292 33,297
Heavy oils and residual product. . . . . . . . . . 16,009 13,120 14,468 14,199
--------- --------- --------- ---------
Total Product Sales . . . . . . . . . . . . . . . 81,264 80,609 78,322 71,099
========= ========= ========= =========
Refining and Marketing - Product Sales Prices
($/barrel):
Gasoline . . . . . . . . . . . . . . . . . . . . . $ 28.53 28.31 28.10 26.69
Middle distillates . . . . . . . . . . . . . . . . $ 24.07 24.49 24.08 24.01
Heavy oils and residual product. . . . . . . . . . $ 14.09 12.50 13.09 10.45
Refining and Marketing - Gross Margins on Total
Product Sales ($/barrel)<F1>:
Average sales price. . . . . . . . . . . . . . . . $ 23.55 23.82 23.37 22.19
Average cost of sales. . . . . . . . . . . . . . . 20.46 21.72 20.69 19.40
--------- --------- --------- ---------
Gross margin . . . . . . . . . . . . . . . . . . . $ 3.09 2.10 2.68 2.79
========= ========= ========= =========
Refinery Operations - Throughput
(average daily barrels) . . . . . . . . . . . . . 56,504 46,330 50,056 44,770
========= ========= ========= =========
Refinery Operations - Production
(average daily barrels):
Gasoline . . . . . . . . . . . . . . . . . . . . . 16,221 10,792 14,269 11,189
Middle distillates . . . . . . . . . . . . . . . . 23,243 19,912 20,799 18,628
Heavy oils and residual product. . . . . . . . . . 16,025 15,141 14,278 14,613
Refinery fuel. . . . . . . . . . . . . . . . . . . 2,383 1,593 2,128 1,753
--------- --------- --------- ---------
Total Refinery Production . . . . . . . . . . . . 57,872 47,438 51,474 46,183
========= ========= ========= =========
Refinery Operations - Product Spread ($/barrel)<F1>:
Yield value of products produced -
Gasoline. . . . . . . . . . . . . . . . . . . . . $ 25.47 27.31 25.37 25.07
Middle distillates. . . . . . . . . . . . . . . . $ 23.75 23.87 23.70 23.49
Heavy oils and residual product . . . . . . . . . $ 9.15 9.90 9.35 7.93
Average yield value of products produced . . . . . $ 20.07 20.20 20.16 19.02
Cost of raw materials. . . . . . . . . . . . . . . 16.81 17.43 17.13 15.38
--------- --------- --------- ---------
Product Spread. . . . . . . . . . . . . . . . . . $ 3.26 2.77 3.03 3.64
========= ========= ========= =========
13
<FN>
<F1> Total product sales include products manufactured at the refinery, existing inventory
balances and products purchased from third parties. Margins on sales of purchased
products, together with the effect of changes in inventories, are included in the gross
margin on total product sales presented above. The Company's purchases of refined products
for resale approximated 26,800 and 38,900 average daily barrels for the 1995 and 1994
quarters, respectively, and 26,900 average daily barrels for both the 1995 and 1994
periods. The product spread presented above represents the excess of yield value of the
products manufactured at the refinery over the cost of the raw materials used to
manufacture such products.
</TABLE>
Three Months Ended September 30, 1995 Compared With Three Months Ended September
30, 1994. Lower feedstock costs enabled the Company's margins to improve during
the 1995 quarter. The Company's average feedstock costs decreased to $16.81 per
barrel for the 1995 quarter compared with $17.43 per barrel for the 1994
quarter, while the average yield value of the Company's refinery production
decreased to $20.07 per barrel for the 1995 quarter from $20.20 per barrel for
the prior year quarter. Although the Company's refinery product spread
improved, the Company's results continue to remain volatile, particularly as to
the cost of Alaska North Slope ("ANS") crude oil in relation to the price
received for the Company's sales of refined products. The start-up in December
1994 of a vacuum unit at the Company's refinery increased the yield of
higher-valued products during the 1995 quarter and period and lessened the
impact of these industry conditions on the Company's refinery spread. In
addition, margins on sales of inventories and purchased volumes combined to
improve the segment's gross margins as compared with the prior year quarter.
Revenues from sales of refined products in the 1995 quarter were relatively
unchanged from the 1994 quarter, both in volumes and prices. However, to
optimize the refinery's feedstock mix and in response to market conditions, the
Company's resales of crude oil decreased by $10.1 million. Costs of sales,
likewise, were lower in the 1995 quarter due to decreased crude oil prices and
volumes. Depreciation and amortization increased $.2 million in the 1995
quarter due to capital additions, primarily the vacuum unit, completed in late
1994.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended September
30, 1994. The Company's average feedstock costs increased to $17.13 per barrel
for the 1995 period compared with $15.38 per barrel for the 1994 period, while
the average yield value of the Company's refinery production increased to $20.16
per barrel for the 1995 period from $19.02 for the prior year period. Increased
demand for ANS crude oil for use as a feedstock in West Coast refineries
combined with an oversupply of products in Alaska and on the West Coast resulted
in higher feedstock costs for the Company relative to increases in refined
product sales prices. As a result, the Company's refined product margins were
depressed in the 1995 period and will continue to be depressed as long as the
cost of ANS crude oil remains high relative to the price received for the
Company's sales of refined products.
Revenues from sales of refined products in the 1995 period were higher than the
1994 period due to higher sales prices and a 10% increase in sales volumes.
Costs of sales were higher in the 1995 period due to higher volumes and prices.
Depreciation and amortization increased $1.0 million in the 1995 period due to
capital additions, primarily the vacuum unit, completed in late 1994. Included
in the 1994 period was a $2.4 million gain from the sale of assets. See
discussion above for information on the Company's vacuum unit and marketing
initiatives.
14
<TABLE>
<CAPTION>
Exploration and Production Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions except per unit amounts)
<S> <C> <C> <C> <C>
United States:
Gross operating revenues:
Natural gas producing activities<F1> . . . . . . $ 26.6 18.9 88.5 58.7
Natural gas transportation . . . . . . . . . . . .7 .4 1.8 .8
Lifting costs<F2>. . . . . . . . . . . . . . . . . 5.2 3.6 15.4 9.1
Depreciation, depletion and amortization . . . . . 6.3 6.6 23.0 15.1
Gain on sale of assets . . . . . . . . . . . . . . 33.5 - 33.5 -
Other. . . . . . . . . . . . . . . . . . . . . . . ( .2) ( .3) ( .7) .1
--------- --------- --------- ---------
Operating Profit - United States. . . . . . . . . 49.5 9.4 86.1 35.2
--------- --------- --------- ---------
Bolivia:
Gross operating revenues . . . . . . . . . . . . . 3.3 4.0 9.1 10.1
Lifting costs. . . . . . . . . . . . . . . . . . . .2 .2 .5 .5
Other . . . . . . . . . . . . . . . . . . . . . . .9 .8 2.4 2.2
--------- --------- --------- ---------
Operating Profit - Bolivia. . . . . . . . . . . . 2.2 3.0 6.2 7.4
--------- --------- --------- ---------
Total Operating Profit - Exploration
and Production . . . . . . . . . . . . . . . . . . $ 51.7 12.4 92.3 42.6
========= ========= ========= =========
United States:
Capital expenditures . . . . . . . . . . . . . . . $ 13.8 19.4 40.8 48.8
========= ========= ========= =========
Net natural gas production (average daily Mcf) -
Spot market and other . . . . . . . . . . . . . . 93,641 88,653 98,625 57,695
Tennessee Gas Contract<F1>. . . . . . . . . . . . 18,048 9,369 21,323 15,126
--------- --------- --------- ---------
Total production . . . . . . . . . . . . . . . . 111,689 98,022 119,948 72,821
========= ========= ========= =========
Average natural gas sales price per Mcf -
Spot market . . . . . . . . . . . . . . . . . . . $ 1.44 1.48 1.47 1.66
Tennessee Gas Contract<F1>. . . . . . . . . . . . $ 8.57 7.89 8.43 7.89
Average . . . . . . . . . . . . . . . . . . . . . $ 2.60 2.10 2.70 2.95
Average lifting costs per Mcf<F2>. . . . . . . . . $ .50 .40 .47 .46
Depletion per Mcf. . . . . . . . . . . . . . . . . $ .60 .73 .70 .76
Bolivia:
Net natural gas production
(average daily Mcf). . . . . . . . . . . . . . . 20,559 25,528 19,075 22,262
Average natural gas sales price per Mcf. . . . . . $ 1.32 1.22 1.29 1.22
Net crude oil (condensate) production. . . . . . .
(average daily barrels) . . . . . . . . . . . . . 604 832 589 744
Average crude oil price per barrel . . . . . . . . $ 12.95 14.04 14.44 13.16
Average lifting costs per net equivalent Mcf . . . $ .06 .06 .08 .06
<FN>
<F1> The Company is involved in litigation with Tennessee Gas relating to a
natural gas sales contract. See "Capital Resources and
Liquidity--Tennessee Gas Contract," "Legal Proceedings--Tennessee Gas
Contract" and Note 5 of Notes to Condensed Consolidated Financial
Statements.
<F2> Lifting costs for the Company's U.S. operations include such items as
severance taxes, property taxes, insurance and materials and supplies. In
addition, for the periods presented above, lifting costs included
approximately $.06 to $.07 per Mcf for transportation of natural gas
through Company-owned pipelines. Since severance taxes are based upon
sales prices of natural gas, the average lifting costs presented above
include the impact of above-market prices for sales under the Tennessee
Gas Contract. Lifting costs per Mcf of natural gas sold in the spot
market were approximately $.44 and $.36 for the 1995 and 1994 quarters,
respectively, and approximately $.40 and $.39 for the 1995 and 1994
periods, respectively. </TABLE>
15
United States
Three Months Ended September 30, 1995 Compared With Three Months Ended September
30, 1994. Operating profit of $49.5 million in the 1995 quarter included a gain
of approximately $33 million from the sale of certain interests in the Bob West
Field. Excluding this gain, operating profit would have been approximately $16
million in the 1995 third quarter as compared with $9.4 million in the 1994
quarter, reflecting the successful drilling program and increased production in
South Texas. The number of producing wells in South Texas in which the Company
has a working interest increased to 67 wells (reduced to 53 wells after the sale
of certain interests) at the end of the 1995 quarter, compared with 44 wells at
the end of the 1994 quarter. The Company's 1995 quarter results included a 14%
increase in U.S. natural gas production with an $8.0 million increase in
revenues. Revenues benefited from higher sales volumes to Tennessee Gas who
elected to take their entire take-or-pay obligation during the 1995 quarter, as
compared to the 1994 quarter when sales volumes to Tennessee Gas had been
curtailed. The Company's weighted average sales price increased to $2.60 per
Mcf during the 1995 quarter as compared with $2.10 per Mcf in the 1994 quarter.
The Company recognizes revenues, net of expenses, for sales to Tennessee Gas
based on a contract price, which resulted in net revenues exceeding a
nonrefundable cash price by an aggregate of $10 million for the 1995 quarter.
Total lifting costs were higher in the 1995 quarter, compared with the 1994
quarter, due to the increased production levels and higher severance taxes
related to the above-market pricing of sales to Tennessee Gas. Depreciation,
depletion and amortization were lower during the 1995 quarter due to an 18%
reduction in the depletion rate which benefited by additions to proved reserves
in the 1995 second quarter and elimination of future development costs on the
reserves sold during the 1995 quarter.
For the 1995 quarter, operating results from the Exploration and Production
segment included natural gas production of approximately 27 Mmcf per day,
revenues of $3.4 million and operating profit of $1.3 million related to the
interests in the Bob West Field that were sold. For further information
regarding the sale of these interests, see Note 2 of Notes to Condensed
Consolidated Financial Statements.
Tennessee Gas may elect, and from time to time has elected, not to take gas
under the Tennessee Gas Contract. The Company recognizes revenues under the
Tennessee Gas Contract based on the quantity of natural gas actually taken by
Tennessee Gas. While Tennessee Gas has the right to elect not to take gas during
any contract year, this right is subject to an obligation to pay within 60 days
after the end of such contract year for gas not taken, subject to the provisions
of a bond posted by Tennessee Gas. The contract year ends on January 31 of each
year. Although the failure to take gas could adversely affect the Company's
income and cash flows from operating activities within a contract year, the
Company should recover reduced cash flows shortly after the end of the contract
year under the take-or-pay provisions of the Tennessee Gas Contract, subject to
the provisions of a bond posted by Tennessee Gas. For a discussion of the bond
posting, see "Capital Resources and Liquidity--Tennessee Gas Contract," "Legal
Proceedings--Tennessee Gas Contract" and Note 5 of Notes to Condensed
Consolidated Financial Statements.
The Company has entered into an agreement with another company for the sale of
approximately 8.25 Bcf of the Company's anticipated U.S. natural gas production
for the period April 1, 1995 through December 31, 1995 at a fixed price of
approximately $1.56 per Mcf. For the three months and nine months ended
September 30, 1995, the Company's average spot market sales prices, which
included the effect of this agreement, were $1.44 and $1.47 per Mcf,
respectively.
In July 1995, the Company completed the Longoria #1 exploratory well in Webb
County of South Texas, marking the discovery of a new natural gas field (the
"Tea Jay Field"). Tesoro serves as operator of this well with a 45% working
interest and a 33.33% net revenue interest. As a result of the initial
exploratory well, the Company anticipates that approximately 4 Bcf will be added
to its net proved reserves. A seismic program is underway at the Tea Jay Field
to assist in identifying future drilling locations. The Company anticipates
drilling the first development well in early 1996. The Company is uncertain as
to the future impact of this discovery upon its results of operations.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended September
30, 1994. Operating profit of $86.1 million in the 1995 period included a gain
of approximately $33 million from the sale of certain interests in the Bob West
Field. Excluding this gain, operating profit would have been approximately $53
million
16
in the 1995 period as compared with $35.2 million in the 1994 period. Results
for the 1995 period included a 65% increase in U.S. natural gas production with
a $30.8 million increase in revenues. Revenues benefited from higher sales
volumes to Tennessee Gas, but were adversely affected by an 8% decline in the
Company's weighted average sales price, which included an 11% drop in average
spot market prices. The Company recognizes revenues, net of expenses, for sales
to Tennessee Gas based on a contract price, which resulted in net revenues
exceeding a nonrefundable cash price by an aggregate of $30.8 million for the
1995 period. In response to depressed spot market prices, during the first
quarter of the 1995 period, the Company and one of its partners initiated a
voluntary reduction of natural gas production sold in the spot market. The
Company's share of this reduction was estimated to be approximately 30 Mmcf per
day. In April 1995, the Company's U.S. natural gas production levels resumed at
higher rates. The Company may elect to curtail natural gas production in the
future, depending upon market conditions. Total lifting costs and depreciation,
depletion and amortization were higher in the 1995 period compared with the 1994
period due to the increased production level. The Company continues to benefit
from an 8% reduction in the depletion rate resulting mainly from additions to
proved reserves in the 1995 second quarter and elimination of future development
costs on reserves sold in the 1995 quarter.
For the 1995 period, operating results from the Exploration and Production
segment included natural gas production of approximately 33 Mmcf per day,
revenues of $12.9 million and operating profit of $4.2 million related to the
interests in the Bob West Field that were sold. For further information
regarding the sale of these interests, see Note 2 of Notes to Condensed
Consolidated Financial Statements.
Bolivia
Three Months Ended September 30, 1995 Compared With Three Months Ended September
30, 1994. Operating results from the Company's Bolivian operations decreased by
$.8 million during the 1995 quarter primarily due to a 19% decline in average
daily natural gas production, partially offset by an 8% increase in the average
natural gas sales price. During the 1994 quarter, the Company benefited from
higher levels of production due to the inability of another producer to satisfy
gas supply requirements. Also contributing to the decrease was a $1.09 per
barrel reduction in the average price of condensate production. The Company's
Bolivian natural gas production is sold to Yacimientos Petroliferos Fiscales
Bolivianos ("YPFB"), which in turn sells the natural gas to Yacimientos
Petroliferos Fiscales, S.A. ("YPF"), a publicly-held company based in Argentina.
During 1994, the contract between YPFB and YPF was extended through March 31,
1997, maintaining approximately the same volumes as the previous contract.
Currently, the Company is selling its natural gas production to YPFB based on
the volume and pricing terms in the contract between YPFB and YPF.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended September
30, 1994. Operating results from the Company's Bolivian operations decreased by
$1.2 million during the 1995 period, primarily due to a 14% decrease in
production of natural gas, partially offset by a 6% increase in natural gas
prices. As discussed above, the 1994 period benefited from higher production
levels due to the inability of another producer to satisfy gas supply
requirements. Partially offsetting the decrease in production was a $1.28 per
barrel increase in the average price of condensate production. See discussion
above for information relating to the Company's contract with YPFB regarding
sales of natural gas production.
17
<TABLE>
<CAPTION>
Oil Field Supply and Distribution Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Gross Operating Revenues . . . . . . . . . . . . . . $ 18.5 21.5 56.9 58.4
Costs of Sales . . . . . . . . . . . . . . . . . . . 15.8 19.0 49.2 50.7
--------- --------- --------- ---------
Gross Margin . . . . . . . . . . . . . . . . . . . 2.7 2.5 7.7 7.7
Operating Expenses and Other . . . . . . . . . . . . 3.4 2.6 10.0 9.2
Depreciation and Amortization. . . . . . . . . . . . - .1 .2 .3
--------- --------- --------- ---------
Operating Loss . . . . . . . . . . . . . . . . . . $( .7) ( .2) ( 2.5) ( 1.8)
========= ========= ========= =========
Refined Product Sales (average daily barrels). . . . 7,158 8,582 7,519 7,835
========= ========= ========= =========
</TABLE>
Three Months Ended September 30, 1995 Compared With Three Months Ended September
30, 1994. During the 1995 quarter, the Company consolidated certain operations
in this segment by exiting the land-based portion of its petroleum product
distribution business in Texas. In these regards, the Company incurred a $.4
million charge related to the sale of four locations. Revenues and costs of
sales were lower during the 1995 quarter due to reduced volumes resulting from
the disposition of these locations, while margins improved by $.2 million. In
September 1995, the Company signed a letter of intent to acquire all of the
outstanding capital stock of Coastwide Energy Services, Inc. ("Coastwide") for
approximately $21 million, to be paid 40% in cash and 60% in Tesoro Common
Stock. Coastwide is a wholesale distributor of diesel fuel and lubricants and a
provider of services to the offshore drilling industry in the U.S. Gulf of
Mexico. Upon completion of the acquisition, which is subject to regulatory
approvals and approval by Coastwide shareholders, the Company would merge its
existing marine petroleum distribution operations with Coastwide, forming a
Marine Services segment.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended September
30, 1994. As discussed above, during the 1995 period the Company discontinued
certain operations in this segment, resulting in a charge of $.4 million.
Revenues and cost of sales were lower in the 1995 period due to reduced volumes
resulting from the disposition of certain locations. In the 1994 period,
operating expenses included charges of $1.4 million for discontinuing the
Company's environmental products marketing operations.
Interest Income
The decreases of $.4 million and $1.0 million in interest income during the 1995
quarter and period, respectively, were primarily due to lower cash balances
available for investment.
Interest Expense
The increases of $.9 million and $2.1 million in interest expense during the
1995 quarter and period, respectively, were primarily due to interest on the
vacuum unit financing and cash borrowings under the Revolving Credit Facility
during 1995 and capitalized interest in 1994. As discussed in Note 4 of Notes
to Condensed Consolidated Financial Statements, the Company expects to redeem
$34.6 million of its 12-3/4% Subordinated Debentures ("Subordinated Debentures")
which will result in a 1995 fourth quarter extraordinary loss of approximately
$3 million. This reduction in debt, together with lower borrowings under the
Company's Revolving Credit Facility, are expected to result in future annual
interest expense savings of approximately $5 million.
General and Administrative Expense
The increases of $.9 million and $1.9 million in general and administrative
expense during the 1995 quarter and period, respectively, were primarily due to
higher employee and other benefit costs.
18
Other Expense
The increase of $4.1 million in other expense during the 1995 quarter was
primarily due to severance costs and related benefits resulting from a reduction
in administrative workforce and other employee terminations (see Note 3 of Notes
to Condensed Consolidated Financial Statements). For the 1995 period, other
expense increased $2.2 million primarily due to the employee termination costs,
partially offset by lower environmental expenses related to former operations.
The Company anticipates a future annual cost savings of $4 million to $5 million
related to the reduction in workforce and other restructuring initiatives.
Income Taxes
Income taxes of $1.7 million in the 1995 quarter and $3.8 million in the 1995
period compare with $1.4 million in the 1994 quarter and $3.6 million in the
1994 period. No income taxes were provided on the gain on sales of assets
during the 1995 quarter or period due to the utilization of previously
unrecognized net operating loss and other carryforwards.
IMPACT OF CHANGING PRICES
The Company's operating results and cash flows are sensitive to the volatile
changes in energy prices. Major shifts in the cost of crude oil and the price
of refined products can result in a change in gross margin from the refining and
marketing operations, as prices received for refined products may or may not
keep pace with changes in crude oil costs. These energy prices, together with
volume levels, also determine the carrying value of crude oil and refined
product inventory.
Likewise, major changes in natural gas prices impact revenues and the present
value of estimated future net revenues and cash flows from the Company's
exploration and production operations. The carrying value of oil and gas assets
may also be subject to noncash write-downs based on changes in natural gas
prices and other determining factors.
CAPITAL RESOURCES AND LIQUIDITY
The Company operates in an environment where markets for crude oil, natural gas
and refined products historically have been volatile and are likely to continue
to be volatile in the future. The Company's liquidity and capital resources are
significantly impacted by changes in the supply of and demand for crude oil,
natural gas and refined petroleum products, market uncertainty and a variety of
additional factors that are beyond the control of the Company. These factors
include, among others, the level of consumer product demand, weather conditions,
the proximity of the Company's natural gas reserves to pipelines, the capacities
of such pipelines, fluctuations in seasonal demand, governmental regulations,
the price and availability of alternative fuels and overall economic conditions.
The Company cannot predict the future markets and prices for its natural gas or
refined products and the resulting future impact on earnings and cash flows.
The Company's future capital expenditures, borrowings under its credit
arrangements, and other sources of capital will be affected by these conditions.
Although the Company expects continued market improvement, the Company's
operations in the past have been adversely affected by depressed market
conditions.
The Company continues to assess its existing asset base in order to maximize
returns and financial flexibility through diversification, acquisitions and
divestitures in all of its operating segments. This ongoing assessment
includes, in the Exploration and Production segment, evaluating ways in which
the Company might diversify the mix of its oil and gas assets, reduce the asset
concentration associated with the Bob West Field and lower future capital
commitments. In these regards, in September 1995 the Company sold, effective
April 1, 1995, certain interests in the Bob West Field. For further information
on the sale of these interests, see Note 2 of Notes to Condensed Consolidated
Financial Statements. Net proceeds from the sale of these interests in the Bob
West Field are expected to be used to redeem a portion of the Company's
outstanding Subordinated Debentures, reduce borrowing under its Revolving Credit
Facility and improve corporate liquidity (see Note 4 of Notes to Condensed
Consolidated Financial Statements).
19
During the 1995 quarter, the Company consolidated certain operations in its Oil
Field Supply and Distribution segment by exiting the land-based portion of its
petroleum product distribution business in Texas. In these reguards, four
land-based locations have been sold. In September 1995, the Company signed a
letter of intent to acquire all of the outstanding capital stock of Coastwide
for approximately $21 million, to be paid 40% in cash and 60% in Tesoro Common
Stock. The Company expects to fund the cash portion of this purchase through
its available cash reserves. Upon completion of the acquisition, which is
subject to regulatory approvals and approval by Coastwide shareholders, the
Company would merge its existing marine petroleum distribution operations with
Coastwide, forming a Marine Services segment.
Credit Arrangements
The Company has financing and credit arrangements under a three-year corporate
Revolving Credit Facility ("Facility") dated April 20, 1994, with a consortium
of ten banks. The Facility, which is subject to a borrowing base, provides for
(i) the issuance of letters of credit up to the full amount of the borrowing
base and (ii) cash borrowings up to the amount of the borrowing base
attributable to domestic oil and gas reserves. Outstanding obligations under
the Facility are secured by liens on substantially all of the Company's trade
accounts receivable and product inventory and by mortgages on the Company's
refinery and South Texas natural gas reserves. Under the terms of the Facility,
which has been amended from time to time, the Company is required to maintain
specified levels of working capital, tangible net worth, consolidated cash flow
and refining and marketing cash flow, as defined. Among other matters, the
Facility contains certain restrictions with respect to (i) capital expenditures,
(ii) incurrence of additional indebtedness, and (iii) dividends on capital
stock. The Facility contains other covenants customary in credit arrangements
of this kind. Future compliance with certain financial covenants is primarily
dependent on the Company's maintenance of specified levels of cash flows from
operations, capital expenditures, levels of borrowings and the value of the
Company's domestic oil and gas reserves. In October 1995, the Facility was
amended which, among other matters, (i) reduced available commitments from $100
million to $90 million, (ii) permits the Company to redeem a portion of its
outstanding Subordinated Debentures, and (iii) reduced the required level of
refining and marketing cash flow. If the Company's refining and marketing cash
flow, as defined, does not meet required levels, the $90 million availability
will be incrementally reduced, but not below $80 million.
At September 30, 1995, the Company had available commitments under the Facility
of $100 million which were fully supported by the borrowing base, as defined.
Included in the borrowing base at September 30, 1995 was a domestic oil and gas
reserve component of $40 million. At September 30, 1995, the Company had
outstanding letters of credit under the Facility of approximately $50 million
with no cash borrowings outstanding. For the nine months ended September 30,
1995, the Company's gross borrowings and repayments under the Facility totaled
$262.5 million, which were used on a short-term basis to finance working capital
requirements and capital expenditures.
Debt Obligations
The Company has given notice of its intention to redeem approximately $34.6
million of its outstanding Subordinated Debentures. The redemption date will be
December 1, 1995 at a price equal to 100% of the principal amount, plus accrued
interest to the redemption date. In the fourth quarter of 1995, the Company
expects to incur a noncash extraordinary loss of approximately $3 million from
this early extinguishment of debt, reflecting a write-off of unamortized bond
discount and issue costs. Following this partial redemption, which will satisfy
all future sinking fund requirements, the Company will have $30 million
principal amount of Subordinated Debentures outstanding, due on March 15, 2001.
The Company continuously reviews financing alternatives with respect to its
Subordinated Debentures and Exchange Notes. However, there can be no assurance
whether or when the Company would propose other refinancings. On a pro forma
basis, if the Company would have redeemed $34.6 million principal amount of
Subordinated Debentures on September 30, 1995, the Company's ratio of debt to
capitalization would have been reduced from 47% to 43%.
20
Capital Expenditures
The Company's total capital expenditures for 1995 are estimated to be
approximately $58 million. Capital expenditures for the continued development
of the Bob West Field and exploratory drilling in other areas of South Texas in
1995 are projected to be approximately $49 million. As a result of the sale in
September 1995 of certain interests in the Bob West Field, the Company has
reduced future capital expenditures by approximately $19 million which would
otherwise have been required to develop the proved reserves that were sold.
Capital expenditures for 1995 for the refining and marketing segment are
projected to be $8 million, primarily for capital improvements at the refinery
and expansion of the Company's retail locations in Alaska. For the nine months
ended September 30, 1995, total capital expenditures amounted to $49 million,
including $41 million for exploration and production and $7 million for refining
and marketing, which were funded through cash flows from operations, existing
cash and borrowings under the Revolving Credit Facility. The Company expects to
finance capital expenditures for the remainder of 1995 through a combination of
cash flows from operations and its available cash reserves.
Cash Flows
At September 30, 1995, the Company's net working capital totaled $105.1 million,
which included cash of $59.4 million. For information on litigation related to
a natural gas sales contract and the related impact on the Company's cash flows
from operations, see "Tennessee Gas Contract" below and Note 5 of Notes to
Condensed Consolidated Financial Statements.
Components of the Company's cash flows are set forth below (in millions):
Nine Months Ended
September 30,
1995 1994
Cash Flows From (Used In):
Operating Activities . . . . . . . . . . . . . $ 30.3 52.6
Investing Activities . . . . . . . . . . . . . 17.6 ( 62.8)
Financing Activities . . . . . . . . . . . . . ( 2.5) 4.0
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents $ 45.4 ( 6.2)
========= =========
Net cash from operating activities of $30.3 million during the 1995 period
compares to $52.6 million for the 1994 period. Although natural gas production
from the Bob West Field increased during the 1995 period, lower cash receipts
for sales of natural gas and reduced cash flows from the refining and marketing
operations adversely affected the Company's cash flows from operations. Net
cash from investing activities during the 1995 period of $17.6 million included
proceeds of $70 million from sales of assets, primarily certain interests in the
Bob West Field, partially offset by $49 million of capital expenditures and $3
million for acquisition of the Kenai Pipe Line Company. Capital expenditures
for the 1995 period included $41 million for the Company's exploration and
production activities in South Texas, primarily for drilling and completion of
19 natural gas wells. Net cash used in financing activities of $2.5 million
during the 1995 period was primarily related to payments of long-term debt. The
Company's gross borrowings and repayments under its Revolving Credit Facility
totaled $262.5 million during the 1995 period.
Tennessee Gas Contract
The Company is selling a portion of the gas from its Bob West Field to Tennessee
Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales Agreement
("Tennessee Gas Contract") which provides that the price of gas shall be the
maximum price as calculated in accordance with Section 102(b)(2) ("Contract
Price") of the Natural Gas Policy Act of 1978 ("NGPA"). In August 1990,
Tennessee Gas filed suit against the Company in the District Court of Bexar
County, Texas, alleging that the Tennessee Gas Contract is not applicable to the
Company's properties and that the gas sales price should be the price calculated
under the provisions of Section 101 of the NGPA rather than the Contract Price.
During September 1995, the Contract Price was in excess of $8.00 per Mcf and the
average spot market price was $1.45 per Mcf. Tennessee Gas also claimed that the
contract should be considered an "output contract" under Section 2.306 of the
Texas Uniform Commercial Code ("UCC")
21
and that the increases in volumes tendered under the contract exceeded those
allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, determined that the Tennessee Gas Contract was an
output contract and remanded the case to the trial court for determination of
whether gas volumes tendered by the Company to Tennessee Gas were tendered in
good faith and were not unreasonably disproportionate to any normal or otherwise
comparable prior output or stated estimates in accordance with the UCC. In
addition, the Supreme Court affirmed that the price under the Tennessee Gas
Contract is the Contract Price. The Company filed a motion for rehearing before
the Texas Supreme Court on the issue of whether the Tennessee Gas Contract is an
output contract. Through September 30, 1995, under the Tennessee Gas Contract,
the Company recognized cumulative net revenues in excess of spot market prices
(in excess of a $3.00 per Mcf nonrefundable Bond Price, as defined below, from
September 18, 1994 through August 13, 1995) totaling approximately $96.6
million. The Company's noncurrent receivable from Tennessee Gas totaled $42.7
million at September 30, 1995, representing the difference between the Contract
Price and the Bond Price, as defined below. The Company and its outside counsel
are evaluating the impact of various aspects of the Supreme Court decision. The
Company believes that, if this issue is tried, the gas volumes tendered to
Tennessee Gas will be found to have been in good faith and otherwise in
accordance with the requirements of the UCC. However, there can be no assurance
as to the ultimate outcome at trial. An adverse outcome of this litigation
could require the Company to reverse some or all of the incremental revenue and
repay Tennessee Gas all or a portion of $53.9 million for amounts received above
spot market prices, plus interest if awarded by the court.
In September 1994, the court ordered that, effective until August 1, 1995,
Tennessee Gas (i) take at least its entire monthly take-or-pay obligation under
the Tennessee Gas Contract, (ii) pay for gas at $3.00 per Mmbtu, which
approximates $3.00 per Mcf ("Bond Price"), and (iii) post a $120 million bond
with the court representing an amount which, together with anticipated sales of
natural gas to Tennessee Gas at the Bond Price, will equal the anticipated value
of the Tennessee Gas Contract during this interim period. The Bond Price for
this period is nonrefundable by the Company. On August 10, 1995, a hearing was
held before the trial court regarding the extension of the Tennessee Gas bond.
Pursuant to agreement of the parties, the court ordered that Tennessee Gas, for
the period August 14, 1995, until the earlier of October 16, 1995, or the date
the Supreme Court issues its rulings on motions for rehearing, (i) continue to
take at least its entire take-or-pay volume obligation, (ii) pay for gas at a
price of $3.00 per Mmbtu subject to potential refund of amounts in excess of
market prices if Tennessee Gas should ultimately prevail in the litigation, and
(iii) post a $25 million bond in addition to the $120 million bond presently in
place. On November 8, 1995, pursuant to agreement of the parties, the court
ordered that Tennessee Gas will, for the period October 16, 1995, until the
earlier of January 31, 1996, or the date the Supreme Court issues its ruling on
motions for rehearing, (i) continue to take at least its entire take-or-pay
volume obligation, (ii) pay for gas at a price of $3.00 per Mmbtu subject to
potential refund of amounts in excess of market prices if Tennessee Gas should
ultimately prevail in the litigation, and (iii) post a $35 million bond in
addition to the $145 million bond presently in place. Tennessee Gas had
previously agreed to pay the Company the nonrefundable Bond Price until August
14, 1995. Under the provisions of the bond agreement, the Company retains the
right to receive the full contract price for all gas sold to Tennessee Gas.
22
Environmental and Other Matters
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which change frequently, regulate the discharge of
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of petroleum or chemical
substances at various sites or install additional controls or other
modifications or changes in use for certain emission sources. The Company is
currently involved in remedial responses and has incurred cleanup expenditures
associated with environmental matters at a number of sites, including certain of
its own properties. In addition, the Company is holding discussions with the
Department of Justice concerning the assessment of penalties with respect to
certain alleged violations of the Clean Air Act. At September 30, 1995 the
Company's accruals for environmental matters, including the alleged violations
of the Clean Air Act, amounted to $10.5 million. Also included in this amount
is an approximate $4 million noncurrent liability for remediation of the KPL
properties, which liability has been funded by the former owners of KPL through
a restricted escrow deposit. Based on currently available information,
including the participation of other parties or former owners in remediation
actions, the Company believes these accruals are adequate. In addition, to
comply with environmental laws and regulations, the Company anticipates that it
will be required to make capital improvements in 1995 of approximately $1
million, primarily for the removal and upgrading of underground storage tanks,
and approximately $10 million during 1997 for the installation of dike liners
required under Alaska environmental regulations. Conditions that require
additional expenditures may exist for various Company sites, including, but not
limited to, the Company's refinery, retail gasoline outlets (current and closed
locations) and petroleum product terminals, and for compliance with the Clean
Air Act. The amount of such future expenditures cannot currently be determined
by the Company. For further information on environmental contingencies, see
Note 5 of Notes to Condensed Consolidated Financial Statements.
The Company's contract with the State of Alaska ("State") for the purchase of
royalty crude oil expires on December 31, 1995. In May 1995, the Company
renegotiated a new three-year contract with the State for the period January 1,
1996 through December 31, 1998. The new contract provides for the purchase of
approximately 40,000 barrels per day of ANS royalty crude oil, the primary
feedstock for the Company's refinery, and is priced at the weighted average
price reported to the State by a major North Slope producer for ANS crude oil as
valued at Pump Station No. 1 on the Trans Alaska Pipeline System. Under this
agreement, the Company is required to utilize in its refinery operations volumes
equal to at least 80% of the ANS crude oil to be purchased from the State. This
contract contains provisions that, under certain conditions, allow the Company
to temporarily or permanently reduce its purchase obligations.
As discussed in Note 5 of Notes to Condensed Consolidated Financial Statements,
the Company is involved with other litigation and claims, none of which is
expected to have a material adverse effect on the financial condition of the
Company.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Tennessee Gas Contract. The Company is selling a portion of the gas from its
Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas
Purchase and Sales Agreement ("Tennessee Gas Contract") which provides that the
price of gas shall be the maximum price as calculated in accordance with Section
102(b)(2) ("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). In
August 1990, Tennessee Gas filed suit against the Company in the District Court
of Bexar County, Texas, alleging that the Tennessee Gas Contract is not
applicable to the Company's properties and that the gas sales price should be
the price calculated under the provisions of Section 101 of the NGPA rather than
the Contract Price. During September 1995, the Contract Price was in excess of
$8.00 per Mcf and the average spot market price was $1.45 per Mcf. Tennessee Gas
also claimed that the contract should be considered an "output contract" under
Section 2.306 of the Texas Uniform Commercial Code ("UCC") and that the
increases in volumes tendered under the contract exceeded those allowable for an
output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, determined that the Tennessee Gas Contract was an
output contract and remanded the case to the trial court for determination of
whether gas volumes tendered by the Company to Tennessee Gas were tendered in
good faith and were not unreasonably disproportionate to any normal or otherwise
comparable prior output or stated estimates in accordance with the UCC. In
addition, the Supreme Court affirmed that the price under the Tennessee Gas
Contract is the Contract Price. The Company filed a motion for rehearing before
the Texas Supreme Court on the issue of whether the Tennessee Gas Contract is an
output contract. Through September 30, 1995, under the Tennessee Gas Contract,
the Company recognized cumulative net revenues in excess of spot market prices
(in excess of a $3.00 per Mcf nonrefundable Bond Price, as defined below, from
September 18, 1994 through August 13, 1995) totaling approximately $96.6
million. The Company's noncurrent receivable from Tennessee Gas totaled $42.7
million at September 30, 1995, representing the difference between the Contract
Price and the Bond Price, as defined below. The Company and its outside counsel
are evaluating the impact of various aspects of the Supreme Court decision. The
Company believes that, if this issue is tried, the gas volumes tendered to
Tennessee Gas will be found to have been in good faith and otherwise in
accordance with the requirements of the UCC. However, there can be no assurance
as to the ultimate outcome at trial. An adverse outcome of this litigation
could require the Company to reverse some or all of the incremental revenue and
repay Tennessee Gas all or a portion of $53.9 million for amounts received above
spot market prices, plus interest if awarded by the court.
In September 1994, the court ordered that, effective until August 1, 1995,
Tennessee Gas (i) take at least its entire monthly take-or-pay obligation under
the Tennessee Gas Contract, (ii) pay for gas at $3.00 per Mmbtu, which
approximates $3.00 per Mcf ("Bond Price"), and (iii) post a $120 million bond
with the court representing an amount which, together with anticipated sales of
natural gas to Tennessee Gas at the Bond Price, will equal the anticipated value
of the Tennessee Gas Contract during this interim period. The Bond Price for
this period is nonrefundable by the Company. On August 10, 1995, a hearing was
held before the trial court regarding the extension of the Tennessee Gas bond.
Pursuant to agreement of the parties, the court ordered that Tennessee Gas, for
the period August 14, 1995, until the earlier of October 16, 1995, or the date
the Supreme Court issues its rulings on motions for rehearing, (i) continue to
take at least its entire take-or-pay volume obligation, (ii) pay for gas at a
price of $3.00 per Mmbtu subject to potential refund of amounts in excess of
market prices if Tennessee Gas should ultimately prevail in litigation, and
(iii) post a $25 million bond in addition to the $120 million bond presently in
place. On November 8, 1995, pursuant to the agreement of the parties, the court
ordered that Tennessee Gas will, for the period October 16, 1995, until the
earlier of January 31, 1996, or the date the
24
Supreme Court issued its ruling on motions for rehearing, (i) continue to take
at least its entire take-or-pay volume obligation, (ii) pay for gas at a price
of $3.00 per Mmbtu subject to potential refund of amounts in excess of market
prices if Tennessee Gas should ultimately prevail in the litigation, and (iii)
post a $35 million bond in addition to the $145 million bond presently in place.
Tennessee Gas had previously agreed to pay the Company the nonrefundable Bond
Price until August 14, 1995. Under the provisions of the bond agreement, the
Company retains the right to receive the full Contract Price for all gas sold to
Tennessee Gas.
Mineral Estate Claim. As previously reported, in February 1995, a lawsuit was
filed in the U.S. District Court for the Southern District of Texas, McAllen
Division, by the Heirs of H.P. Guerra, Deceased ("Plaintiffs") against the
United States and Tesoro and other working and overriding royalty interest
owners to recover the oil and gas mineral estate under 2,706.34 acres situated
in Starr County, Texas. On September 20, 1995, Plaintiffs filed a motion to
dismiss their lawsuit against all defendants except the United States. On
October 26, 1995, the court entered an order dismissing the Company and other
working and overriding royalty interest owners with prejudice.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index immediately preceding the exhibits filed
herewith.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 11, 1995 reporting
under Item 2, Acquisition or Disposition of Assets, that on September
26, 1995 the Company sold effective April 1, 1995, certain interests in
the Company's onshore producing and non-producing oil and gas
properties located in the Bob West Field, Zapata and Starr Counties,
Texas.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TESORO PETROLEUM CORPORATION
Registrant
Date: November 14, 1995 /s/ Bruce A. Smith
Bruce A. Smith
President and Chief Executive Officer
Date: November 14, 1995 /s/ William T. Van Kleef
William T. Van Kleef
Senior Vice President
and Chief Financial Officer
26
EXHIBIT INDEX
Exhibit
Number
3 By-Laws of the Company, as amended through September 27, 1995.
4.1 Copy of Second Amendment and Supplement to Credit Agreement
effective as of September 1, 1995 among the Company and Texas
Commerce Bank National Association ("TCB") as Issuing Bank and
Agent, and certain other banks named therein.
4.2 Copy of Third Amendment to Credit Agreement effective as of
October 24, 1995 among the Company and TCB as Issuing Bank and
Agent, and certain other banks named therein.
11 Information Supporting Earnings (Loss) Per Share Computations.
27 Financial Data Schedule.
27
Adopted: September 22, 1971
Amended: May 31, 1973
November 20, 1974
November 1, 1975
September 29, 1976
September 29, 1979
August 27, 1980
November 22, 1988
April 14, 1989
June 28, 1989
January 2, 1992
September 29, 1992
February 9, 1994
February 23, 1995
July 26, 1995
September 27, 1995
BY-LAWS
OF
TESORO PETROLEUM CORPORATION
(As Amended September 27, 1995)
ARTICLE I
Meeting of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as properly
may come before such meeting shall be held on such date, and at such time and
place within or without the State of Delaware, as may be designated by the Board
of Directors.
Section 1.2 Special Meetings. Special meetings of the stockholders for any
proper purpose or purposes may be called at any time by the Board of Directors,
the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President or any Vice President, to be held on such date, and at
such time and place within or without the State of Delaware, as the Board of
Directors, the Chairman of the Board of Directors, the Vice Chairman of the
Board of Directors, the President, or a Vice President, whichever has called the
meeting, shall direct. A special meeting of the stockholders shall be called by
the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, or any Vice President whenever stockholders holding
shares representing a majority of the votes of the shares of the Corporation
then issued and outstanding and entitled to vote on matters to be submitted to
stockholders of the Corporation shall make application therefor in writing. Any
such written request shall state a proper purpose or purposes of the meeting and
shall be delivered to the Chairman of the Board of Directors, the Vice Chairman
of the Board of Directors, the President, or any Vice President. A special
meeting of the stockholders shall be called by the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President or any
Vice President, for the purpose of electing one additional member to the Board
of Directors in the event there should occur three tie votes of the Board of
Directors with respect to any matter or series of matters at any meeting or
series of meetings within a three consecutive month period.
Section 1.3 Notice of Meeting. Written notice, signed by the Chairman of
the Board of Directors, the Vice Chairman of the Board of Directors, the
President, any Vice President, the Secretary or an Assistant Secretary, of every
meeting of stockholders (other than an adjourned meeting unless otherwise
required by statute) stating the purpose or purposes for which the meeting is
called, and the date and time when, and the place where, it is to be held shall
be either delivered personally or mailed to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the meeting,
except as otherwise provided by statute. If mailed, such notice shall be
directed to a stockholder at his address as it shall appear on the stock books
of the Corporation, unless he shall have filed with the Secretary a written
request that notices intended for him be mailed to some other address, in which
case it shall be mailed to the address designated in such request, and shall be
given when deposited in the United States mail, postage prepaid.
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Section 1.4 Quorum. The presence at any meeting, in person or by proxy, of
the holders of record of shares representing a majority of the votes of the
shares then issued and outstanding and entitled to vote shall be necessary and
sufficient to constitute a quorum for the transaction of business, except where
otherwise provided by statute.
Section 1.5 Adjournments. In the absence of a quorum, a majority of the
votes of the stockholders entitled to vote, present in person or by proxy, or,
if no stockholder entitled to vote is present in person or by proxy, any officer
entitled to preside at or act as secretary of such meeting, may adjourn the
meeting from time to time until a quorum shall be present.
Section 1.6 Voting. Directors shall be chosen by a plurality of the votes
cast at the election, and, except where otherwise provided by statute, or the
Certificate of Incorporation, all other questions shall be determined by a
majority of the votes cast on such question.
Section 1.7 Proxies. Any stockholders entitled to vote may vote by proxy,
provided that the instrument authorizing such proxy to act shall have been
executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or by his duly authorized attorney.
Section 1.8 Judges of Election. The Board of Directors may appoint judges
of election to serve at any election of directors and at balloting on any other
matter that may properly come before a meeting of stockholders. If no such
appointment shall be made, or if any of the judges so appointed shall fail to
attend, or refuse or be unable to serve, then such appointment may be made by
the presiding officers at the meeting.
Section 1.9 Consent of Stockholders in Lieu of Meeting.
(a) Any action required to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings or meetings of stockholders
are recorded. Delivery shall be made by hand or by certified or registered
mail, return receipt requested.
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(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days
of the date the earliest dated consent is delivered to the Corporation, a
written consent or consents signed by a sufficient number of holders to take
action are delivered to the Corporation in the manner prescribed in
paragraph (c) of this Section.
(c) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than fifteen
days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to
fix a record date. The Board of Directors shall promptly, but in all events
within ten days after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been fixed by the
Board of Directors within ten days after the date on which such a request is
received, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by
the Board of Directors is required by applicable law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in accordance with
paragraphs (a) and (b) of this Section. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is
required by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall
be at the close of business on the date on which the Board of Directors
adopts the resolution taking such prior action.
(d) Within three business days after receipt of the earliest dated
consent delivered to the Corporation in the manner provided in this Section,
the Corporation shall retain nationally recognized independent inspectors of
elections for the purpose of performing a ministerial review of the validity
of consents and any revocations thereof. The Corporation shall promptly
deliver all consents and revocations of consents received by it to the
inspectors of election. The cost of retaining inspectors of election shall
be borne by the Corporation.
(e) At any time that stockholders soliciting consents in writing to
corporate action have a good faith belief that the requisite number of valid
and unrevoked consents to authorize or take the action specified has been
received by them, the consents shall be delivered by the soliciting
stockholders to the
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Corporation's registered office in the State of Delaware or principal place
of business or to the Secretary of the Corporation, together with a
certificate stating their belief that the requisite number of valid and
unrevoked consents has been received as of a specific date, which date shall
be identified in the certificate. In the event that delivery is made to the
Corporation's registered office in the State of Delaware, such delivery
shall be made by hand or by certified or registered mail, return receipt
requested.
(f) As promptly as practicable after the consents and revocations are
received by them, the inspectors of election shall issue a preliminary
report to the Corporation stating: (i) the number of shares represented by
valid and unrevoked consents; (ii) the number of shares represented by
invalid consents; (iii) the number of shares represented by invalid
revocations; and (iv) the number of shares entitled to submit consents as of
the record date. Unless the Corporation and the soliciting stockholders
agree to a shorter or longer period, the Corporation and the soliciting
stockholders shall have five days to review the consents and revocations and
to advise the inspectors and the opposing party in writing as to whether
they intend to challenge the preliminary report. If no timely written
notice of an intention to challenge the preliminary report is received, the
inspectors shall certify the preliminary report (as corrected or modified by
virtue of the detection by the inspectors of clerical errors) as their final
report and deliver it to the Corporation. If the Corporation or the
soliciting stockholders give timely written notice of an intention to
challenge the preliminary report, a challenge session shall be scheduled by
the inspectors as promptly as practicable. A transcript of the challenge
session shall be recorded by a certified court reporter. Following
completion of the challenge session, the inspectors shall issue as promptly
as practicable their final report and deliver it to the Corporation. A copy
of the final report shall be included in the book in which the proceedings
of meetings of stockholders are recorded.
(g) The Corporation shall give prompt notice to the stockholders of the
results of any consent solicitation or the taking of corporate action
without a meeting by less than unanimous written consent.
(h) This Section shall in no way impair or diminish the right of any
stockholder or director, or any officer whose title to office is contested,
to contest the validity of any consent or revocation thereof, or to take any
action with respect thereto.
Section 1.10 Nominations for Director and Proposal of Business.
(a) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at
an annual meeting of the stockholders (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the Board of Directors or
(c) by any
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stockholder who was a stockholder of record at the time of giving of notice
provided for in this Section, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section.
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to this Section, such stockholder
must have given timely notice thereof in writing to the Secretary, and such
business must be a proper subject for stockholder action under the Delaware
General Corporation Law. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
Corporation not less than sixty days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more
than thirty days or delayed by more than sixty days from such anniversary
date, notice by the stockholder to be timely must be so delivered not
earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the sixtieth day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director
if elected), (b) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made, and (c)
as to the stockholder giving the notice and such beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address
of such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(c) Notwithstanding anything in this Section to the contrary, in the
event that the number of directors to be elected to the Board of Directors
is increased and there is no public announcement specifying the size of the
increased Board of Directors made by the Corporation at least seventy days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the principal
executive offices of the Corporation
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not later than the close of business on the tenth day following the day on
which such public announcement is first made by the Corporation.
(d) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time of
the Corporation's giving of notice provided for in this Section, who shall
be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section. Nominations by stockholders of
persons for election to the Board of Directors may be made at such a special
meeting of stockholders if the stockholder's notice required by this Section
shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the ninetieth day prior to such special
meeting and not later than the close of business on the later of the
sixtieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting.
(e) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election as
directors at a meeting of stockholders. Only such business shall be
conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this Section. The
Chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was
made in accordance with the procedures set forth in this Section and, if any
proposed nominations or business is not in compliance with this Section, to
declare that such defective proposal shall be disregarded.
(f) For purposes of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service.
(g) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section. Nothing in this Section shall be deemed
to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
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ARTICLE II
Board of Directors
Section 2.1 Number, Election and Term of Office. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by resolution of the Board of Directors but shall not be less than three.
The directors shall be elected at the annual meeting of stockholders, except as
provided in Section 2.2, and each director elected at an annual meeting of
stockholders, and directors elected in the interim to fill vacancies and newly
created directorships shall hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified or until
their earlier resignation or removal. A director need not be a stockholder.
Section 2.2 Vacancies and Additional Directorships. Unless otherwise
provided in the Certificate of Incorporation or these By-laws: (1) vacancies
and newly created directorships resulting from any increase in the authorized
number of directors elected by all of the stockholders having the right to vote
as a single class may be filled by a majority of the directors then in office,
although less than a quorum; (2) whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors by the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office.
Section 2.3 The Chairman and the Vice Chairman of the Board of Directors.
The Board of Directors may appoint a Chairman of the Board of Directors and a
Vice Chairman of the Board of Directors who shall each be a director but need
not be a stockholder of the Corporation. The Chairman and the Vice Chairman
shall not, by reason of said titles, be or be deemed to be an officer of the
Corporation. The Chairman or, in his absence, the Vice Chairman shall, when
present, preside at all meetings of the stockholders and of the Board of
Directors. Each of the Chairman and Vice Chairman may sign, with an officer
thereunto duly authorized, certificates of stock of the Corporation, the
issuance of which shall have been duly authorized (the signatures to which may
be facsimile signatures) and may sign and execute in the name of the Corporation
other instruments which the Board of Directors has authorized to be executed.
From time to time, the Chairman or, in his absence or at his direction, the Vice
Chairman shall report to the Board of Directors all matters which to their
knowledge the interests of the Corporation may require be brought to their
attention. The Chairman and the Vice Chairman shall perform such other duties
as are given to them by these By-laws or as from time to time may be assigned to
them by the Board of Directors.
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Section 2.4 Meetings. A meeting of the Board of Directors shall be held for
organization, for the election of officers and for the transaction of such other
business as may properly come before the meeting, within thirty days after each
annual election of directors.
The Board of Directors by resolution may provide for the holding of regular
meetings and may fix the times and places at which such meetings shall be held.
Notice of regular meetings shall not be required to be given, provided that
whenever the time or place of regular meetings shall be fixed or changed, notice
of such action shall be mailed promptly to each director who shall not have been
present at the meeting at which such action was taken, addressed to him at his
residence or usual place of business.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, the Vice Chairman of the Board of Directors, the
President, any Vice President or any two directors. Except as otherwise
required by statute, notice of each special meeting shall be mailed to each
director, addressed to him at his residence or usual place of business, or shall
be sent to him at such place by telegram, radio or cable, or telephoned or
delivered to him personally, not later than two days before the day on which the
meeting is to be held. Such notice shall state the time and place of such
meeting, but unless otherwise required by statute, the Certificate of
Incorporation of the Corporation or these By-laws need not state the purposes
thereof.
Notice of any meeting need not be given to any director who shall attend
such meeting in person or who shall waive notice thereof, before or after such
meeting, in writing or by telegram, radio or cable.
Section 2.5 Quorum. One-third of the total number of members of the Board
of Directors as constituted from time to time, but not less than two, shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the absence of a quorum, a majority of those present at the time and place of
any meeting may adjourn the meeting from time to time until a quorum shall be
present, and the meeting may be held as adjourned without further notice of
waiver. A majority of those present at any meeting at which a quorum is present
may decide any question brought before such meeting, except as otherwise
provided by law, the Certificate of Incorporation or these By-laws.
Section 2.6 Resignation of Directors. Any director may resign at any time
by giving written notice of such resignation to the Board of Directors, the
Chairman of the Board of Directors, the Vice Chairman of the Board of Directors,
the President, any Vice President or the Secretary. Any such resignation shall
take effect at the time specified therein, or, if no time be specified, upon
receipt thereof by the Board of Directors or one of the above-named officers;
and, unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
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Section 2.7 Removal of Directors. At any special meeting of the
stockholders, duly called for the purpose of removing a director or directors as
provided in these By-laws, any director or directors may, by the affirmative
vote of the holders of shares representing a majority of the votes of all the
shares of stock outstanding and entitled to vote for the election of directors,
be removed from office, either for or without cause. Such vacancy shall be
filled by the directors as provided in Section 2.2.
Section 2.8 Compensation of Directors. Directors shall receive such
reasonable compensation for their service as such, whether in the form of salary
or a fixed fee for attendance at meetings, with expenses, if any, as the Board
of Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 2.9 Indemnification. The Corporation shall indemnify to the full
extent authorized or permitted by the laws of the State of Delaware any person
who is made, or threatened to be made, a party to an action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or serves or served any other enterprise at the request of the
Corporation.
ARTICLE III
Committees of the Board
Section 3.1 Designation, Power, Alternate Members and Term of Office. The
Board of Directors may, by resolution passed by a majority of the whole Board,
designate one or more committees including an Executive Committee, each
committee to consist of one or more of the directors of the Corporation. Any
such committee, to the extent provided in such resolution or in these By-laws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger of
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation or, unless the
resolution of the Board of Directors establishing any such committee shall
expressly so provide or these By-laws shall expressly so provide, declaring a
dividend on the Corporation's capital stock or authorizing the issuance of the
Corporation's capital stock. The Board may designate one or more directors as
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alternate members of any committee who, in the order specified by the Board, may
replace any absent or disqualified member at any meeting of the committee. If
at a meeting of any committee one or more of the members thereof should be
absent or disqualified, and if either the Board of Directors has not so
designated any alternate member or members, or the number of absent or
disqualified members exceeds the number of alternate members who are present at
such meeting, then the member or members of such committee (including
alternates) present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another director to
act at the meeting in the place of any such absent or disqualified member. The
term of office of the members of each committee shall be as fixed from time to
time by the Board, subject to these By-laws; provided, however, that any
committee member who ceases to be a member of the Board shall ipso facto cease
to be a committee member. Each committee shall appoint a secretary, who may be
the Secretary of the Corporation or an Assistant Secretary thereof.
Section 3.2 Meetings, Notices and Records. Each committee may provide for
the holding of regular meetings, with or without notice, and may fix the time
and place at which such meetings shall be held. Special meetings of each
committee shall be held upon call by or at the direction of its chairman or, if
there be no chairman, by or at the direction of any two of its members, at the
time and place specified in the respective notices or waivers of notice thereof.
Notice of each special meeting of a committee shall be mailed to each member of
such committee, addressed to him at his residence or usual place of business, at
least two days before the day on which the meeting is to be held, or shall be
sent by telegram, radio or cable, addressed to him at such place, or telephoned
or delivered to him personally not later than the day before the day on which
the meeting is to be held. Notice of any meeting of a committee need not be
given to any member thereof who shall attend the meeting in person or who shall
waive notice thereof, before or after such meeting, in writing or by telegram,
radio or cable. Notice of any adjourned meeting need not be given. Each
committee shall keep a record of its proceedings.
Section 3.3 Quorum and Manner of Acting. At each meeting of any committee
the presence of one-third but not less than two of its members then in office
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. In the absence of
a quorum, a majority of the members present at the time and place of any meeting
may adjourn the meeting from time to time until a quorum shall be present.
Subject to the foregoing and other provisions of these By-laws and except as
otherwise determined by the Board of Directors, each committee may make rules
for the conduct of its business. Any determination made in writing and signed
by all the members of such committee shall be as effective as if made by such
committee at a meeting.
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Section 3.4 Resignations. Any member of a committee may resign at any time
by giving written notice of such resignation to the Board of Directors, the
Chairman of the Board of Directors, the Vice Chairman of the Board of Directors,
the President, any Vice President or the Secretary. Any such resignation shall
take effect at the time specified therein, or if no time be specified, upon
receipt thereof by the Board of Directors or one of the above-named officers;
and, unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.5 Removal. Any member of any committee may be removed at any time
by the Board of Directors with or without cause.
Section 3.6 Vacancies. If any vacancy shall occur in any committee by
reason of death, resignation, disqualification, removal or otherwise, the
remaining members of such committee, though less than a quorum, shall continue
to act until such vacancy is filled by a resolution passed by a majority of the
whole Board of Directors.
Section 3.7 Compensation. Committee members shall receive such reasonable
compensation for their services as such, whether in the form of salary or a
fixed fee for attendance at meetings, with expenses, if any, as the Board of
Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any committee member from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.1 Officers. The officers of the Corporation shall be a President,
one or more Vice Presidents (which may include Executive Vice Presidents, Group
Vice Presidents, Senior Vice Presidents and other categories of Vice
Presidents), a Secretary, a Treasurer, and such other officers as may be
appointed in accordance with the provisions of Section 4.3.
Section 4.2 Election, Term of Office and Qualifications. Each officer
(except such officers as may be appointed in accordance with the provisions of
Section 4.3) shall be elected by the Board of Directors. Each such officer
(whether elected at the first meeting of the Board of Directors after the annual
meeting of stockholders or to fill a vacancy otherwise) shall hold his office
until the first meeting of the Board of Directors after the next annual meeting
of stockholders and until his successor shall have been elected, or until his
death, or until he shall have resigned in the manner provided in Section 4.4 or
shall have been removed in the manner provided in Section 4.5.
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Section 4.3 Subordinate Officers and Agents. The Board of Directors from
time to time may appoint other officers or agents (including one or more
Assistant Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers), to hold office for such period, have such authority and
perform such duties as are provided in these By-laws or as may be provided in
the resolutions appointing them. The Board of Directors may delegate to any
officer or agent the power to appoint any such subordinate officers or agents
and to prescribe their respective terms of office, authorities and duties.
Section 4.4 Resignations. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, the Chairman of
the Board of Directors, the Vice Chairman of the Board of Directors, the
President, any Vice President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if no time be specified, upon receipt
thereof by the Board of Directors or one of the above-named officers; and,
unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.5 Removal. Any officer specifically designated in Section 4.1 may
be removed at any time, either with or without cause, at any meeting of the
Board of Directors by the vote of a majority of all the Directors then in
office. Any officer or agent appointed in accordance with the provisions of
Section 4.3 may be removed, either with or without cause, by the Board of
Directors at any meeting, by the vote of a majority of the Directors present at
such meeting, or by any superior officer or agent upon whom such power of
removal shall have been conferred by the Board of Directors.
Section 4.6 Vacancies. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these By-laws for
regular election or appointment to such office.
Section 4.7 The President. The President shall be the Chief Executive
Officer of the Corporation. Subject to the direction of the Board of Directors,
he shall have general charge of the business, affairs and property of the
Corporation and general supervision over the officers and agents of the
Corporation. He shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board
of Directors and the Vice Chairman of the Board of Directors, he shall preside
at all meetings of stockholders. He may sign, with any other officer thereunto
duly authorized, certificates of stock of the Corporation the issuance of which
shall have been duly authorized (the signature to which may be a facsimile
signature), and may sign and execute in the name of the Corporation, deeds,
mortgages, bonds, contracts, agreements or other instruments duly authorized by
the Board of Directors except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by statute to some
other officer or
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agent. He shall perform such other duties as are given to him by these By-laws
or as from time to time may be assigned to him by the Board of Directors.
Section 4.8 The Chief Operating Officer and Executive Vice President. The
Chief Operating Officer and Executive Vice President shall be the Chief
Operating Officer of the Corporation. Subject to the direction of the Board of
Directors and the President, he shall have general charge of the business,
affairs and property of the Corporation and general supervision over the
officers and agents of the Corporation. He shall see that all orders and
resolutions of the Board of Directors and the President are carried into effect.
In the absence of the Chairman of the Board of Directors, the Vice Chairman of
the Board of Directors and the President, he shall preside at all meetings of
stockholders. He may sign, with any other officer thereunto duly authorized,
certificates of stock of the Corporation the issuance of which shall have been
duly authorized (the signature to which may be a facsimile signature), and may
sign and execute in the name of the Corporation, deeds, mortgages, bonds,
contracts, agreements or other instruments duly authorized by the Board of
Directors except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by statute to some other
officer or agent. He shall perform such other duties as are given to him by
these By-laws or as from time to time may be assigned to him by the Board of
Directors or the President.
Section 4.9 The Vice Presidents. In the event of the absence or disability
of the President, any Vice President designated by the President (or in the
absence of such designation, the Vice President designated by the Board of
Directors) shall perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
President. Any Vice President may also sign, with any other officer thereunto
duly authorized, certificates of stock of the Corporation the issuance of which
shall have been duly authorized (the signature to which may be a facsimile
signature), and may sign and execute in the name of the Corporation, deeds,
mortgages, bonds and other instruments duly authorized by the Board of
Directors, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by statute to some other
officer or agent. Each Vice President shall perform such other duties as are
given to him by these By-laws or as from time to time may be assigned to him by
the Board of Directors or the President.
Section 4.10 The Secretary. The Secretary shall
(a) record all the proceedings of the meetings of the stockholders, the
Board of Directors, and any committees in a book or books to be kept for
that purpose;
(b) cause all notices to be duly given in accordance with the
provisions of these By-laws and as required by statute;
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(c) whenever any committee shall be appointed in pursuance of a
resolution of the Board of Directors, furnish the chairman of such committee
with a copy of such resolution;
(d) be custodian of the records and of the seal of the Corporation, and
cause such seal to be affixed to all certificates representing stock of the
Corporation prior to the issuance thereof and to all instruments the
execution of which on behalf of the Corporation under its seal shall have
been duly authorized;
(e) see that the lists, books, reports, statements, certificates and
other documents and records required by statute are properly kept and filed;
(f) have charge of the stock and transfer books of the Corporation, and
exhibit such stock book at all reasonable times to such persons as are
entitled by statute to have access thereto;
(g) sign (unless the Treasurer or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Secretary
and such other duties as are given to him by these By-laws or as from time
to time may be assigned to him by the Board of Directors, the President or
the Chief Operating Officer and Executive Vice President.
Section 4.11 Assistant Secretaries. At the request of the Secretary or in
his absence or disability, the Assistant Secretary designated by him (or in the
absence of such designation, the Assistant Secretary designated by the Board of
Directors, the President or the Chief Operating Officer and Executive Vice
President) shall perform all the duties of the Secretary and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them by the Board of Directors, the President,
the Chief Operating Officer and Executive Vice President or the Secretary.
Section 4.12 The Treasurer. The Treasurer shall
(a) have charge of and supervision over and be responsible for the
funds, securities, receipts and disbursements of the Corporation;
(b) cause the monies and other valuable effects of the Corporation to
be deposited in the name and to the credit of the Corporation in such banks
or trust companies or with such bankers or other depositaries as shall be
selected
- 14 -
in accordance with Section 5.3 of these By-laws or to be otherwise dealt
with in such manner as the Board of Directors may direct;
(c) cause the funds of the Corporation to be disbursed by checks or
drafts upon the authorized depositaries of the Corporation, and cause to be
taken and preserved proper vouchers for all monies disbursed;
(d) render to the Board of Directors or the President, whenever
requested, a statement of the financial condition of the Corporation and of
all his transactions as Treasurer;
(e) cause to be kept at the Corporation's principal office correct
books of account of all its business and transactions and such duplicate
books of account as he shall determine and upon application cause such books
or duplicates thereof to be exhibited to any director;
(f) be empowered, from time to time, to require from the officers or
agents of the Corporation reports or statements giving such information as
he may desire with respect to any and all financial transactions of the
Corporation;
(g) sign (unless the Secretary or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Treasurer
and such other duties as are given to him by these By-laws or as from time
to time may be assigned to him by the Board of Directors, the President or
the Chief Operating Officer and Executive Vice President.
Section 4.13 Assistant Treasurers. At the request of the Treasurer or in
his absence or disability, the Assistant Treasurer designated by him (or in the
absence of such designation, the Assistant Treasurer designated by the Board of
Directors, the President or the Chief Operating Officer and Executive Vice
President) shall perform all the duties of the Treasurer and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
Treasurer. The Assistant Treasurers shall perform such other duties as from
time to time may be assigned to them by the Board of Directors, the President,
the Chief Operating Officer and Executive Vice President or the Treasurer.
Section 4.14 Salaries. The salaries of the officers of the Corporation
shall be fixed from time to time by the Board of Directors, except that the
Board of Directors may delegate to any person the power to fix the salaries or
other compensation of any officers or agents appointed in accordance with the
provisions of Section 4.3. No
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officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 4.15 Surety Bonds. If the Board of Directors shall so require, any
officer or agent of the Corporation shall execute to the Corporation a bond in
such sum and with such surety or sureties as the Board of Directors may direct,
conditioned upon the faithful discharge of his duties, including
responsibilities for negligence and for the accounting for all property, funds
or securities of the Corporation which may come into his hands.
ARTICLE V
Execution of Instruments and
Deposit of Corporate Funds
Section 5.1 Execution of Instruments Generally. The Chairman of the Board
of Directors, the Vice Chairman of the Board of Directors, the President, any
Vice President, the Secretary or the Treasurer, subject to the approval of the
Board of Directors, may enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. The Board of Directors
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances.
Section 5.2 Borrowing. No loans or advances shall be obtained or contracted
for, by or on behalf of the Corporation and no negotiable paper shall be issued
in its name, unless and except as authorized by the Board of Directors. Such
authorization may be general or confined to specific instances. Any officer or
agent of the Corporation thereunto so authorized may obtain loans and advances
for the Corporation, and for such loans and advances may make, execute and
deliver promissory notes, bonds, or other evidences of indebtedness of the
Corporation. Any officer or agent of the Corporation thereunto so authorized
may pledge, hypothecate or transfer as security for the payment of any and all
loans, advances, indebtedness and liabilities of the Corporation, any and all
stocks, bonds, other securities and other personal property at any time held by
the Corporation, and to that end may endorse, assign and deliver the same and so
every act and thing necessary or proper in connection therewith.
Section 5.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to its credit in such banks or trust
companies or with such bankers or other depositaries as the Board of Directors
may select, or as may be selected by any officer or officers or agent or agents
authorized so to do by
- 16 -
the Board of Directors. Endorsements for deposit to the credit of the
Corporation in any of its duly authorized depositaries shall be made in such
manner as the Board of Directors from time to time may determine.
Section 5.4 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, and all notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers or agent or
agents of the Corporation, and in such manner, as from time to time shall be
determined by the Board of Directors.
Section 5.5 Proxies. Proxies to vote with respect to shares of stock of
other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
Chairman of the Board of Directors, the Vice Chairman of the Board of Directors,
the President or a Vice President or by any other person or persons thereunto
authorized by the Board of Directors.
ARTICLE VI
Record Dates
Section 6.1. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversation or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall be not more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. Only those
stockholders of record on the date so fixed shall be entitled to any of the
foregoing rights, notwithstanding the transfer of any such stock on the books of
the Corporation after any such record date fixed by the Board of Directors.
- 17 -
ARTICLE VII
Corporate Seal
Section 7.1. The corporate seal shall be circular in form and shall bear
the name of the Corporation and words and figures denoting its organization
under the laws of the State of Delaware and the year thereof and otherwise shall
be in such form as shall be approved from time to time by the Board of
Directors.
ARTICLE VIII
Fiscal Year
Section 8.1. The fiscal year of the Corporation shall begin on the 1st day
of January in each year and shall end on the 31st day of December in the same
year.
ARTICLE IX
Amendments
Section 9.1. Except as otherwise provided in Article VII of the Certificate
of Incorporation, all By-laws of the Corporation may be amended, altered or
repealed, and new By-laws may be made, by the affirmative vote of the holders of
record of shares representing a majority of the votes of the outstanding shares
of stock of the Corporation entitled to vote cast at any annual or special
meeting, or by the affirmative vote of a majority of the Directors cast at any
regular or special meeting at which a quorum is present.
- 18 -
SECOND AMENDMENT AND SUPPLEMENT TO
CREDIT AGREEMENT
AMONG
TESORO PETROLEUM CORPORATION,
as the Company,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Individually, as an Issuing Bank and as Agent,
BANQUE PARIBAS,
Individually, as an Issuing Bank, and as Co-Agent
and
FINANCIAL INSTITUTIONS NOW OR HEREAFTER
PARTIES TO THE CREDIT AGREEMENT
Effective as of September 1, 1995
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS
Section 1.01 Terms Defined Above . . . . . . . . . . . . . 1
Section 1.02 Terms Defined in Credit Agreement . . . . . . 2
Section 1.03 Other Definitional Provisions . . . . . . . . 2
ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT
Section 2.01 Amendments and Supplements to Definitions . . 2
Section 2.02 Amendments and Supplements to Article II. . . 3
Section 2.03 Amendments and Supplements to Article V.. . . 3
Section 3.01 Sale of Oil and Gas Properties to Coastal . . 3
Section 3.02 Extent of Waivers . . . . . . . . . . . . . . 3
ARTICLE IV. CONDITIONS
Section 4.01 Loan Documents. . . . . . . . . . . . . . . . 4
Section 4.02 Corporate Proceedings of Loan Parties . . . . 4
Section 4.03 Representations and Warranties. . . . . . . . 4
Section 4.04 No Default. . . . . . . . . . . . . . . . . . 4
Section 4.05 Security Instruments. . . . . . . . . . . . . 4
Section 4.06 Other Instruments or Documents. . . . . . . . 4
ARTICLE V. MISCELLANEOUS
Section 5.01 Adoption, Ratification and Confirmation
of Credit Agreement . . . . . . . . . . . . . 5
Section 5.02 Ratification and Affirmation of Guaranty. . . 5
Section 5.03 Successors and Assigns. . . . . . . . . . . . 5
Section 5.04 Counterparts. . . . . . . . . . . . . . . . . 5
Section 5.05 Number and Gender . . . . . . . . . . . . . . 5
Section 5.06 Entire Agreement. . . . . . . . . . . . . . . 5
Section 5.07 Invalidity. . . . . . . . . . . . . . . . . . 6
Section 5.08 Titles of Articles, Sections and Subsections. 6
Section 5.09 Governing Law . . . . . . . . . . . . . . . . 6
-i-
SECOND AMENDMENT AND SUPPLEMENT TO
CREDIT AGREEMENT
This SECOND AMENDMENT AND SUPPLEMENT TO CREDIT AGREEMENT (this "Second
Amendment") executed effective as of the 1st day of September, 1995 (the
"Effective Date"), is by and among TESORO PETROLEUM CORPORATION, a Delaware
corporation (the "Company"); TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
individually, as an Issuing Bank and as Agent; BANQUE PARIBAS, individually, as
an Issuing Bank and as Co-Agent, each of the lenders that is a signatory hereto
or which becomes a signatory hereto and to the hereinafter described Credit
Agreement as provided in Section 8.07 of the Credit Agreement (individually, a
"Lender" and collectively, the "Lenders").
W I T N E S S E T H:
WHEREAS, the Company, the Agent, the Co-Agent, the Issuing Banks and the
Lenders are parties to that certain Credit Agreement dated as of April 20, 1994,
as amended by First Amendment to Credit Agreement dated effective as of December
31, 1994 (as amended, the "Credit Agreement"), pursuant to which the Lenders
agreed to make loans and issue Letters of Credit to and for the account of the
Company; and
WHEREAS, Tesoro E&P Company, L.P., a Delaware limited partnership ("Tesoro
LP"), by and through its general partner, Tesoro Exploration and Production
Company, and Coastal Oil & Gas of Texas, L.P. ("Coastal LP"), by and through its
general partner, Coastal Oil & Gas Corporation have entered into that certain
Purchase and Sale Agreement dated as of September 1, 1995, whereby Tesoro LP is
selling to Coastal LP certain of its Oil and Gas Properties which are encumbered
by Liens in favor of the Agent pursuant to the E&P Mortgage.
WHEREAS, the Company and Tesoro LP desire that the Agent release its Lien in
such Oil and Gas Properties being sold to Coastal LP and the Agent and the
Lenders have agreed to release such Lien, subject to the provisions and
conditions contained herein;
WHEREAS, as a result of the foregoing, the Company, the Agent, the Co-Agent,
Guarantors and the Lenders desire to amend the Credit Agreement in the
particulars hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 Terms Defined Above. As used in this Second Amendment, each of
the terms "Company", "Coastal LP", "Credit Agreement", "Effective Date", "Second
-1-
Amendment", "Lenders", "Coastal Purchase and Sale Agreement", "Tesoro E&P" and
"Tesoro LP" shall have the meaning assigned to such term hereinabove.
Section 1.02 Terms Defined in Credit Agreement. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement, unless expressly provided to the
contrary.
Section 1.03 Other Definitional Provisions.
(a) The words "hereby", "herein", "hereinafter", "hereof", "hereto"
and "hereunder" when used in this Second Amendment shall refer to this
Second Amendment as a whole and not to any particular Article, Section,
subsection or provision of this Second Amendment.
(b) Section, subsection and Exhibit references herein are to such
Sections, subsections and Exhibits to this Second Amendment unless otherwise
specified.
ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT
The Company, the Agent, the Co-Agent, the Issuing Banks and the Lenders
agree that the Credit Agreement is hereby amended and supplemented, effective as
of the Effective Date, in the following particulars.
Section 2.01 Amendments and Supplements to Definitions.
(a) The definition of "Agreement" in Section 1.01 of the Credit
Agreement is hereby amended to mean the Credit Agreement, as amended and
supplemented by this Second Amendment and as the same may from time to time
be further amended, supplemented or modified.
(b) Section 1.01 of the Credit Agreement is hereby further amended and
supplemented by adding the following new definitions where alphabetically
appropriate, which read in their entirety as follows:
"Second Amendment" shall mean that certain Second Amendment and
Supplement to Credit Agreement dated as of September 1, 1995, by and
among the Company, the Agent, the Co-Agent, the Issuing Banks and the
Lenders.
"Coastal Purchase and Sale Agreement" shall mean that certain
Purchase and Sale Agreement dated as of September 1, 1995, by and
between Tesoro LP, acting by and through its general partner, Tesoro
E&P, as seller, and Coastal Oil & Gas of Texas, L.P., a Texas limited
-2-
partnership, acting by and through its general partner, Coastal Oil &
Gas Corporation, as purchaser.
Section 2.02 Amendments and Supplements to Article II. Section 2.20(a) of
the Credit Agreement is hereby amended by deleting the last sentence thereof and
substituting therefor the following:
"During the period from and after the effective date of the Second
Amendment until the next Redetermination Date, the amount of the E&P Loan
Value shall be $40,000,000."
Section 2.03 Amendments and Supplements to Article V. Section 5.04 of the
Credit Agreement is hereby amended and supplemented by adding thereto a new
subsection (p) to read in its entirety:
"(p) Proceeds of Coastal Sale. Permit Tesoro LP, without
obtaining prior written approval from the Majority Lenders and in exchange
for the Lenders agreeing to the release of the associated Liens, to use the
proceeds received by Tesoro LP from the sale of Oil & Gas Properties
pursuant to the Coastal Purchase and Sale Agreement for Capital
Expenditures, acquisitions or repayment of debt incurred pursuant to the
Subordinated Debentures or in any other manner, except (i) to hold in a
demand deposit account (ii) to reduce Lender Indebtedness or (iii) to make
investments permitted by clauses (ii), (iii) and (vi) of Section 5.04(e).
ARTICLE III. WAIVERS
Section 3.01 Sale of Oil and Gas Properties to Coastal. The Agent, the
Co-Agent, the Issuing Banks and the Lenders agree that the Company shall not be
deemed to be in default of the Credit Agreement solely by reason of the fact
that Tesoro LP has entered into and will perform under the Coastal Purchase and
Sale Agreement.
Section 3.02 Extent of Waivers. The foregoing waivers and consent shall
not be deemed to be a waiver or consent by the Agent, the Co-Agent, the Issuing
Banks and the Lenders of any other covenant, condition or obligation on the part
of the Company or any Subsidiary of the Credit Agreement or any other Financing
Document, except as set forth in Section 3.01 of this Second Amendment. In
addition, the foregoing waiver and consent shall in no respect evidence any
commitment by the Agent, the Co-Agent, the Issuing Banks or the Lenders to grant
any future waivers or consents of any covenant, condition or obligation on the
part of the Company or any Subsidiary under the Credit Agreement or any other
Financing Document. Any further waivers or consents must be specifically agreed
to in writing in accordance with Section 8.02 of the Credit Agreement.
-3-
ARTICLE IV. CONDITIONS
The enforceability of this Second Amendment against the Agent, the Co-Agent,
the Issuing Banks and the Lenders is subject to the satisfaction of the
following conditions precedent:
Section 4.01 Loan Documents. The Agent shall have received multiple
original counterparts, as requested by the Agent, of this Second Amendment
executed and delivered by a duly authorized officer of the Company, each of the
Guarantors, the Agent, the Co-Agent, each Issuing Bank and each Lender, as
applicable;
Section 4.02 Corporate Proceedings of Loan Parties. The Agent shall have
received multiple copies, as requested by the Agent, of the resolutions, in form
and substance reasonably satisfactory to the Agent, of the Boards of Directors
of the Company and the Guarantors, authorizing the execution, delivery and
performance of this Second Amendment, each such copy being attached to an
original certificate of the Secretary or an Assistant Secretary of the Company
or the Guarantors, as applicable, dated as of the Effective Date, certifying (i)
that the resolutions attached thereto are true, correct and complete copies of
resolutions duly adopted by written consents or at meetings of the Boards of
Directors, (ii) that such resolutions constitute all resolutions adopted with
respect to the transactions contemplated hereby, (iii) that such resolutions
have not been amended, modified, revoked or rescinded as of the Effective Date,
(iv) that the respective articles of incorporation and bylaws of the Company and
the Guarantors have not been amended or otherwise modified since the effective
date of the Credit Agreement, except pursuant to any amendments attached
thereto, and (v) as to the incumbency and signature of the officers of the
Company or the Guarantors, as applicable, executing this Second Amendment.
Section 4.03 Representations and Warranties. Except as affected by the
transactions contemplated in the Credit Agreement and this Second Amendment,
each of the representations and warranties made by the Company and the
Guarantors in or pursuant to the Financing Documents, including the Credit
Agreement, shall be true and correct in all material respects as of the
Effective Date, as if made on and as of such date.
Section 4.04 No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date.
Section 4.05 Security Instruments. All of the Security Instruments
(subject to any partial releases thereof) shall be in full force and effect and
provide to the Agent the security intended thereby to secure the Indebtedness.
Section 4.06 Other Instruments or Documents. The Agent or any Lender or
counsel to the Agent shall receive such other instruments or documents as they
may reasonably request.
-4-
ARTICLE V. MISCELLANEOUS
Section 5.01 Adoption, Ratification and Confirmation of Credit Agreement.
Each of the Company, the Guarantors, the Agent, the Co-Agent, the Issuing Banks
and the Lenders does hereby adopt, ratify and confirm the Credit Agreement, as
amended hereby, and acknowledges and agrees that the Credit Agreement, as
amended hereby, is and remains in full force and effect.
Section 5.02 Ratification and Affirmation of Guaranty. Each of the
Guarantors hereby expressly (i) acknowledges the terms of this Second Amendment,
(ii) ratifies and affirms its obligations under the Guaranty Agreement dated as
of April 20, 1994, in favor of the Agent, the Co-Agent, the Issuing Banks and
the Lenders, as amended, supplemented or otherwise modified, (iii) acknowledges,
renews and extends its continued liability under the Guaranty Agreement and
agrees that such Guaranty Agreement remains in full force and effect; and (iv)
guarantees to the Agent, the Co-Agent, each Issuing Bank and each Lender to
promptly pay when due all amounts owing or to be owing by it under the Guaranty
pursuant to the terms and conditions thereof.
Section 5.03 Successors and Assigns. This Second Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns permitted pursuant to the Credit Agreement.
Section 5.04 Counterparts. This Second Amendment may be executed by one
or more of the parties hereto in any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument and shall be enforceable as of the Effective Date upon the execution
of one or more counterparts hereof by the Company, the Guarantors, the Agent,
the Co-Agent, the Issuing Banks and the Lenders. In this regard, each of the
parties hereto acknowledges that a counterpart of this Second Amendment
containing a set of counterpart execution pages reflecting the execution of each
party hereto shall be sufficient to reflect the execution of this Second
Amendment by each necessary party hereto and shall constitute one instrument.
Section 5.05 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated.
Section 5.06 Entire Agreement. This Second Amendment constitutes the
entire agreement among the parties hereto with respect to the subject hereof.
All prior understandings, statements and agreements, whether written or oral,
relating to the subject hereof are superseded by this Second Amendment.
-5-
Section 5.07 Invalidity. In the event that any one or more of the
provisions contained in this Second Amendment shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Second Amendment.
Section 5.08 Titles of Articles, Sections and Subsections. All titles or
headings to Articles, Sections, subsections or other divisions of this Second
Amendment or the exhibits hereto, if any, are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect to
the other content of such Articles, Sections, subsections, other divisions or
exhibits, such other content being controlling as the agreement among the
parties hereto.
Section 5.09 Governing Law. This Second Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
governed by and construed in accordance with the laws of the State of Texas and
the United States of America.
This Second Amendment, the Credit Agreement, as amended and
supplemented hereby, the Notes, and the other Financing Documents
constitute a written loan agreement and represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the Effective Date.
COMPANY: TESORO PETROLEUM CORPORATION
By: /s/ William T. Van Kleef
Name: William T. Van Kleef
Title: Vice President, Treasurer
AGENT, ISSUING BANK
AND LENDER: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually, as an Issuing Bank and
as Agent
By: /s/ P. Stan Burge
Name: P. Stan Burge
Title: Vice President
CO-AGENT, ISSUING BANK BANQUE PARIBAS, individually, as an Issuing
AND LENDER: Bank and as Co-Agent
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice Predident
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
LENDERS: BANK OF SCOTLAND
By: /s/ Catherine M. Oniffrey
Name: Catherine M. Oniffrey
Title: Vice President
-7-
CHRISTIANIA BANK
By: /s/ Carl-Petter Svendsen
Name: Carl-Petter Svendsen
Title: First Vice President
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
NBD BANK
By: /s/ Russell H. Liebetrau, Jr.
Name: Russell H. Liebetrau, Jr.
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Ronald McKaig
Name: Ronald McKaig
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Michael J. Kolosowsky
Name: Michael J. Kolosowsky
Title: Vice President
-8-
NATIONAL BANK OF CANADA
By: /s/ Larry L. Sears
Name: Larry L. Sears
Title: Group Vice President
By: /s/ Douglas G. Clark
Name: Douglas G. Clark
Title: Vice President
THE FROST NATIONAL BANK
By: /s/ Phil Dudley
Name: Phil Dudley
Title: Vice President
GUARANTORS: TESORO ALASKA PETROLEUM COMPANY
TESORO EXPLORATION AND PRODUCTION COMPANY
TESORO PETROLEUM COMPANIES, INC.
DIGICOMP, INC.
TESORO TECHNOLOGY PARTNERS COMPANY
INTERIOR FUELS COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO NORTHSTORE COMPANY
TESORO REFINING, MARKETING & SUPPLY COMPANY
TESORO NATURAL GAS COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO PETROLEUM DISTRIBUTING COMPANY
TESORO LOUISIANA DISTRIBUTING COMPANY
TESORO ENVIRONMENTAL RESOURCES COMPANY
By: /s/ William T. Van Kleef
Name: William T. Van Kleef
Title: Vice President and Treasuer
-9-
TESORO E&P COMPANY, L.P.
By: TESORO EXPLORATION AND PRODUCTION
COMPANY, as its general partner
By: /s/ William T. Van Kleef
William T. Van Kleef
Vice President and Treasurer
TESORO GAS RESOURCES COMPANY, INC
By: /s/ George L. Dodgen
Name: George L. Dodgen
Title: President
-10-
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment") effective as of
October 24, 1995 (the "Third Amendment Effective Date") is made and entered into
by and among TESORO PETROLEUM CORPORATION (the "Company"), a Delaware
corporation, TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), individually, as
an Issuing Bank and as Agent (the "Agent") and BANQUE PARIBAS ("BP"),
individually, and as an Issuing Bank and as Co-Agent and the other financial
institutions (collectively, with TCB and BP, the "Lenders") parties to the
Credit Agreement (as hereinafter defined) as amended by this Third Amendment.
RECITALS
WHEREAS, the Company has entered into a Credit Agreement, dated as of
April 20, 1994, among the Company, TCB, individually, as an Issuing Bank and as
Agent, BP, individually, as an Issuing Bank and as Co-Agent, and the other
financial institutions parties thereto as amended by the First Amendment to
Credit Agreement dated effective as of December 31, 1994 and the Second
Amendment and Supplement to Credit Agreement dated effective as of September 1,
1995 (as amended, the "Credit Agreement");
WHEREAS, the Company, the Agent, the Co-Agent, the Guarantors and the
Lenders have agreed, on the terms and conditions herein set forth, that the
Credit Agreement be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the meaning assigned such terms in the Credit Agreement.
Section 2. Amendments to the Credit Agreement. On and after the Third
Amendment Effective Date, the Credit Agreement shall be amended as follows:
(a) The following new definitions are hereby added to Section 1.01 of the
Credit Agreement:
"Availability Adjustment Amount" shall mean $90,000,000 unless
reduced or otherwise modified pursuant to Section 2.25.
"PEDCO EBITDA" shall mean, as to PEDCO, and for any Rolling
Period, the amount equal to net income of PEDCO less any non-cash
income included in such net income, plus, to the extent deducted from
such net income, interest expense, depreciation, depletion and
impairment, amortization of leasehold and intangibles, other non-cash
expenses, and taxes; provided, that, gains or losses on the disposition
of assets shall not be included in PEDCO EBITDA.
"Tesoro Refining and Marketing Group EBITDA" shall mean, as to the
Tesoro Refining and Marketing Group, and for any Rolling Period, the
amount equal to consolidated net income of the Tesoro Refining and
Marketing Group less any
1
non-cash income included in such net income, plus, to the extent
deducted from such net income, interest expense, depreciation,
depletion and impairment, amortization of leasehold and intangibles,
other non-cash expenses, and taxes; provided, that, gains or losses on
the disposition of assets shall not be included in Tesoro Refining and
Marketing Group EBITDA.
(b) The definition of "Advance Notice" set forth in Section 1.01 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"Advance Notice" shall mean written or telecopy notice (or
telephonic notice promptly confirmed in writing), which in each case
shall be irrevocable, from the Company to be received by the Agent, in
the case of Base Rate Loans, before 10:00 a.m. (Houston time) or, in
the case of Eurodollar Loans, 11:00 a.m. (Houston time), by the number
of Business Days in advance of any borrowing, conversion, continuation
or prepayment of any Loan pursuant to this Agreement as respectively
indicated below:
(i) Eurodollar Loans - 3 Business Days; and
(ii) Base Rate Loans - same Business Day.
For the purpose of determining the respectively applicable Loan in the
case of the conversion from one type of Loan into another, the Loan
into which there is to be a conversion shall control. The Agent, each
Issuing Bank and each Lender are entitled to rely upon and act upon
telecopy notice made or purportedly made by the Company, and the
Company hereby waives the right to dispute the authenticity and
validity of any such transaction once the Agent or any Lender has
advanced funds or any Issuing Bank has issued Letters of Credit, absent
manifest error.
(c) The definition of "Maximum Available Amount" set forth in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Maximum Available Amount" shall mean, at any date, an amount
equal to the lesser of (a) the aggregate Revolving Credit Commitments
as of such date, (b) the Borrowing Base as of such date and (c) the
Availability Adjustment Amount as of such date.
(d) The definition of "Tesoro Refining and Marketing Group" set forth in
Section 1.01 of the Credit Agreement is hereby amended in its entirety
to read as follows:
"Tesoro Refining and Marketing Group" shall mean Tesoro Alaska,
Tesoro R&M, Tesoro Alaska Pipeline Company, a Delaware corporation,
Tesoro Northstore Company, an Alaska corporation, Interior Fuels
Company, an Alaska corporation, Kenai Pipeline Company, a Delaware
corporation, and Tesoro Vostok Company, a Delaware corporation.
2
(e) The following new Section 2.25 is hereby added to the Credit Agreement:
Section 2.25. Availability Adjustment Amount.
(a) Mandatory Financial Test Reductions: If either (i) the Tesoro
Refining and Marketing Group fails to maintain the Tesoro Refining and
Marketing Group EBITDA in an amount equal to or greater than the amount
set forth below or (ii) the Company fails to maintain a cash flow
coverage ratio for itself and its Subsidiaries on a consolidated basis
equal to or greater than the ratio set forth below:
For the Rolling Minimum Tesoro Refining Minimum Cash
Period Ending and Marketing Group EBITDA Flow Coverage Ratio
------------- -------------------------- -------------------
December 31, 1995 $10,600,000 1.45 to 1.00
March 31, 1996 $17,700,000 1.67 to 1.00
June 30, 1996 $23,900,000 1.69 to 1.00
then the Availability Adjustment Amount shall be reduced no later than
45 days following each applicable Quarterly Date by an amount of
$5,000,000; provided that the aggregate amount of such reductions shall
not exceed $10,000,000 in the aggregate.
(b) Optional Increases: If at any time on or after September 30,
1996, (i) the sum of the Tesoro Refining and Marketing Group EBITDA
plus the PEDCO EBITDA is greater than or equal to $35,000,000 and (ii)
the Company is maintaining a cash flow coverage ratio for itself and
its Subsidiaries on a consolidated basis equal to or greater than 1.37
to 1.00, then the Company may, to the extent (but only to the extent)
the Availability Adjustment Amount shall have been reduced pursuant to
Subsection 2.25(a), increase the Availability Adjustment Amount.
(c) Mandatory Reductions Based on E&P Loan Value: During any
period when the E&P Loan Value is less than $30,000,000, the Maximum
Available Amount shall be reduced by an amount equal to the difference
between $30,000,000 and the then current E&P Loan Value.
(f) Section 5.03(d) of the Credit Agreement is hereby amended in its
entirety as follows:
(d) Tesoro Refining and Marketing Group EBITDA. Cause the Tesoro
Refining and Marketing Group to maintain the Tesoro Refining and
Marketing Group EBITDA in an amount equal to or greater than:
3
For the Rolling Minimum Tesoro Refining
Period Ending and Marketing Group EBITDA
------------- --------------------------
September 30, 1995 $5,000,000
December 31, 1995 $5,000,000
March 31, 1996 $12,000,000
June 30, 1996 $20,000,000
September 30, 1996 $20,000,000
December 31, 1996 $25,000,000
March 31, 1997
and thereafter $30,000,000
(g) Section 5.04(e) of the Credit Agreement is hereby amended by deleting
the reference to "and" at the end of clause (x), by changing the period
at the end of clause (xi) to read "; and" and by adding the following
new clause (xii):
(xii) the purchase of up to 100% of the shares of common stock of
Coastwide Energy Services, Inc., a Delaware corporation, for
consideration (including, without limitation, equity securities of the
Company and cash) in an amount not to exceed $24,000,000 in the
aggregate.
(h) Section 5.04(p) of the Credit Agreement is hereby amended in its
entirety as follows:
(p) Proceeds of Coastal Sale. Permit the Company and its
Subsidiaries to use the proceeds received by Tesoro LP from the sale of
Oil & Gas Properties pursuant to the Coastal Purchase and Sale
Agreement for repayment of debt incurred pursuant to the Subordinated
Debentures or in any other manner except (i) to redeem a portion of the
Subordinated Debentures in an aggregate principal amount not to exceed
$34,700,000.00 plus interest accrued through the redemption date of
such Subordinated Debentures, (ii) $12,000,000 in the aggregate of such
proceeds may be used to purchase up to 100% of the shares of common
stock of Coastwide Energy Services, Inc., a Delaware corporation, or
(iii) for general corporate purposes other than the repayment of the
Subordinated Debentures.
(i) Annex I to the Credit Agreement is hereby amended to be identical to
Exhibit A attached hereto, which Annex sets forth the Commitment of
each Lender as of the Third Amendment Effective Date.
(j) Exhibit C to the Credit Agreement is hereby amended to be identical to
Exhibit B attached hereto, which sets forth the Subsidiaries of the
Company.
Section 3. Amendment Fee. As a condition precedent to the effectiveness
of this Third Amendment, the Company shall pay on or before the Third Amendment
Effective Date to the Agent for the account of and distribution to each Lender
in accordance with its Percentage Share an amendment fee of $156,250 computed at
a rate equal to one-eighth of one percent (1/8%) per annum on the original
Commitments.
Section 4. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Financing Documents, or (b) except as
4
expressly set forth herein, prejudice any right or rights which the Lenders may
now have or may have in the future under or in connection with the Credit
Agreement, the Financing Documents or any of the other documents referred to
therein. Except as expressly modified hereby or by express written amendments
thereof, the terms and provisions of the Credit Agreement, the Notes, and any
other Financing Documents or any other documents or instruments executed in
connection with any of the foregoing are and shall remain in full force and
effect. In the event of a conflict between this Third Amendment and any of the
foregoing documents, the terms of this Third Amendment shall be controlling.
Section 5. Representations and Warranties. Except as affected by the
transactions contemplated in the Credit Agreement and this Third Amendment, each
of the representations and warranties made by the Company and the Guarantors in
or pursuant to the Financing Documents, including the Credit Agreement, shall be
true and correct in all material respects as of the Third Amendment Effective
Date, as if made on and as of such date.
Section 6. No Default. No Default or Event of Default shall have
occurred and be continuing as of the Third Amendment Effective Date.
Section 7. Adoption, Ratification and Confirmation of Credit Agreement.
Each of the Company, the Guarantors, the Agent, the Co-Agent, the Issuing Banks
and the Lenders does hereby adopt, ratify and confirm the Credit Agreement, as
amended hereby, and acknowledges and agrees that the Credit Agreement, as
amended hereby, is and remains in full force and effect.
Section 8. Ratification and Affirmation of Guaranty. Each of the
Guarantors hereby expressly (i) acknowledges the terms of this Third Amendment,
(ii) ratifies and affirms its obligations under the Guaranty Agreement dated as
of April 20, 1994, in favor of the Agent, the Co-Agent, the Issuing Banks and
the Lenders, as amended, supplemented or otherwise modified, (iii) acknowledges,
renews and extends its continued liability under the Guaranty Agreement and
agrees that such Guaranty Agreement remains in full force and effect; and (iv)
guarantees to the Agent, the Co-Agent, each Issuing Bank and each Lender to
promptly pay when due all amounts owing or to be owing by it under the Guaranty
pursuant to the terms and conditions thereof.
Section 9. Payment of Expenses. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Agent harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Third Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Agent, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Credit Agreement and the other Financing Documents. The provisions of
this Section shall survive the termination of the Credit Agreement and the
repayment of the Loans.
Section 10. Governing Law. This Third Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 11. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Third Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
5
Section 12. Entire Agreement. This Third Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Third Amendment.
Section 13. Counterparts. This Third Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Section 14. Amended Definitions. As used in the Credit Agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the Third Amendment
Effective Date the term "Agreement" shall mean the Credit Agreement as amended
by this Third Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE 26.02
This Third Amendment and the other Financing Documents executed by any of
the parties before or substantially contemporaneously with the execution hereof
together constitute a written Loan Agreement and represent the Final Agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.
6
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed and delivered by their respective duly authorized officers as
of the date first above written.
TESORO PETROLEUM CORPORATION
By: /s/ William T. Van Kleef
Name: William T. Van Kleef
Title: Vice President and Chief
Financial Officer
[Signature Page - 1]
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
Individually, as an Issuing Bank and
as Agent
By: /s/ P. Stan Burge
P. Stan Burge
Vice President
[Signature Page - 2]
BANQUE PARIBAS
Individually, as an Issuing Bank and
as Co-Agent
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice Predident
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
[Signature Page - 3]
BANK OF SCOTLAND
By: /s/ Catherine M. Oniffrey
Name: Catherine M. Oniffrey
Title: Vice President
[Signature Page - 4]
CHRISTIANIA BANK
By: /s/ Justin F. McCarty, III
Name: Justin F. McCarty, III
Title: Vice President
By: /s/ Carl-Petter Svendsen
Name: Carl-Petter Svendsen
Title: First Vice President
[Signature Page - 5]
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
[Signature Page - 6]
NBD BANK
By: /s/ Russell H. Liebetrau, Jr.
Name: Russell H. Liebetrau, Jr.
Title: Vice President
[Signature Page - 7]
BANK OF AMERICA ILLINOIS
By:
Name:
Title:
[Signature Page - 8]
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Michael J. Kolosowsky
Name: Michael J. Kolosowsky
Title: Vice President
[Signature Page - 9]
NATIONAL BANK OF CANADA
By: /s/ Larry L. Sears
Name: Larry L. Sears
Title: Group Vice President
By: /s/ Douglas G. Clark
Name: Douglas G. Clark
Title: Vice President
[Signature Page - 10]
THE FROST NATIONAL BANK
By: /s/ Phil Dudley
Name: Phil Dudley
Title: Vice President
[Signature Page - 11]
GUARANTORS: TESORO ALASKA PETROLEUM COMPANY
TESORO EXPLORATION AND PRODUCTION COMPANY
TESORO PETROLEUM COMPANIES, INC.
DIGICOMP, INC.
TESORO TECHNOLOGY PARTNERS COMPANY
INTERIOR FUELS COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO NORTHSTORE COMPANY
TESORO REFINING, MARKETING & SUPPLY COMPANY
TESORO NATURAL GAS COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO PETROLEUM DISTRIBUTING COMPANY
TESORO LOUISIANA DISTRIBUTING COMPANY
TESORO ENVIRONMENTAL RESOURCES COMPANY
By: /s/ William T. Van Kleef
Name: William T. Van Kleef
Title: Vice President and Chief Financial Officer
TESORO E&P COMPANY, L.P.
By: TESORO EXPLORATION AND PRODUCTION COMPANY, as
its general partner
By: /s/ William T. Van Kleef
Name: William T. Van Kleef
Title: Vice President and Chief Financial
Officer
TESORO GAS RESOURCES COMPANY, INC
By: /s/ George L. Dodgen
Name: George L. Dodgen
Title: President
[Signature Page - 12]
EXHIBIT A TO THIRD AMENDMENT
ANNEX I
<TABLE>
<CAPTION>
Commitments
Revolving
Credit Unavailable Total Term Loan
Banks Commitments Commitments Commitments Commitment<F1>
- ----- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Texas Commerce Bank $11,520,000.00 $ 0.00 $11,520,000.00
Banque Paribas $11,520,000.00 0.00 $11,520,000.00
Bank of Scotland $9,360,000.00 0.00 $9,360,000.00
Christiania Bank $9,360,000.00 0.00 $9,360,000.00
The Bank of Nova Scotia $9,360,000.00 0.00 $9,360,000.00
NBD Bank $9,360,000.00 0.00 $9,360,000.00
Bank of America Illinois $7,920,000.00 0.00 $7,920,000.00
First Union National
Bank of North Carolina $7,920,000.00 0.00 $7,920,000.00
National Bank of Canada $7,920,000.00 0.00 $7,920,000.00
The Frost National Bank $5,760,000.00 $ 0.00 $5,760,000.00
-------------- ---------- --------------
Total $90,000,000.00 $ 0.00 $90,000,000.00
<FN>
<F1> The Term Loan Commitments have expired.
</TABLE>
Annex I - 1
EXHIBIT B TO THIRD AMENDMENT
EXHIBIT C
SUBSIDIARIES GUARANTORS
------------ ----------
Tesoro Petroleum Companies, Inc. X
Digicomp, Inc. X
Tesoro Technology Partners Company X
Tesoro Alaska Petroleum Company X
Interior Fuels Company X
Tesoro Alaska Pipeline Company X
Tesoro Northstore Company X
Tesoro Refining, Marketing & Supply Company X
Tesoro Exploration and Production Company X
Tesoro E&P Company, L.P. X
Tesoro Gas Resources Company, Inc. X
Tesoro Natural Gas Company X
Tesoro Bolivia Petroleum Company X
Tesoro Petroleum Distributing Company X
Tesoro Louisiana Distributing Company X
Tesoro Environmental Resources Company X
Tesoro Environmental Products Company
Sabinal Insurance Company Limited
Tesoro Indonesia Petroleum Company
Tesoro Tarakan Petroleum Company
Tesoro Java Petroleum Company
Tesoro Equipment Company
Tesoro Drilling Company
Tesoro Crude Oil Company
Tesoro Fleet Service Company
Tesoro Gasoline Marketing Company
Tesoro Pump & Valve Company
Kenai Pipeline Company
Tesoro Vostok Company
B - 1
Exhibit 11
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
INFORMATION SUPPORTING EARNINGS (LOSS)
PER SHARE COMPUTATIONS
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------------------ -----------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
COMPUTATION
Earnings (loss) before extraordinary item . . . . . $ 36,782 ( 3,263) 45,998 5,169
Extraordinary loss on extinguishment of debt. . . . - - - ( 4,752)
--------- --------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . . 36,782 ( 3,263) 45,998 417
Less dividend requirements on preferred stocks. . . - - - 2,680
--------- --------- --------- ---------
Net earnings (loss) applicable to common stock. . $ 36,782 ( 3,263) 45,998 ( 2,263)
========= ========= ========= =========
Average outstanding common shares . . . . . . . . . 24,542 24,381 24,531 21,933
Average outstanding common equivalent shares. . . . 551 630 609 651
--------- --------- --------- ---------
Average outstanding common and common
equivalent shares . . . . . . . . . . . . . . . 25,093 25,011 25,140 22,584
========= ========= ========= =========
Primary Earnings (Loss) Per Share:
Earnings (loss) before extraordinary item . . . . $ 1.47 ( .13) 1.83 .11
Extraordinary loss on extinguishment of debt. . . - - - ( .21)
--------- --------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . $ 1.47 ( .13) 1.83 ( .10)
========= ========= ========= =========
FULLY DILUTED EARNINGS (LOSS) PER
SHARE COMPUTATION
Net earnings (loss) applicable to common stock. . . $ 36,782 ( 3,263) 45,998 ( 2,263)
Add dividend requirements on preferred stocks . . . - - - 2,680
--------- --------- --------- ---------
Net earnings (loss) applicable to common
stock - fully diluted . . . . . . . . . . . . $ 36,782 ( 3,263) 45,998 417
========= ========= ========= =========
Average outstanding common and common
equivalent shares . . . . . . . . . . . . . . . . 25,093 25,011 25,140 22,584
Shares issuable on conversion of preferred shares . - - - 1,973
--------- --------- --------- ---------
Fully diluted shares. . . . . . . . . . . . . . . 25,093 25,011 25,140 24,557
========= ========= ========= =========
Fully Diluted Earnings (Loss) Per Share -
Anti-dilutive<F1> . . . . . . . . . . . . . . . . $ 1.47 ( .13) 1.83 ( .10)
========= ========= ========= =========
<FN>
<F1> This calculation is submitted in accordance with paragraph 601(b)(11) of Regulation S-K
although it is not required by APB Opinion No. 15 because it produces an anti-dilutive
result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TESORO
PETROLEUM CORPORATION'S FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 59,370
<SECURITIES> 0
<RECEIVABLES> 71,201
<ALLOWANCES> 2,075
<INVENTORY> 61,876
<CURRENT-ASSETS> 201,438
<PP&E> 463,995
<DEPRECIATION> 207,650
<TOTAL-ASSETS> 533,699
<CURRENT-LIABILITIES> 96,360
<BONDS> 187,869
0
0
<COMMON> 4,091
<OTHER-SE> 203,769
<TOTAL-LIABILITY-AND-EQUITY> 533,699
<SALES> 744,962
<TOTAL-REVENUES> 778,366
<CGS> 660,349
<TOTAL-COSTS> 660,349
<OTHER-EXPENSES> 32,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,132
<INCOME-PRETAX> 49,795
<INCOME-TAX> 3,797
<INCOME-CONTINUING> 45,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,998
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
