SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 001-07791
McMoRan Exploration Co.
(Exact name of registrant as specified in its charter)
Delaware 72-1424200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 Poydras Street
New Orleans, Louisiana 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 582-4000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $137,656,000 on
January 31, 2000.
On January 31, 2000, there were issued and outstanding
12,550,603 shares of the registrant's Common Stock, par value
$0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement submitted to
the registrant's stockholders in connection with the registrant's
2000 Annual Meeting of Stockholders are incorporated by reference
into Part III of this report.
McMoRan Exploration Co.
Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1999
TABLE OF CONTENTS
Page
Part I
Items 1. and 2. Business and Properties...................... 1
Item 3. Legal Proceedings.................................... 25
Item 4. Submission of Matters to a Vote of Security Holders.. 26
Executive Officers of the Registrant.................... 26
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 28
Item 6. Selected Financial Data.............................. 29
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results
of Operations and Disclosures about Market Risks.. 30
Item 8. Financial Statements and Supplementary Data...........38
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 55
Part III
Item 10. Directors and Executive Officers of the Registrant.. 55
Item 11. Executive Compensation.............................. 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 56
Item 13. Certain Relationships and Related Transactions...... 56
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K..................................................... 56
Signatures................................................... S-1
Exhibit Index................................................ E-1
<PAGE> i
PART I
Items 1 and 2. Business and Properties.
OVERVIEW
We engage in the exploration, development and production of oil
and gas offshore in the Gulf of Mexico and onshore in the Gulf
Coast region, and in the mining, purchasing, transporting,
terminaling, processing and marketing of sulphur.
We have provided definitions for some of the oil and gas and
sulphur industry terms we use in a glossary on page 23.
Oil and gas operations. We (and our predecessors) have
conducted oil and gas exploration, development and production
operations principally in the Gulf of Mexico and the Gulf Coast
region for more than 25 years with virtually the same team of
geologists and geophysicists. These operations have provided us
with an extensive geological and geophysical database, as well as
significant technical and operational expertise. We believe
there are significant opportunities to discover meaningful oil
and gas reserves in these areas.
Effective January 2000, we entered into transactions with
Texaco Exploration and Production Inc. and Shell Offshore Inc.
that significantly enhanced our presence on the continental shelf
of the Gulf of Mexico. See "Current Exploration Programs." These
two transactions, along with our current lease inventory, give us
exploratory rights to more than 170 blocks covering approximately
750,000 gross acres. We now have a substantial foundation for an
aggressive exploration program with a broad exploration acreage
position in the Gulf of Mexico.
As of December 31, 1999, we had estimated proved reserves of
approximately 62.6 Bcf of natural gas and 5.2 MMBbls of oil and
condensate, or an aggregate of approximately 94.0 Bcfe, with a
present value of estimated pre-tax future net cash flows of
$113.2 million. Our production totaled approximately 14.0 Bcf of
gas and 1.4 MMBbls of oil and condensate or 22.1 Bcfe during
1999. For the year ending December 31, 2000, we have budgeted
exploration and development expenditures of approximately $135
million. These budgeted amounts include $40 million for lease
acquisition, including our purchase of the Shell leases.
Development expenditures for 2000 are currently estimated to
total approximately $6 million. The remaining budget amount
would be expended on exploratory activities, primarily the
drilling of exploration wells. These budgeted amounts are subject
to change based on drilling results, availability of supplies,
equipment and personnel and the continuing evaluation of
properties and prospects that may influence our current drilling
plans. We will require significant amounts of new capital in
order to fund these budgeted amounts, which we anticipate seeking
in early 2000. We are engaged in discussions with potential investors,
including companies now engaged in the oil and gas industry. We are
considering raising capital from public capital markets and from
private financial investors, and may raise capital from a combination
of these potential sources. See "Cautionary Statements."
Sulphur operations. Our sulphur operations consist of
sulphur services and sulphur mining. Our sulphur services
primarily involve the purchase and resale of sulphur recovered as
a by-product of hydrocarbon refining and processing, and the
handling and transportation of sulphur. We are the largest
sulphur supplier in the U.S. and operate the largest molten
sulphur handling system in the world. Our unique molten sulphur
handling and transportation system includes five sulphur
terminals located across the Gulf Coast and has all permits
required by environmental laws. We currently transport
approximately 55 percent of U.S. Gulf Coast sulphur consumption,
and we have the capacity to transport and terminal up to six
million long tons of molten sulphur annually. Currently, our
sulphur handling operations are only approximately 60 percent
utilized.
Our sulphur mining operations are conducted at an offshore
sulphur mine known as Main Pass, which is located 32 miles
offshore Louisiana. We operate and own an 83.3 percent interest
in the mine. We also own an 83.3 percent interest in oil
production operations at Main Pass, where we produce oil from the
same geologic formation from which we mine sulphur.
Combination of McMoRan Oil & Gas and Freeport Sulphur. Our
company was created on November 17, 1998 when McMoRan Oil & Gas
Co. and Freeport-McMoRan Sulphur Inc. combined their operations.
As a result, McMoRan Oil & Gas LLC and Freeport-McMoRan Sulphur
LLC (Freeport Sulphur) became our wholly owned subsidiaries. The
transaction was treated for accounting purposes as a purchase,
with McMoRan Oil & Gas as the acquiring entity. As a
<PAGE> 1
result, our
financial information for periods prior to the combination
reflects only the historical operations of McMoRan Oil & Gas.
The operations of Freeport Sulphur are included on and after
November 17, 1998. For the year ended December 31, 1999,
approximately 81 percent of our earnings before interest, taxes,
depreciation and amortization, excluding exploration expenses,
were from oil and gas operations and 19 percent were from sulphur
operations.
OIL AND GAS OPERATIONS
Background. McMoRan Oil & Gas was spun off in May 1994 from
Freeport-McMoRan Inc. At the time of the spin-off, we had 10
Bcfe in proven reserves, no production, an inventory of
exploratory prospects, a significant amount of Gulf of Mexico
seismic and well log data, and $35 million in cash. In 1995, we
and MCN Energy Group formed a $65 million oil and gas exploration
and development program in the Gulf of Mexico. By mid-1997, we
had discovered and held interests in two producing fields and had
acquired interests in a number of exploratory prospects. As the
program approached the end of its term, we decided to pursue a
larger, multi-year program.
In late 1997, we entered into a $210 million exploration
program with Phosphate Resource Partners Limited Partnership
(formerly named Freeport-McMoRan Resource Partners, Limited
Partnership) and an individual investor. Also in late 1997, we
completed a rights offering, raising net proceeds of $92 million.
We used a portion of these proceeds to purchase the interest
previously held by MCN Energy Group in the Vermilion Block 160
and 410 fields and to repay a loan from MCN Energy Group, thereby
ending our agreements with MCN Energy Group. The remaining
proceeds were available to fund operations, including a portion
of our obligations under the new $210 million exploration
program. Effective October 1, 1999, we purchased for $32 million
in cash all of Phosphate Resource Partners' interest in the
exploration program and terminated Phosphate Resource Partners'
participation in the program. As a result, the exploration
program is now held approximately 95 percent by us and 5 percent
by the individual investor.
Our Strategy. Using our extensive geophysical, technical
and operational expertise, our strategy is to (1) acquire large,
active exploration positions in the Gulf of Mexico and Gulf Coast
region, (2) identify prospects using 3-D seismic data and other
state-of-the art technology in combination with our analysis of
subsurface geologic data, (3) discover reserves through
exploration drilling and (4) develop and produce the reserves in
an efficient and cost effective manner.
Conditions in the U.S. oil and gas industry in recent years
have led to significant changes in strategy by many oil and gas
producers, especially the larger oil and gas companies. Because
these companies require very large discoveries to replace their
oil and gas reserves produced, their exploration efforts
increasingly have been devoted to areas perceived to have greater
potential for very large discoveries. As a result, these
companies have focused their recent exploration activities in the
deep water area of the Gulf of Mexico and in areas outside the
U.S. As these companies' strategies shifted, decisions to drill
high quality prospects in the Gulf of Mexico shelf area were
increasingly deferred. These decisions were made because of the
higher priority given to deep water and international projects,
even though significant costs had been incurred in identifying,
evaluating and acquiring the shelf leaseholds and exploration
prospects and in acquiring and conducting detailed analyses of
related geological and geophysical data. The larger oil and gas
companies retained higher quality prospects for future drilling,
and either farmed out lesser quality exploration prospects to
other companies or else did not drill them at all.
That trend has accelerated over the past twelve to eighteen
months, as many of the large oil and gas companies have made
major strategic decisions to restructure their operations and
dramatically reduce costs, including significantly reducing their
exploration activity in the Gulf of Mexico shelf area. These
decisions have caused many high quality shelf prospects, often
having significant "sunk" lease acquisition and geological
assessment costs, to be eliminated from these companies' drilling
plans. In order to avoid having the leases revert back to the
MMS, these companies have sought alternative ways to efficiently
assess and drill these prospects, and that need has created
partnering opportunities for independents like us.
We discussed with several large oil and gas companies our
desire to participate in developing their Gulf of Mexico shelf
prospects that otherwise might not be drilled, which culminated
in the transactions described below.
Current Exploration Programs. Effective January 1, 2000, we
acquired from Texaco Exploration and Production Inc. the right to
explore and earn assignments of operating rights in 89 offshore
oil and gas properties. The properties cover
<PAGE> 2
about 391,000 gross
acres and are located in water depths ranging from 10 to 2,600
feet in federal and state waters offshore Louisiana and Texas.
Texaco's ownership interests in the leases in which exploration
and operating rights were acquired ranged from 17 to 100 percent.
We have agreed to commit $110 million for exploration on these
properties through June 30, 2003. We have agreed to spend a
minimum of $10 million in 2000, an additional $40 million through
June 30, 2001, an additional $30 million through June 30, 2002
and an additional $30 million by June 30, 2003. We have
incentives to meet the agreed upon level of activity in each of
the specified time periods. If we drill wells to specified
depths that are capable of producing and commit to install
facilities to develop the oil and gas we discover, we will earn
varying interests in the prospects, depending on the options that
Texaco elects with respect to its retained interests. Generally,
we will earn at least a majority of Texaco's working interest in
the property, and Texaco can elect to retain either a working
interest or an overriding royalty. We anticipate entering into a
separate farmout agreement or sublease for each prospect.
Generally, we will be the operator.
On January 14, 2000, we purchased from Shell Offshore Inc.
its interest in 56 exploratory leases containing approximately
260,000 gross acres located in the Gulf of Mexico primarily
offshore Louisiana, for a total of $37.7 million in cash. These
leases represent a substantial portion of Shell's remaining
inventory of undeveloped Gulf of Mexico shelf lease acreage
located offshore Louisiana. Shell retained an overriding royalty
interest in the properties. The leases are located in varying
water depths up to a maximum of approximately 2,000 feet and
expire ratably over the next four years. Shell's ownership
interests in the leases acquired ranged from 25 to 100 percent.
Four of the leases are subject to preferential rights, which if
exercised would exclude these four leases from the purchase and
result in a $2.6 million reduction of the purchase price. The
party having the preferential rights has until mid-February 2000
to elect to exercise them.
Although our $210 million exploration program continues to
exist, with approximately 95 percent held by us and 5 percent by
an individual investor, we do not have any requirements to make
capital expenditures under the agreement. As of December 31,
1999, approximately $124 million had been expended under the
program. Excluding our acquisition of Phosphate Resource
Partners' interest in the program, our share of the program
expenditures totaled approximately $48 million.
Oil and Gas Properties. As of January 31, 2000, we owned
interests in 148 oil and gas leases in the Gulf and onshore
Louisiana and Texas covering approximately 392,000 gross acres
(approximately 289,000 acres net to us). These totals include
the four leases acquired from Shell that are subject to
preferential rights. Our estimated proved reserves at December
31, 1999 were approximately 94.0 Bcfe consisting of 62.6 Bcf of
gas and 5.2 million barrels of crude oil and condensate. This
estimate includes 4.2 million barrels at Main Pass. By
comparison, our estimated proved reserves at December 31, 1998
were approximately 82.4 Bcfe, consisting of 58.5 Bcf of gas and
4.0 million barrels of crude oil and condensate. Our estimated
proved reserves are based on a reserve report prepared by Ryder
Scott Company, L.P., an independent petroleum engineering firm.
As of December 31, 1999, our proved oil and gas reserves were
located primarily in six fields in the Gulf of Mexico shelf area:
(1) Main Pass; (2) Vermilion Block 160; (3) Vermilion Block 160
#4; (4) Vermilion Block 159; (5) West Cameron Block 616; and (6)
Brazos Block A-19.
The table below sets forth approximate information, as of
December 31, 1999, with respect to our principal producing
properties, followed by a description of significant exploration
and other activities that occurred during 1999 and early 2000.
<TABLE>
<CAPTION>
Net
Working Revenue Water Location Gross
Field, Lease or Well Interest Interest Operator Depth Offshore Acreage
- -------------------- -------- -------- -------- ------- ----------- -------
(%) (%) (in feet) (miles)
<S> <C> <C> <C> <C> <C> <C>
Main Pass 83.3 69.5(a) MMR(b) 210 32 Louisiana 1,125
Vermilion Block 160
Field Unit 41.8 35.8(a) MMR 100 42 Louisiana 5,625
Vermilion Block 160
#4 BJ-1 73.0 58.4(a) MMR 100 42 Louisiana -
Vermilion Block 159
#3 CJ-1 95.0 76.3 MMR 90 42 Louisiana 3,438
West Cameron Block 616 100.0 74.7 MMR 300 130 Louisiana 5,000
Brazos Block A-19 33.3 26.4 Shell 135 35 Texas 5,760
</TABLE>
<PAGE> 3
(a)Subject to an approximate net profits interest of 50 percent
at Main Pass, 2.6 percent at the Vermilion Block 160 field
unit and 12.7 percent at the Vermilion Block 160 #4 well.
(b)MMR is our New York Stock Exchange ticker symbol.
Principal Producing Properties
* Main Pass. We acquired the Main Pass oil operations, located
on Block 299, as a result of our acquisition of Freeport
Sulphur in 1998. This field began production in 1991 with 18
wells, of which 11 were horizontally drilled. As of December
31, 1999, cumulative production from the Main Pass oil
operations totaled 39.3 million barrels. There are currently 13
wells producing. For the year ended December 31, 1999, Main
Pass gross daily production averaged approximately 5,500
barrels of oil.
* Vermilion Block 160 Field Unit. We began production from this
unit in 1995 with two wells. In 1997, we discovered additional
pay sands with three additional development wells. Our gross
daily production averaged 23 MMcf of gas and 538 barrels of
condensate during the year ended December 31, 1999.
* Vermilion Block 160 BJ-1. In 1997, we drilled the Vermilion
160 BJ #1 well at a location remote from the existing platform
and outside the Vermilion Block 160 field unit. We installed a
substructure and processing facilities in 1998. The facilities
were designed to accommodate production from both the Vermilion
Block 160 BJ #1 well and the Vermilion Block 159 CJ #1 well
(discussed below). Production from both wells commenced during
January 1999. For the year ended December 31, 1999, the well's
gross daily production averaged approximately 24 MMcf of gas
and 719 barrels of condensate.
* Vermilion Block 159 CJ-1. In 1997, we drilled the Vermilion
Block 159 CJ #1 exploratory well, which resulted in the
discovery. We installed a substructure and deck in 1998.
Production commenced in January 1999, as noted above. The well
was re-completed in the fourth quarter of 1999. For the year
ended December 31, 1999, the well's gross daily production
averaged approximately 8 MMcf of gas and 248 barrels of
condensate.
* West Cameron Block 616. In 1996, we discovered the field with
the West Cameron Block 616 #2 exploratory well. During 1998, we
drilled three development wells and installed an offshore
production platform with facilities. Production commenced from
five well completions in March 1999. The field's gross daily
production averaged approximately 30 MMcf of gas during the
last ten months of 1999.
* Brazos Block A-19. In April 1998, the Brazos Block A-19 JC #1
exploratory well encountered hydrocarbons in a separate
reservoir compartment within the larger Picaroon Field area, at
a depth of 17,500 feet. Development of the Brazos Block A-19
JC #1 well was completed in the third quarter of 1999.
Production commenced in October 1999; however, during a
shutdown in November 1999 the operator detected a pressure
buildup in the production casing and subsequently found
significant damage to the production tubing. The well
currently remains shut-in pending remedial action for damage
associated with the shut-in. While the estimates of proved
reserves for the well remain unchanged, additional costs will
be required to restore production, and revenues from the well
will be delayed. Prior to the shut-in, the field was producing
approximately 84 MMcf per day. We, along with our partners,
have acquired adjacent leases located at Brazos Blocks A-9 and
A-26.
Exploration Activities
We continually evaluate our undeveloped properties, as well as
other exploration prospects offered by third parties, and will
drill those considered to have the highest potential. Our
significant exploration and other activities during 1999 and
early 2000 are summarized below.
* Grass Island Prospect. During the third quarter of 1999, we
farmed-in the Grass Island prospect, located in the shallow
onshore waters of Espiritu Santo Bay, Calhoun County, Texas.
We began drilling the State Tract 210 #6 exploratory well on
November 1, 1999. The well reached an approximate total depth
of 12,000 feet in December 1999. This well was saved and
temporarily abandoned. We are evaluating the possibility of
testing the various sands encountered in the well. We earned a
46.6 percent working interest and a 32.1 percent net revenue
interest after payout.
<PAGE> 4
* Vermilion Block 408. We commenced drilling of the Vermilion
Block 408 #1 exploratory well in December 1999. The well
reached a total depth of 88,000 feet and encountered 167 feet of
net oil pay. We plan to flow test the well and save it for
future development. We own a 28.5 percent working interest and
a 22.9 percent net revenue interest.
* Vermilion Block 144/145. We plan to drill an exploratory well
to a total depth of 17,000 feet on the Vermilion Block 144/145
prospect during the first quarter of 2000. The prospect is
located in 90 feet of water and is adjacent to our producing
field at Vermilion Block 160. We own a 95 percent working
interest and a 76.3 percent net revenue interest in the
prospect acreage.
* Grand Isle 40/41. We farmed in this prospect and plan to drill
an exploratory well to a total depth of 16,500 feet during the
first quarter of 2000. We can earn at least a 55 percent
working interest and a 45.1 percent net revenue interest,
depending upon certain elections of the farmors. The prospect
is located in 90 feet of water and is 20 miles offshore Grand
Isle, Louisiana.
Other
* Vermilion Block 410 Field. In March 1999, we sold our
approximate 28 percent net revenue interest in Vermilion Blocks
389, 409 and 410 and East Cameron Block 162, collectively known
as the Vermilion Block 410 field. The sale resulted in our
recognition of a $3.0 million gain.
* West Cameron Block 492. During the third quarter of 1999, we
along with our partner sold our working interest in West
Cameron Block 492. We received $0.7 million. We also have a
3.0 percent overriding royalty interest, which may increase to
5.0 percent if certain cumulative production volumes are
achieved.
* West Cameron Block 617. In April 1998, we encountered gas pay
at the West Cameron Block 617 #1 exploratory well. We set
protective pipe and the well was temporarily abandoned. We
then commenced a second exploratory well that was unsuccessful,
and subsequently plugged and abandoned. We and our partners
farmed-out this discovery in the first quarter of 1999. We
have a retained net profit interest that will escalate from
approximately 4.8 percent to 14.4 percent, depending upon
certain costs and production volumes.
* Dry Holes. During 1999, we recognized $1.6 million of
exploration expenses associated with the unsuccessful Vermilion
Block 162 #5 exploratory well.
Oil and Gas Reserves. The following table presents our estimated
proved natural gas and oil reserves at December 31, 1999 based on
a reserve report prepared by Ryder Scott Company, L.P., an
independent petroleum engineering firm.
<TABLE>
<CAPTION>
Gas(MMcf) Oil(Barrels)
---------------------- ---------------------
Proved Proved Proved Proved
Developed Undeveloped Developed Undeveloped
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1999........ 61,630 945 4,499,205 745,726
</TABLE>
Much of our oil and gas reserves as of December 31, 1999
were based on wells that had limited or no production history.
Estimates of proved reserves for wells with limited or no
production history are less reliable than those based on a long
production history. Subsequent evaluation of the same reserves
may result in variations, which may be substantial, in our
estimated reserves. We will need additional capital to develop
and produce our proved undeveloped reserves. For additional
information, see Note 12 to our audited financial statements and
"Cautionary Statements."
The following table presents, as of the dates indicated, the
estimated future net cash flows before income taxes, and the
present value of estimated future net cash flows before income
taxes, from the production and sale of our proved reserves, as
determined by Ryder Scott. Present value is calculated using a
10 percent per annum discount rate as required by the Securities
and Exchange Commission. In preparing these estimates, Ryder
Scott used prices of $22.64 per barrel of oil and $2.37 per Mcf
of gas as of December 31, 1999, which are the weighted average
prices that we estimate we would have received, assuming
production from all of our properties with proved reserves. The
oil price reflects the lower market value associatedcrude oil
reserves produced at Main Pass.
<PAGE> 5
<TABLE>
<CAPTION>
Proved Proved Total
Developed Undeveloped Proved
--------- ----------- -------
(in thousands)
<S> <C> <C> <C>
At December 31, 1999:
Estimated future net cash flows before
income taxes .......................... $137,688 $9,456 $147,144
Present value of estimated future net
cash flows before income taxes ........ 106,354 6,809 113,163
</TABLE>
You should not assume that the present value of estimated
future net cash flows shown in the preceding table represents the
current market value of our estimated natural gas and oil
reserves as of the date shown or any other date. For additional
information, see Note 12 to our audited financial statements and
"Cautionary Statements."
We are periodically required to file estimates of our oil
and gas reserves with various governmental authorities. In
addition, from time to time we furnish estimates of our reserves
to governmental agencies in connection with specific matters
pending before them. The basis for reporting estimates of
reserves in some of these cases is different from the basis used
for the estimated reserves discussed above. Therefore, all
reserve estimates may not be comparable. The major variations
include differences in when the estimates are made, in the
definition of reserves, in the requirement to report in some
instances on a gross, net or total operator basis and in the
requirements to report in terms of smaller geographical units.
Production, Unit Prices and Costs. The following table shows
production volumes, average sales prices and average production
costs for our oil and gas sales for each period indicated. The
relationship between our sales prices and production (lifting)
costs depicted by the table is not necessarily indicative of our
future results of operations.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Net gas production (Mcf) 14,026,000 8,634,100 4,061,000
Net crude oil and condensate
production(Bbls)(1) 1,353,600 304,100 34,000
Sales prices:
Natural gas (per Mcf) $2.30 $2.14 $2.62
Crude oil and condensate (per Bbl)$15.92 $10.33 $19.19
Production (lifting) costs(2)
Per barrel for Main Pass $7.88 $6.54 -
Per Mcf equivalent for
other properties $0.50 $0.36 $0.28
</TABLE>
____________________
(1) Includes production from the Main Pass oil operations for
periods on and after November 17, 1998, which totaled
approximately 202,700 barrels from November 17, 1998 through
December 31, 1998 and 1,102,600 barrels for 1999.
(2) Production costs were converted to an Mcf equivalent on the
basis of one barrel of oil being equivalent to six Mcf of
natural gas. Production costs exclude all depreciation and
amortization associated with property and equipment. The
components of production costs may vary substantially among
wells depending on the production ch pprroducing formation,
method of recovery employed, and other factors. However,
production costs include charges under transportation
agreements as well as all lease operating expenses.
____________________
<PAGE> 6
Acreage. The following table shows the oil and gas acreage in
which we held interests as of January 31, 2000. The table does
not include any of the approximate 391,000 gross acres associated
with the Texaco transaction because we do not and will not own any
acreage until we drill wells that are capable of producing reserves
and commit to developing such wells.
<TABLE>
<CAPTION>
Developed Undeveloped
----------------- -----------------
Gross Net Gross Net
Acres Acres Acres Acres
------ ------ ------- -------
<S> <C> <C> <C> <C>
Offshore (federal waters) 27,199 15,360 96,536 60,051
Onshore Louisiana and Texas 3,200 2,969 1,365 414
------ ------ ------- -------
Total at December 31, 1999 30,399 18,329 97,901 60,465
------ ------ ------- -------
Shell lease acquisition:
Offshore (federal waters) - - 261,185a 208,490a
Onshore Louisiana - - 2,788 1,987
------ ------ ------- -------
Total lease acquisition - - 263,973a 210,477a
------ ------ ------- -------
Total at January 31, 2000 30,399 18,329 361,874a 270,942a
====== ====== ======= =======
</TABLE>
a. Includes the approximate 23,000 gross and 14,000 net acres
related to the four leases, subject to preferential rights.
See "Current Exploration Programs."
Oil and Gas Drilling Activity. The following table shows the
gross and net number of productive, dry, in-progress and total
exploratory and development wells that we drilled in each of the
periods presented:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Productive 1 0.285 3 0.888 4 1.251
Dry 1 0.438 4 1.440 3 0.737
In-progress 1 0.466 - - - -
- ----- - ----- - -----
Total 3 1.189 7 2.328 7 1.988
= ===== = ===== = =====
Development
Productive - - 1 0.500 5 2.484
Dry - - - - - -
- - - ----- - -----
Total - - 1 0.500 5 2.484
= = = ===== = =====
</TABLE>
Marketing. We currently sell our natural gas in the spot market
at prevailing prices. Prices on the spot market fluctuate with
demand and for other reasons. We generally sell our crude oil
and condensate one month at a time at prevailing prices.
However, we have sold all of our sour crude oil produced at Main
Pass subsequent to its acquisition to Amoco Production Company.
Our contract with Amoco has been extended through June 30, 2000.
See "Cautionary Statements."
SULPHUR OPERATIONS
General. Our sulphur business consists of two principal
operations, sulphur services and sulphur mining:
Sulphur services.
Recovered sulphur purchase and resale operations. We are
the largest sulphur supplier in the U.S. We purchase and
resell sulphur recovered as a by-product of processing
natural gas that contains hydrogen sulfide and refining sour
crude oil. For the year ended December 31, 1999,
approximately 53 percent of our sulphur sales were supplied
from recovered sulphur purchases.
Sulphur handling operations. We operate the largest molten
sulphur handling system in the world, which currently
transports approximately 55 percent of U.S. Gulf Coast
sulphur consumption. We have the capacity to transport and
terminal up to six million long tons of molten sulphur
annually. We use our system both to
<PAGE> 7
support the movement of
our own mined and purchased sulphur and as a service that we
market to recovered sulphur producers and industrial
customers. Currently, our sulphur handling operations are
only approximately 60 percent utilized.
Sulphur mining. We are the world's largest producer of mined
sulphur. We operate and have an 83.3 percent interest in the
Main Pass mine, located 32 miles offshore Louisiana.
Homestake Sulphur Company, LLC owns the remaining 16.7 percent
interest. See "Cautionary Statements" and "Legal
Proceedings."
Our total sales of both mined and recovered sulphur were
approximately 3.0 million long tons, representing approximately
25 percent of domestic sulphur consumption for the year ended
December 31, 1999. Typically, the domestic phosphate fertilizer
industry accounts for approximately 90 percent of our total
sulphur sales. For the year ended sulphur sales. For the year
ended December 31, 1999, sales to IMC-Agrico Company represented
72.6 percent of our sulphur sales and 55.9 percent of our total
revenues. See "Sulphur Sales - Relationship with IMC Agrico,"
"Cautionary Statements" and "Legal Proceedings."
Background. Our company is the successor to a line of business
that has been conducted by our predecessors since 1912, making us
the longest continuously operating sulphur company in the United
States. In December 1997, Phosphate Resource Partners Limited
Partnership (formerly named Freeport-McMoRan Resource Partners,
Limited Partnership) spun off Freeport-McMoRan Sulphur Inc. in
connection with the merger of IMC Global Inc. and Freeport-
McMoRan Inc. At the time of the spin-off, Freeport-McMoRan Inc.
was administrative managing general partner of and the owner of a
51.6 percent partnership interest in Phosphate Resource Partners.
Prior to the spin-off, IMC Global transferred to Phosphate
Resource Partners all of IMC Global's interest in the Main Pass
operations, and Phosphate Resource Partners transferred to
Freeport-McMoRan Sulphur Inc. all of its sulphur operations and
its interest in Main Pass, including the interest transferred to
it by IMC Global. Freeport Sulphur became our subsidiary in
November 1998 when our company was formed to become the parent
company of Freeport Sulphur and McMoRan Oil & Gas. We conduct
all of our sulphur operations through our Freeport Sulphur
subsidiary.
Strategy. Our sulphur strategy is to (1) provide a reliable
source of sulphur to our customers, (2) increase our recovered
sulphur sales and provide other value-added services to recovered
sulphur producers, (3) capitalize on our leadership position as
the U.S.'s largest sulphur transporter, discretionary sulphur
producer, buyer of U.S. recovered sulphur and sulphur supplier,
and (4) increase utilization of our sulphur handling and
transportation system, which is currently approximately 60
percent utilized.
Sulphur Industry. Sulphur is present in many areas of the world,
and its production is generally classified into three categories:
elemental, pyrites and sulphur in other forms. Elemental sulphur
represents over two-thirds of worldwide supplies of sulphur in
all forms. Its primary sources are recovered sulphur and sulphur
mined from underground deposits. Recovered sulphur is the largest
source of elemental sulphur in the world, representing
approximately 85 percent of global production of elemental
sulphur. In the U.S., mined elemental sulphur is principally
found in the caprock that covers salt domes in the coastal areas
of the Gulf of Mexico.
While sulphur is essential in many segments of the economy,
it is seldom apparent in the final product. Sulphur is used primarily
in the manufacture of phosphate fertilizer, with more than 60 percent of
worldwide sulphur consumption being used for that purpose.
Approximately four-tenths of a long ton of sulphur is required to
produce one short ton of diammonium phosphate, the predominant
form of phosphate fertilizer. We are highly dependent on the
phosphate fertilizer market, as typically 90 percent of our
sulphur revenues are derived from sales to the domestic phosphate
fertilizer industry. Most domestic phosphate fertilizer is
produced in or near Tampa, Florida. Because sulphur
transportation costs are significant, proximity to Tampa is a
significant cost advantage for any sulphur producer. Central
Florida is the largest sulphur consuming region in the world,
representing 12 to 13 percent ofrepresenting 12 to 13 percent of
global demand.
Historically, the phosphate fertilizer business has been
cyclical. Currently, the market for phosphate fertilizers is
soft, which we believe is primarily the result of three factors:
(1) a worldwide oversupply of grain, which has led to falling
grain prices, and decreased demand for fertilizer by U.S.
farmers; (2) an oversupply of fertilizer worldwide; and (3) an
anticipated increase in worldwide fertilizer production capacity
from two new plants under construction in India and Australia.
Primarily due to the resulting global price decreases for
phosphate fertilizer, in the fourth quarter of 1999
<PAGE> 8
several
domestic phosphate fertilizer producers announced production
curtailments, including a 20 percent reduction by
IMC-Agrico, our principal customer. Primarily as a result of these factors,
Tampa, Florida sulphur prices decreased $4 per long ton in the
third quarter of 1999, an additional $5 per long ton in the
fourth quarter of 1999 and an additional $5 to $57.50 per long
ton in the first quarter of 2000. We continue to believe that
the fundamentals of the phosphate fertilizer business remain
sound. These fundamentals include anticipated growth in world
population and increased consumption of meat in many undeveloped
countries, which increases the demand for grain used to feed
livestock. We cannot predict, however, if or when the market for
phosphate fertilizers will recover or the extent of any recovery.
See "Cautionary Statements."
Other factors that can affect sulphur demand are changing
preferences between elemental sulphur and pyrites, growth in the
use of plant nutrient sulphur and demand for sulphur in the form
of sulphuric acid for ore leaching. Rapid growth in sulphur
demand has occurred in China for elemental sulphur as a
replacement for environmentally inferior pyrites. Sulphur is
itself an important plant nutrient, and the direct agricultural
application of sulphur continues to increase. Another important
use for sulphur is by the non-ferrous metals industry mainly due
to advancements in solvent extraction electrowinning technology.
Changes in any of these factors could have a material impact on
global demand for sulphur.
Competition. There are two principal sources of elemental
sulphur: (1) mined sulphur and (2) recovered sulphur, which is a
by-product of oil refining and gas processing. Recovered sulphur
from domestic and foreign sources is the major source of supply
for most sulphur customers and is our major source of
competition. Because recovered sulphur is a by-product of the
producer's refining or processing operations, its cost to
producers is low. However, because of the nature of sulphur,
handling and transporting from thhandling and transporting
from the point of production to that of
consumption is significant. The recovered sulphur produced
domestically is not sufficient to meet total domestic demand;
therefore, mined sulphur and imported recovered sulphur,
principally from Canada and Mexico, supply the balance. We
estimate that total domestic sulphur consumption in 1999 was 11.8
million long tons, of which domestic mined sulphur accounted for
approximately 14 percent, domestic recovered sulphur accounted
for approximately 64 percent, and imported sulphur, primarily
from Canada and Mexico, accounted for approximately 22 percent.
Industry studies vary in their forecast of worldwide elemental
sulphur balance; however, it is widely accepted that a surplus
currently exists and will continue into the foreseeable future.
Mined sulphur. There are four producers of mined sulphur
worldwide, and we believe we are the only mined sulphur producer
serving the U.S. market. We estimate that our mined sulphur
production accounted for approximately 17 percent of domestic,
and 4 percent of world, elemental sulphur production during 1999.
Domestic recovered sulphur. In the U.S., recovered sulphur
is produced by more than 50 companies at more than 130 refineries
and gas treatment plants. U.S. recovered sulphur producers do
not have the ability to store large inventories of sulphur, so
they must move the sulphur to market as it is produced.
Production of recovered sulphur in the U.S. has increased at an
average rate of approximately 150,000 long tons per year for each
of the last three years, and totaled approximately 8.3 million
long tons in 1999. We expect the sulphur content of crude oil
feedstocks delivered to U.S. oil refineries to continue to
increase. In addition, as environmental law requirements become
more stringent, we expect more sulphur to be recovered from the
refining process.
Canadian recovered sulphur inventories. Unlike U.S.
producers of recovered sulphur, Canadian recovered sulphur
producers have facilities for storing excess sulphur production
in solid form for unlimited periods of time, and thus can wait
for favorable market conditions to sell this sulphur. Nearly all
of the Western Hemisphere's sulphur inventories currently consist
of sulphur stored in solid form in the province of Alberta in
western Canada. During the 1990s, world sulphur supply exceeded
demand, resulting in a build-up of Canadian sulphur inventories.
Estimated Canadian sulphur inventories increased from 11.5
million long tons at year-end 1998 to 12.5 million long tons at
year-end 1999. The current levels of Canadian sulphur production
and inventories limit our potential to realize significant price
increases for our sulphur even if demand improves. See
"Cautionary Statements."
Since the early 1990s, the sulphur price at Tampa, Florida
has generally moved in the range of $55-$75 per long ton. We
believe market forces that define this range will continue for
the foreseeable future, absent a major supply disruption or a
substantial increase in demand. On the low end of the price
range, overland freight rates from western Canada to central
Florida tend to set a price floor. On the high end, the amount
of supply that can profitably access the
<PAGE> 9
market effectively sets
a price cap. Accordingly, depending on prices in the other
foreign markets they supply, Canadian producers can be expect to
increase sulphur shipments to U.S. markets as price levels
in the U.S. sulphur markets rise to the
upper reaches within the $55-$75 per long ton range and to
decrease or stop such shipments as the price moves to the lower
reaches of this range.
In 1973, the U.S. government found that some Canadian
producers of recovered sulphur were dumping sulphur into the U.S.
markets in violation of the U.S. Antidumping Act of 1921, and
imposed tariffs on imported Canadian sulphur. Subsequently, many
Canadian producers originally subject to the finding established
that they were no longer selling sulphur in violation of U.S.
laws and had the finding revoked as to them. The finding was
revoked as to the remaining producers effective January 1, 2000.
We and other U.S. sulphur producers have the right to petition the
U.S. government for a new antidumping order if circumstances warrant.
Generally, such an order would be issued if the U.S.
government were to find that a producer was selling sulphur into
U.S. markets at a price below the producer's cost, including the
cost to deliver. We will continue to monitor the sales practices
of importers of sulphur, and if appropriate, petition the U.S.
government for relief.
Potential Sulphur Melting Plant. In the fourth quarter of
1999, three large phosphate fertilizer producers that are also
our principal customers announced plans to build a solid sulphur
handling and melting plant in Tampa, Florida. The announcement
stated that the plant is expected to be operational in mid-2001,
to yield 1.5 million long tons of liquid sulphur its first year
and to have a maximum annual capacity of 2 million long tons.
The facility would allow these customers and potentially others
to import solid sulphur. Thus, customers would have new sources
of sulphur supply that, depending on their ultimate costs
compared to our costs, could be more cost-competitive than our
sulphur. Solid sulphur handling is widely recognized as inferior
from an environmental standpoint to molten sulphur handling,
which is currently used throughout Florida. Using current
technology, solid sulphur handling typically results in losses of
sulphur dust into surrounding areas. The plant will need to
obtain appropriate permits and meet stringent state and federal
environmental law requirements. If the appropriate permits are
received and the plant is constructed, we believe that this type
of facility will not be cost competitive, based on current
sulphur costs and current estimates of related transportation,
handling, melting and capital costs.
We cannot predict when or if the plant will be operational
or what impact it will have, if any, on our sulphur sales,
although it could adversely affect our sulphur sales. We
currently have sulphur melting capabilities in Galveston, Texas
and Port Sulphur, Louisiana, and these facilities have all
permits required under current environmental laws. All of our
sulphur is currently handled in molten form; however, we intend
to remain competitive in sourcing and handling sulphur in
whatever form is commercially preferable.
Sulphur Sales.
General. Substantially all of our sulphur is sold to the
phosphate fertilizer industry for the manufacture of sulphuric
acid, which is used to produce phosphoric acid, a base chemical
used in the production of phosphate fertilizers. Typically, the
phosphate fertilizer industry accounts for approximately 90
percent of our total sulphur sales. The majority of our sulphur
supply contracts, with the exception of our contract with IMC-
Agrico Company (IMC-Agrico) discussed below, are for a term of
one year or longer and generally call for the repricing of
sulphur on a quarterly basis. We also process, transport and
market for a fee Homestake's 16.7 percent share of production
from the Main Pass mine. See "Legal Proceedings."
Relationship with IMC-Agrico. IMC-Agrico, our largest
customer, is a manufacturer of phosphate fertilizers and the
largest purchaser of elemental sulphur in the world. Pursuant to
a sulphur supply agreement, we have agreed to supply and IMC-
Agrico has agreed to purchase approximately 75 percent of IMC-
Agrico's annual sulphur consumption for as long as IMC-Agrico has
a requirement for sulphur. The price per ton for all sulphur
delivered under the agreement is based on the weighted average
market price of sulphur delivered by other sources to IMC-
Agrico's New Wales production plant in central Florida, except
that we are entitled to a premium with respect to approximately
40 percent of the sulphur that we deliver under the agreement.
IMC-Agrico also pays a portion of the freight costs associated
with the delivery of sulphur under the agreement. We are
currently involved in a dispute with IMC-Agrico about the pricing
terms of the sulphur supply agreement. See "Legal Proceedings."
Although this contract was entered into at a time when IMC-Agrico
was one of our predecessors' affiliates, our management believes
that the terms of the sulphur supply agreement are no less
favorable than terms that could have been negotiated with an
unaffiliated party. In the fourth quarter of 1999 IMC-Agrico
announced a 20 percent production curtailment. As a result, IMC-
Agrico curtailed its
<PAGE> 10
sulphur purchases from us in the fourth
quarter of 1999. We expect that our future sulphur sales to IMC-
Agrico will also be curtailed, at least in the near term.
Customers. IMC-Agrico is our single largest sulphur customer,
accounting for approximately 73 percent of our sulphur sales and
56 percent of our total revenues for the year ended December 31,
1999. Our next four largest customers represent approximately 21
percent of sulphur sales. These companies represent a mix of
industrial companies and phosphate fertilizer manufacturers.
Recovered Sulphur Purchases. We are a major purchaser of
recovered sulphur in the U.S. We expect our sulphur purchasing
program, which is currently averaging over 1.5 million long tons
per year, to increase and become a more significant component of
our sulphur business. We purchase recovered sulphur principally
from oil refineries located along the lower Mississippi River and
in the Louisiana and Texas Gulf Coast regions, and from gas
processing plants in Mississippi and Wyoming.
Our recovered sulphur purchase program provides us with a
source of sulphur, in addition to our mined sulphur, that enables
us to meet our sales contract commitments. Approximately 53
percent of our sulphur sales volumes for the year ended December
31, 1999 were supplied through recovered sulphur purchases. We
believe that our position as a leading sulphur supplier in the
domestic market, coupled with our extensive sulphur handling
capabilities, will allow us to replace any curtailed mine
production with purchased recovered sulphur; however, there can
be no assurance that we will be able to do so.
Sulphur Handling Operations. We operate the largest molten
sulphur handling system in North America and have the capacity to
transport and terminal up to six million long tons of molten
sulphur annually. We use this system to support the movement of
our mined and purchased sulphur, and as a service that we market
to recovered sulphur producers and sulphur consumers. We believe
that the integration of our sulphur handling business with our
mining, purchasing and marketing operations gives us a
synergistic competitive advantage over other suppliers of similar
services.
Marine Transportation. We operate two molten sulphur
tankers, each having a capacity of approximately 25,000 tons.
The two tankers, which are loaded at our Galveston, Texas and
Port Sulphur, Louisiana terminals and travel to our Tampa,
Florida terminals, have the combined capacity to transport
approximately 3.5 million long tons of sulphur per year across
the Gulf of Mexico. Our inland barge system is capable of
transporting over one million long tons of molten sulphur
annually. Each of our six barges has a capacity of approximately
2,500 long tons and operates in coastwide service from Corpus
Christi, Texas to Pensacola, Florida and the lower Mississippi
River. We use two 7,500-ton self-propelled barges to transport
sulphur from the Main Pass mine's offshore production platform,
and we can also use them in Gulf Coast service to transport
sulphur from our terminals to customers.
Land Transportation. We lease a fleet of 537 railcars that
transport recovered sulphur. We also make other rail movements
in connection with transporting sulphur directly to customers'
plants. We also transport approximately 900,000 tons of molten
sulphur per year through a third party trucking service used
primarily to serve the Galveston, Texas, lower Mississippi River
and Pensacola, Florida areas.
Terminals. We operate five sulphur terminals in the U.S.,
the largest of which is located at Port Sulphur, Louisiana. The
Port Sulphur facility is a combined liquid storage tank farm and
stockpile area for solid sulphur. Liquid sulphur is stored in
steam-heated, insulated tanks having an aggregate capacity of
approximately 110,000 long tons. The solid storage area can hold
approximately 1.3 million long tons of solid sulphur. Because
substantially all of our domestic customers consume sulphur in
liquid form, we deliver all of our production in liquid form.
This reduces the need to remelt the sulphur, conserves energy and
reduces costs, and is an environmentally superior handling method
because it minimizes sulphur dust. Sulphur can be solidified for
long-term storage to maintain inventory reserves. We own a high
capacity sulphur melter that permits the conversion of solid
sulphur into liquid sulphur to supplement mine production during
periods of high demand and to cover shortfalls in mine production
or in recovered sulphur purchases. Sulphur is transported from
Port Sulphur by barge to customers' plants in Louisiana on the
lower Mississippi River, along the Gulf Coast of Texas and
Mississippi, or by tanker to our terminals in Tampa.
Our other terminals are located in Tampa and Pensacola,
Florida and Galveston, Texas. Each of our two Tampa terminals
has a liquid storage capacity of 90,000 long tons and is supplied
with sulphur from Port Sulphur and Galveston
<PAGE> 11
by tanker. Each of
the Tampa facilities ships molten sulphur to phosphate fertilizer
producers in central Florida by tank truck. The Pensacola
terminal has a storage capacity of 10,000 long tons and is used
for the storage, handling and shipping of recovered sulphur
purchases or transporting recovered sulphur for third parties.
We ship molten sulphur by barge from the Pensacola terminal to
either the Port Sulphur terminal or directly to lower Mississippi
River customers.
In 1995, we acquired the Galveston terminal from Pennzoil
Company, which subsequently became Devon Energy Corporation
(Pennzoil). The terminal has storage capacity for 75,000 long
tons of liquid sulphur and one million long tons of solid
sulphur. This terminal receives recovered sulphur purchases by
truck, barge, or rail, and then ships sulphur to local customers
by truck or barge, or to the Tampa terminals by tanker. The
Galveston terminal also has the ability to load solid sulphur
aboard large oceangoing vessels, giving us access to
international markets should market conditions favor sulphur
exports.
Sulphur Mine Operations.
Main Pass. We operate and own an 83.3 percent interest in
the only operating sulphur mine in the U.S., which we refer to as
Main Pass. Although sulphur is one of the most common elements
in the earth's crust, discoveries of elemental sulphur in
quantities that can be mined economically are rare. Our Main
Pass sulphur deposit was discovered in 1988 and was the first
major sulphur discovery in North America in over 25 years. We
were the first, and remain the only, company to mine sulphur by
melting it with superheated seawater, and we are the only company
to successfully operate an offshore sulphur mine.
Homestake Sulphur Company, LLC owns the remaining 16.7
percent interest in the Main Pass mine. We conduct sulphur and
oil operations at the mine pursuant to joint operating agreements
with Homestake dated as of May 1, 1988 and June 5, 1990 and a
coordination agreement dated as of June 5, 1990, which require
Homestake to pay a portion of the operating expenses of the mine
and to pay us a fee for operating the mine. In addition, we
receive a fee from Homestake for processing, transporting and
marketing Homestake's share of the Main Pass sulphur pursuant to
a processing and marketing agreement dated as of June 19, 1990.
We are currently involved in a dispute with Homestake relating to
these agreements. See "Legal Proceedings." Production from the
Main Pass mine is subject to a royalty of 12.5 percent of net
mine revenues that is payable to the Minerals Management Service.
The Main Pass mine currently has the highest production rate
of any sulphur mine in the world and contains the largest known
Frasch sulphur reserve in North America. The Main Pass offshore
complex, which is more than a mile in length, is one of the
largest structures of its type in the world and is the largest in
the Gulf of Mexico. The Main Pass mine was designed to have a
production capacity of up to 5,500 long tons of sulphur per day.
It has two sulphur storage tanks with a combined capacity of
24,000 long tons. The facility, which has housing capacity for
240 persons, is located in 210 feet of water and is designed to
withstand hurricane force conditions. All Main Pass sulphur
currently is transported to our terminal in Port Sulphur,
Louisiana in 7,500-ton self-propelled tankers for processing and
storage.
The Frasch Process. The sulphur deposit at our Main Pass
mine is located approximately 32 miles offshore Louisiana and
2,000 feet underground. The mine utilizes the Frasch mining
process, which involves drilling wells and injecting superheated
water into the underground sulphur deposit to melt solid sulphur,
which is then recovered in liquid form. We (and our
predecessors) have used the Frasch process for more than 80
years, and have developed technology using superheated seawater
in the Frasch process, thereby enhancing offshore mining.
Natural gas and water are the two resources essential to the
Frasch process, and natural gas is our primary variable cost in
mining sulphur. See "Cautionary Statements." Natural gas fired
boilers are used to produce steam to heat the water in heat
exchangers to the superheated state necessary to melt the
sulphur. Our Main Pass operations currently consume
approximately 8 Bcf of natural gas annually. We are dependent on
others for the supply of natural gas, but have never experienced
difficulty in obtaining the required supply of natural gas
because we have long-term supply agreements in place with prices
tied to market indices. A single supplier provides natural gas
to the Main Pass operation, but we have access to a large
multiple-supplier pipeline should our primary supplier have
difficulties in delivering its requirements.
The Culberson Mine. We began operating the Culberson mine,
which is located in west Texas south of the New Mexico border, in
January 1995 after acquiring the mine from Pennzoil. We
permanently ceased production at the
<PAGE> 12
Culberson mine on June 30,
1999. As part of our original acquisition of the Culberson mine,
we are required to make quarterly payments to Pennzoil whether or
not the Culberson mine is operational. The amount of these
payments varies based the average market price of sulphur during
a given quarter, which also determines the assumed volumes of
sulphur that would be produced. The payments terminate the
earlier of January 2015 or the quarter in which the cumulative
assumed volume of production exceeds 18.6 million long tons of
sulphur. Under this arrangement, we paid Pennzoil $0.4 million in
1998 for the period following the acquisition of Freeport Sulphur
and $3.1 million in 1999. We estimate that the annual royalty
will be approximately $1.2 million, based on a long-term average
sulphur price of $63.00 per long ton. These payments could vary
materially from this estimate depending on actual market prices
for sulphur. We have a right, which first became exercisable on
January 1, 1999 and is again exercisable on each subsequent third
anniversary of that date, to terminate our obligation to make
further quarterly installment payments in exchange for a lump sum
payment of $65 million less a cumulative inflation adjustment on
the date the right is exercised, but in no event less than $10
million. If we do not exercise our right on any option date,
Pennzoil may, within a defined time period after each option
date, require us to make a single payment of $10 million in
exchange for Pennzoil relinquishing its rights to receive any
further payments under the agreement.
Sulphur Reserves. The table below sets forth our portion of the
proved developed sulphur reserves for our Main Pass mine.
<TABLE>
<CAPTION>
Long Tons at
Proved Developed Reserves(1) December 31, 1999(2)
---------------------------- --------------------
<S> <C>
Main Pass .................................... 13.7 million
</TABLE>
(1)These reserves are considered proved developed based on our
extensive drilling and production experience and current
assessment of future market prices and costs.
(2)Reserves represent long tons of sulphur that are expected to
be commercially recoverable from the host formation. Long
tons of sulphur are calculated in place and a recovery
factor, based on the percentage of residual sulphur expected
to be left behind, is applied to calculate the total
estimated recoverable tons.
We recently reduced our proved sulphur reserves at Main Pass
from 52.4 million long tons at December 31, 1998 to 13.7 million
long tons at December 31, 1999. Although our estimated
physically producible sulphur reserves have not changed, we have
reduced our estimates of commercially recoverable reserves
primarily based on our expectations of decreased production rates
at the mine, partially offset by an anticipated decrease in
costs. A future increase in sulphur prices could result in a
restoration of the reserves being reduced at year-end 1999. See
"Cautionary Statements."
Reclamation Obligations. We must restore our mining and oil and
gas properties and related facilities to a condition that
complies with environmental laws. Estimated future expenditures
for these reclamation obligations are accrued over the estimated
life of the properties. We are required to fund these costs once
we permanently close a site. For financial information about our
estimated future abandonment and restoration costs, including
those relating to Main Pass, see "Management's Discussion and
Analysis - Environmental."
Our operating subsidiary Freeport Sulphur has assumed
responsibility for environmental liabilities associated with the
prior operations of its predecessors, including reclamation
responsibilities at three previously producing sulphur mines:
Caminada, Grand Ecaille and Grand Isle. Sulphur production was
suspended at the Caminada offshore sulphur mine in 1994, and
Freeport Sulphur will be required to salvage the mining
facilities once the remaining reserves are produced or it is
determined that the reserves will not be economically
recoverable. Freeport Sulphur's salvage expense will be shared
on a 50/50 basis with Exxon Corporation. We have accrued the
estimated expense associated with the salvage of the Caminada
mine.
Freeport Sulphur's Grande Ecaille mine, which was depleted
in 1978, was reclaimed in accordance with applicable regulations
at the time of closure. Although we have no legal obligation to
do so, we have undertaken to reclaim wellheads and other
materials that are being exposed through coastal erosion. None
of these materials are classified as hazardous, and we anticipate
that these reclamation activities will continue for several more
years. Additional expenditures may be required from time to time
if erosion continues.
<PAGE> 13
In September 1997, Freeport Sulphur completed the salvage of
its Grand Isle mine in the Gulf of Mexico, which was depleted in
1991, by converting it into an artificial reef for the
enhancement of marine life. The reef was constructed at the
request of the State of Louisiana as part of its "Rigs-to-Reefs"
program through which the State and private industry are
cooperating to provide useful marine habitats using offshore
structures that are no longer needed for commercial activities.
The Grand Isle reef is the first in shallow water and is the
largest in the Gulf. The reef was donated to the State of
Louisiana, which assumed all responsibility for its upkeep,
although Freeport Sulphur has retained responsibility for any
environmental liabilities that may arise from previous mining
activities at this site.
Freeport Sulphur also closed nine other sulphur mines, all
of which have been reclaimed in accordance with applicable
regulations and customary industry practices. We believe that
Freeport Sulphur's prior reclamation activities were carried out
in compliance with laws applicable at the time and that we have
accrued adequate reserves to cover future reclamation costs.
However, we cannot assure you that we will not incur reclamation
costs materially greater than those we anticipate or that the
timing of these costs will occur as we presently estimate.
REGULATION
General. Our mining, production and exploration activities are
subject to various federal, state and local laws governing
exploration, development, production, environmental matters,
occupational health and safety, exports, taxes, labor standards,
and other matters. All material licenses, permits and other
authorizations currently required of each existing operation have
been obtained or timely applied for. Domestic oil operations are
subject to extensive state and federal regulation. Compliance is
often burdensome, and failure to comply carries substantial
penalties. The heavy and increasing regulatory burden on the oil
and gas and mining industries increases the cost of doing
business and consequently affects profitability. See "Cautionary
Statements."
Exploration, Production and Development. The exploration,
production and development operations of both our oil and gas and
sulphur segments are subject to regulations at both the federal
and state levels. Regulations require operators to obtain
permits to drill wells and to meet bonding and insurance
requirements in order to drill or operate wells. Regulations
also control the location of wells, the method of drilling and
casing wells, the restoration of properties upon which wells are
drilled and the plugging and abandoning of wells. Our oil and
gas exploration, production and development operations are also
subject to various conservation laws and regulations. These
include the regulation of the size of drilling units, the number
of wells that may be drilled in a given area, the levels of
production, and the unitization or pooling of oil and gas
properties.
Federal leases. We presently have interests in 77 offshore
leases located in federal waters on the outer continental shelf.
Federal leases are administered by the Minerals Management
Service (MMS). These leases include the four leases that are
subject to preferential rights (see "Current Exploration
Programs" above). These leases were issued through competitive
bidding, contain relatively standardized terms and require
compliance with detailed MMS regulations and orders pursuant to
the Outer Continental Shelf Lands Act, which are subject to
interpretation and change by the MMS. Lessees must obtain MMS
approval for exploration, development and production plans prior
to the commencement of offshore operations. In addition to
permits required from other agencies such as the Coast Guard, the
Army Corps of Engineers and the Environmental Protection Agency
(EPA), lessees must obtain a permit from the MMS prior to the
commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the outer
continental shelf to meet stringent engineering and construction
specifications, and has proposed and/or promulgated additional
safety-related regulations concerning the design and operating
procedures of these facilities and pipelines. The MMS also has
regulations restricting the flaring or venting of natural gas,
and has proposed to amend these regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior
authorization. Similarly, the MMS has promulgated other
regulations governing the plugging and abandonment of wells
located offshore and the installation and removal of all
production facilities. To cover the various obligations of
lessees on the outer continental shelf, the MMS generally
requires that lessees have substantial net worth or post bonds or
other acceptable assurances that the obligations will be met.
The cost of these bonds or other surety can be substantial, and
there is no assurance that bonds or other surety can be obtained
in all cases. To cover the MMS supplemental bonding
requirements, we currently have on file with the MMS a separate
guaranty for both Freeport Sulphur and McMoRan Oil & Gas. Under
some circumstances, the MMS may require any of our operations on
federal leases to be suspended or terminated. Any suspension or
termination could materially adversely affect our financial
condition and results of operations.
<PAGE> 14
The MMS has recently issued a notice of proposed rulemaking
in which it proposes to amend its regulations governing the
calculation of royalties and the valuation of crude oil produced
from federal leases. This proposed rule would modify the
valuation procedures for both arm's-length and non-arm's length
crude oil transactions, establish a new form for collecting value
differential data, and amend the valuation procedure for the sale
of federal royalty oil. We cannot predict what action the MMS
will take on this matter. We believe that these rules, if
adopted as proposed, will not have a material impact on our
financial condition, liquidity or results of operations.
State and Local Regulation of Drilling and Production. We
own interests in properties located in state waters of the Gulf
of Mexico offshore Texas and Louisiana. These states regulate
drilling and operating activities by requiring, among other
things, drilling permits and bonds and reports concerning
operations. The laws of these states also govern a number of
environmental and conservation matters, including the handling
and disposing of waste materials, unitization and pooling of
natural gas and oil properties and the levels of production from
natural gas and oil wells.
Environmental Matters.
General. Our operations are subject to numerous laws
relating to environmental protection. These laws impose
substantial liabilities for potential pollution resulting from
our operations. We believe that our operations are in material
compliance with applicable environmental laws. See "Cautionary
Statements."
Solid Waste. Our operations may generate or involve the
transport of both hazardous and nonhazardous solid wastes that
are subject to the requirements of the Federal Resource
Conservation and Recovery Act and comparable state statutes. In
addition, the EPA is presently in the process of developing
stricter disposal standards for nonhazardous waste. Changes in
these regulations may result in our incurring additional
expenditures or operating expenses.
Hazardous Substances. The Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), also known as
the "Superfund" law, imposes liability, without regard to fault
or the legality of the original conduct, on some classes of
persons that are considered to have contributed to the release of
a "hazardous substance" into the environment. These persons
include the owner or operator of the disposal site or sites where
the release occurred and companies that disposed or arranged for
the disposal of the hazardous substances found at the site.
Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to
natural resources. Also, it is not uncommon for neighboring
landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous
substances released into the environment. Despite the "petroleum
exclusion" of CERCLA that encompasses wastes directly associated
with crude oil and gas production, we may generate or transport
"hazardous substances" within the meaning of CERCLA or comparable
state statutes in the course of our ordinary operations. Thus,
we may be responsible under CERCLA or the state equivalents for
costs required to clean up sites where the release of a
"hazardous substance" has occurred.
Air. Our operations are also subject to regulation of air
emissions under the Clean Air Act, comparable state and local
requirements and the Outer Continental Shelf Lands Act.
Implementation of these laws could lead to the gradual imposition
of new air pollution control requirements on our operations.
Therefore, we may incur capital expenditures over the next
several years to upgrade our air pollution control equipment. We
do not believe that our operations would be materially affected
by these requirements, nor do we expect the requirements to be
any more burdensome to us than to other companies our size
involved in exploration and production activities.
Water. The Clean Water Act prohibits any discharge into
waters of the United States except in strict conformance with
permits issued by federal and state agencies. Failure to comply
with the ongoing requirements of these laws or inadequate
cooperation during a spill event may subject a responsible party
to civil or criminal enforcement actions. Similarly, the Oil
Pollution Act of 1990 imposes liability on "responsible parties"
for the discharge of oil into navigable waters or adjoining
shorelines. A "responsible party" includes the owner or operator
of a facility or vessel, or the lessee or permittee of the area
in which an offshore facility is located. The Oil Pollution Act
assigns liability to each responsible party for oil removal costs
and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage
of liability limits if the spill was caused by gross negligence
or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails
to report a spill or to cooperate fully in the cleanup, liability
limits likewise do not apply. Even if applicable, the liability
limits for
<PAGE> 15
offshore facilities require the responsible party to
pay all removal costs, plus up to $75 million in other damages.
Few defenses exist to the liability imposed by the Oil Pollution
Act.
The Oil Pollution Act also requires a responsible party to
submit proof of its financial responsibility to cover
environmental cleanup and restoration costs that could be
incurred in connection with an oil spill. As amended by the
Coast Guard Authorization Act of 1996, the Oil Pollution Act
requires parties responsible for offshore facilities to provide
financial assurance in amounts that vary from $35 million to $150
million depending on a company's calculation of its "worst case"
oil spill. Both Freeport Sulphur and McMoRan Oil & Gas,
currently, have insurance to cover its facilities "worst case"
oil spill under the Oil Pollution Act regulations. Thus, we
believe that we are in compliance with this act.
Endangered Species. Several federal laws impose regulations
designed to ensure that endangered or threatened plant and animal
species are not jeopardized and their critical habitats are
neither destroyed nor modified. These laws may restrict our
exploration, development, and production operations and impose
civil or criminal penalties for noncompliance.
Safety and Health Regulations. We are also subject to laws and
regulations concerning occupational safety and health. We do not
currently anticipate making substantial expenditures because of
occupational safety and health laws and regulations. We cannot
predict how or when these laws may be changed, nor the ultimate
cost of compliance with any future changes. However, we do not
believe that any action taken will affect us in a way that
materially differs from the way it would affect other companies
in our industry.
EMPLOYEES
At December 31, 1999, we had 213 employees, 180 at the sulphur
mine sites and terminals and 33 employees located at our New
Orleans headquarters primarily devoted to managerial, marketing,
land and geological functions. None of our employees are
represented by any union or covered by any collective bargaining
agreement. We believe our employee relations are satisfactory.
Since January 1, 1996 numerous services necessary for our
business and operations, including certain executive, technical,
administrative, accounting, financial, tax and other services,
have been performed by FM Services Company pursuant to a services
agreement. We currently own 45 percent of FM Services. Prior to
January 1, 1998, these services were provided for a fixed annual
fee of $1.0 million, subject to annual cost of living increases
beginning in the first quarter of 1997. As of January 1, 1998,
FM Services provides services to us on a cost reimbursement
basis. We may terminate the services agreement at any time upon
90 days notice. For the year ended December 31, 1999, we
incurred $9.9 million of expenses under the services agreement.
We also use contract personnel to perform various
professional and technical services including but not limited to
construction, well site surveillance, environment assessment, and
field and on-site production operating services. These services,
which are intended to minimize our development and operating
costs, allow our management staff to focus on directing all of
the oil and gas and sulphur operations. Currently we have two
predominant suppliers of services under these third-party
services arrangements: CLK Company L.L.C. and Crescent
Technology, Inc. We have a contract with CLK, a company
independently owned by its employees, to provide us with
geological and geophysical services on an exclusive basis. We
pay an annual retainer fee of $2.5 million, with $0.5 million of
these fees paid in our common stock, plus certain expenses and an
overriding royalty interest of up to 3 percent in prospects that
we accept. For the year ended December 31, 1999, fees and
expenses to CLK totaled $2.7 million. Crescent, whose employees
include many former employees of Freeport Sulphur and its former
affiliates, furnishes engineering consulting, research and
development, environmental and safety services primarily to our
sulphur operations.
CAUTIONARY STATEMENTS
This report includes "forward looking statements" within the
meaning of Section 27A of the Securities Exchange Act of 1933
and Section 21E of Securites Exchange Act of 1934, including
statements about our plans, strategies, expectations, assumptions
and prospects. "Forward-looking statements" are all statements
other than statements of historical fact, such as statements
regarding drilling potential and results; anticipated flow rates
of producing wells; reserve estimates and depletion rates; general
economic and business conditions; risks and hazards inherent in
the production of oil, natural gas and sulphur;
<PAGE> 16
demand and potential demand for oil and gas and for sulphur;
trends in commodity prices; amounts and timing of capital
expenditures and abandonment, closure and reclamation costs; the
need for and availability of financing; our reliance on IMC-
Agrico as a customer; competitive trends; and environmental
issues.
Forward-looking statements are based on our assumptions and
analyses made in light of our experience and perception of
historical trends, current conditions, expected future
developments and other factors we believe are appropriate under
the circumstances. These statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors
discussed below and in our other filings with the SEC, general
economic and business conditions, the business opportunities that
may be presented to and pursued by us, changes in laws and other
factors, many of which are beyond our control. We undertake no
obligation to update or revise any forward-looking statements.
Readers are cautioned that forward-looking statements are not
guarantees of future performance and the actual results or
developments may differ materially from those projected in the
forward-looking statements. Important factors that could cause
actual results to differ materially from our expectations
include, among others, the following:
Factors Relating to Our Oil and Gas Operations
The future financial results of our oil and gas business are
difficult to forecast primarily because the business has a
limited operating history and the results of our exploration
strategy are inherently unpredictable. McMoRan Oil & Gas
commenced operations in 1994. We currently have six fields in
production. Much of our oil and gas business is devoted to
exploration, the results of which are inherently unpredictable.
We use the successful efforts accounting method for our oil and
gas exploration and development activities. This method requires
us to expense geological and geophysical costs and the costs of
dry exploration wells as they occur, rather than capitalize these
costs as required by the full cost accounting method. Because of
the timing in incurring exploration costs and realizing revenues
from successful properties, losses may be reported even though
exploration activities may be successful during a reporting
period. Accordingly, depending on our exploration results, we
may continue to incur losses as we pursue significantly expanded
exploration activities. We cannot assure you that our oil and gas
operations will achieve or sustain positive earnings or cash
flows from operations in the future.
Our exploration and development activities may not be
commercially successful. Oil and natural gas exploration and
development involve a high degree of risk that hydrocarbons will
not be found, that they will not be found in commercial
quantities, or that their production will be insufficient to
recover drilling, completion and operating costs. The 3-D
seismic data and other technologies we use do not allow us to
know conclusively prior to drilling a well that oil or gas is
present or economically producible. The cost of drilling,
completing and operating a well is often uncertain, especially
when drilling offshore, and cost factors can adversely affect the
economics of a project. Our drilling operations may be
curtailed, delayed or canceled as a result of numerous factors,
including (1) unexpected drilling conditions, (2) unexpected
pressure or irregularities in formations, (3) equipment failures
or accidents, (4) title problems, (5) adverse weather conditions,
(6) regulatory requirements and (7) unavailability of equipment
or labor. Furthermore, completion of a well does not guarantee
that it will be profitable or even that it will result in
recovery of drilling, completion and operating costs.
Our future performance depends on our ability to add reserves.
Our future financial performance depends in large part on our
ability to find, develop and produce oil and gas reserves that
are economically recoverable. Without successful exploration and
development activities or reserve acquisitions, our reserves will
be depleted. We cannot assure you that we will be able to find,
develop, produce or acquire additional reserves on an economic
basis.
Although we are currently emphasizing reserve growth through
exploratory drilling, we may from time to time acquire producing
properties and/or properties with proved undeveloped reserves.
Evaluation of recoverable reserves of oil and natural gas, which
is an integral part of the property selection process, depends on
the assessment of geological, engineering and production data,
some or all of which may prove to be unreliable and not
indicative of future performance. Accordingly, we cannot assure
you that we will make a profit or fully recover our cost on any
reserves that we purchase.
Our revenues, profits and growth rates may vary significantly
with fluctuations in the market prices of oil and natural gas.
Approximately $54.3 million of our revenues for the year ended
December 31, 1999 were derived from the sale of oil and natural
gas. In recent years, oil and natural gas prices have fluctuated
widely. We have no control over the
<PAGE> 17
factors affecting prices,
which include the market forces of supply and demand, as well as
the regulatory and political actions of domestic and foreign
governments, and the attempts of international cartels to control
or influence prices. Any significant or extended decline in oil
and gas prices will have a material adverse effect on our
profitability, financial condition and operations.
If we are unable to generate sufficient cash from operations or
obtain financing when needed, we may find it necessary to curtail
our operations. We must make substantial expenditures to conduct
exploratory activities and to develop oil and gas reserves. We
cannot assure you that we will generate sufficient cash from
operations or obtain financing when needed to conduct our
exploration program and develop our properties. Our future cash
flow from operations will depend on our ability to locate and
produce hydrocarbons in commercial quantities and on market
prices for oil and gas, among other things.
The amount of oil and gas that we actually produce, and the net
cash flow that we receive from that production, may differ
materially from the amounts reflected in our reserve estimates.
Our estimates of proved oil and gas reserves reflected in our
Form 10-K reports are based on reserve engineering estimates
using Securities and Exchange Commission (SEC) guidelines.
Reserve engineering is a subjective process of estimating
recoveries from underground accumulations of oil and natural gas
that cannot be measured in an exact manner. The accuracy of any
reserve estimate depends on the quality of available data and the
application of engineering and geological interpretation and
judgment. Estimates of economically recoverable reserves and
future net cash flows depend on a number of variable factors and
assumptions, such as (1) historical production from the area
compared with production from other producing areas, (2)
assumptions concerning future oil and gas prices, future
operating and development costs, workover, remedial and
abandonment costs, severance and excise taxes, and (3) the
assumed effects of government regulation. All of these factors
and assumptions are difficult to predict and may vary
considerably from actual results. In addition, different reserve
engineers may make different estimates of reserve quantities and
cash flows based upon varying interpretations of the same
available data. Also, estimates of proved reserves for wells
with limited or no production history are less reliable than
those based on actual production history. Subsequent evaluation
of the same reserves may result in variations, which may be
substantial, in our estimated reserves. As a result, all reserve
estimates are inherently imprecise.
You should not construe the estimated present values of
future net cash flows from proved oil and gas reserves as the
current market value of our estimated proved oil and gas
reserves. In accordance with applicable SEC requirements, we
have estimated the discounted future net cash flows from proved
reserves based on prices and costs generally prevailing at or
near the date of the estimate. Actual future prices and costs
may be materially higher or lower. Future net cash flows also
will be affected by factors such as the actual amount and timing
of production, curtailments or increases in consumption by gas
purchasers, and changes in governmental regulations or taxation.
In addition, we have used a 10 percent discount factor, which the
SEC requires all companies to use to calculate discounted future
net cash flows for reporting purposes. That is not necessarily
the most appropriate discount factor to be used in determining
market value, since interest rates vary from time to time, and
the risks associated with operating particular oil and gas
properties can vary significantly.
Shortages of supplies, equipment and personnel may adversely
affect our operations. Our ability to conduct operations in a
timely and cost effective manner depends on the availability of
supplies, equipment and personnel. The offshore oil and gas
industry is cyclical and experiences periodic shortages of
drilling rigs, work boats, tubular goods, supplies and
experienced personnel. Shortages can delay operations and
materially increase operating and capital costs.
The oil and gas exploration business is very competitive, and
most of our competitors are larger and financially stronger than
we are. The business of oil and gas exploration, development and
production is intensely competitive, and we compete with many
companies that have significantly greater financial and other
resources than we have. Our competitors include the major
integrated oil companies and a substantial number of independent
exploration companies. We compete with these companies for
property acquisitions, supplies, equipment and labor. These
competitors may, for example, be better able to (1) pay more for
exploratory prospects, (2) purchase a greater number of
properties, (3) access less expensive sources of capital, (4)
access more information relating to prospects, (5) develop or
buy, and implement, new technologies, and (6) obtain equipment
and supplies on better terms.
Because a significant part of our reserves and production is
concentrated in a small number of offshore properties, any
production problems or significant changes in reserve estimates
related to any one of those properties could
<PAGE> 18
have a material
impact on our business. All of our reserves and production come
from our six fields in the shallow waters of the Gulf of Mexico.
If mechanical problems, storms or other events curtailed a
substantial portion of this production, our cash flow would be
adversely affected. If the actual reserves associated with these
six fields are less than our estimated reserves, our results of
operations and financial condition could be adversely affected.
See the discussion relating to the Brazos Block A-19 under the
heading "Oil and Gas Properties."
We are vulnerable to risks associated with the Gulf of Mexico
because we currently explore and produce exclusively in that
area. We believe that concentrating our activities in the Gulf
of Mexico is advantageous because of our extensive experience
operating in that area. However, this strategy makes us more
vulnerable to the risks associated with operating in that area
than those of our competitors with more geographically diverse
operations. These risks include (1) adverse weather conditions,
(2) difficulties securing oil field services, and (3) compliance
with regulations. In addition, production of reserves from
reservoirs in the Gulf of Mexico generally declines more rapidly
than from reservoirs in many other producing regions of the
world. This results in recovery of a relatively higher
percentage of reserves from properties in the Gulf of Mexico
during the initial years of production, and, as a result, our
reserve replacement needs from new prospects are greater.
We cannot control the activities on properties we do not operate.
Other companies operate some of the properties in which we have
an interest. As a result, we have a limited ability to exercise
influence over operations for these properties or their
associated costs. The success and timing of our drilling and
development activities on properties operated by others therefore
depend upon a number of factors outside of our control, including
(1) timing and amount of capital expenditures, (2) the operator's
expertise and financial resources, (3) approval of other
participants in drilling wells, and (4) selection of technology.
Factors Relating to Our Sulphur Operations
Our revenues, profits and growth rates may vary significantly
with fluctuations in the market price of sulphur; the long-term
economic feasibility of our Main Pass sulphur mine may be
impaired if there were a sustained decline in sulphur prices from
recent levels. Sulphur prices recently have declined to the
lower range of prices experienced in the 1990s. As a result, we
are currently unable to generate positive cash flow from our Main
Pass sulphur mining operations. In response to declining prices,
we announced on June 30, 1998 that we would permanently
discontinue sulphur production at our Culberson mine, and we
discontinued those operations on June 30, 1999. Although we are
currently pursuing cost reductions at our Main Pass sulphur
operations, a sustained decline in the price of sulphur from
recent levels could make continued operation of the mine
uneconomical. Because of the costs associated with closing and
re-opening this mine, we could decide to operate at Main Pass for
some period even if those operations did not generate positive
cash flow. If our Main Pass operations were suspended, it could
be difficult and expensive to subsequently re-open the mine.
We rely heavily on IMC-Agrico as a continuing customer under the
terms of a long-term sulphur supply agreement, and we are
involved in a dispute with them about the pricing terms of that
agreement. Approximately 73 percent of sulphur sales for the
year ended December 31, 1999 were made to IMC-Agrico under a
long-term sulphur supply agreement, and we expect that sales to
IMC-Agrico under that agreement will continue to represent a
substantial percentage of our sulphur sales. The loss of, or a
significant decline in, sales of sulphur to IMC-Agrico could have
a material adverse effect on our financial condition and results
of operations. In the fourth quarter of 1999, several domestic
phosphate fertilizer producers announced production curtailments,
including a 20 percent reduction by IMC-Agrico. As a result,
IMC-Agrico curtailed its sulphur purchases from us in the fourth
quarter. We expect that our future sulphur sales to IMC-Agrico
will also be curtailed, at least in the near term. See "Sulphur
Sales - Relationship with IMC-Agrico" and "Sulphur Industry." In
addition, we are currently involved in a dispute with IMC-Agrico
about the pricing terms of our sulphur supply agreement with
them. See "Legal Proceedings."
Our minority joint venture partner in the Main Pass mine claims
that it has exercised its contractual right to elect not to
receive its share of sulphur produced at the mine during 2000,
not to pay its share of operating expenses for 2000 and not to
pay us any fees for 2000 under our processing and marketing
agreement. Homestake Sulphur Company LLC is our 16.7 percent
partner in the Main Pass mine. We have advised Homestake that in
our opinion the conditions precedent to its right to make the
election do not exist. We are currently involved in legal
proceedings with Homestake in connection with this matter. See
"Legal Proceedings."
<PAGE> 19
The competitive conditions in our sulphur business are complex,
both in terms of factors affecting supply and factors affecting
demand; sulphur prices are influenced by (1) world agricultural
conditions, (2) the phosphate fertilizer market, (3) the rate of
recovery of sulphur from oil and natural gas refining, and (4)
the handling and transportation costs required to move sulphur to
market. Competitive factors affecting our sulphur business are
described under the headings "Sulphur Industry" and
"Competition." The principal competitive risks to our ability to
mine sulphur profitably are very low sulphur prices resulting
from (1) decreased domestic demand for sulphur, (2) increased
production from domestic recovered sulphur producers, and (3)
increases in imported solid sulphur, including increases in the
rate at which stored sulphur, particularly in Canada, is released
into the market.
The market for sulphur is seasonal and cyclical, and market
prices for sulphur can fluctuate widely. Because the principal
use of sulphur is in the manufacture of phosphate fertilizers,
our ability to successfully market our sulphur is materially
dependent on prevailing agricultural conditions and the worldwide
demand for fertilizers. Although phosphate fertilizer sales are
fairly constant month-to-month, seasonal increases occur in the
domestic market prior to the fall and spring planting season.
Generally, domestic phosphate fertilizer sales are at reduced
levels after the spring planting season, although the decline in
domestic sales generally coincides with the time when major
commercial and governmental buyers in China, India and Pakistan
purchase product for mid-year delivery in those countries.
Fertilizer sales are also cyclical, and currently the market for
phosphate fertilizers is soft. See "Sulphur Industry."
Market prices for sulphur will likely continue to fluctuate.
For example, in 1999 U.S. sulphur prices fluctuated between
$62.50 and $71.50 per long ton and dropped to $57.50 per long
ton for the first quarter of 2000. The operating margins and
cash flow from our sulphur business are subject to substantial
fluctuations in response to changes in supply and demand for
sulphur, conditions in the U.S. and international agriculture
industry, market uncertainties and other factors beyond our
control. Any significant or extended decline in sulphur prices
will have a material adverse effect on our financial condition
and operations.
Our sulphur mining operations are sensitive to changes in natural
gas prices. In the year ended December 31, 1999, we sold
approximately 14.0 Bcf of natural gas in our oil and gas
operations and consumed approximately 7.6 Bcf of natural gas in
our sulphur mining operations. Natural gas is our most
significant variable cost in operating our sulphur mine. We
estimate that a 10 cent increase in natural gas prices would have
resulted in a $1.4 million increase in our gas sales revenue and
a $0.8 million increase in our cost of mining sulphur for the
year ended December 31, 1999. A 10 cent decrease in natural gas
prices would result in a corresponding decrease in gas sales
revenue and decrease in mining costs.
The amount of sulphur that we actually produce may differ
materially from the amounts that we expect based on our reserve
estimates. In addition, our reserve estimates can change
significantly based on changes in the factors underlying the
assumptions we use in determining the reserves. We recently
reduced our proved reserves for our Main Pass mine from 52.4
million long tons at December 31, 1998 to 13.7 million long tons
at December 31, 1999. Proved reserves are estimated quantities
of commercially recoverable minerals that geological, geophysical
and engineering data can demonstrate with a reasonably high
degree of certainty to be recoverable in the future from known
mineral deposits by conventional operating methods.
Our estimates of proved sulphur reserves at Main Pass are
based on engineering estimates and assumptions about future
economic and operating conditions. All of our sulphur reserves
are considered physically producible because of our extensive
drilling and production experience. However, reserve engineering
is a subjective process of estimating the recovery from under-
ground accumulations of sulphur that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function
of the quality of available data and of engineering and
geological interpretation and judgment. In addition, estimates
of economically recoverable reserves depend upon a number of
variable factors and assumptions, such as assumptions concerning
future (1) sulphur prices and production rates, (2) operating and
development costs, including natural gas prices, (3) processing,
transportation and handling costs, (4) workover, remedial and
abandonment costs, (5) severance and excise taxes, and (6)
government regulation. Variations in these items can cause
reserve estimates to change even in the absence of changes in
assumptions regarding the size or physical characteristics of the
reservoirs. In particular, the sulphur and oil reservoirs at our
Main Pass mine are highly sensitive to product prices and
production volumes because of their relatively high level of
fixed production costs.
<PAGE> 20
We recently reduced our proved reserves for our Main Pass
mine from 52.4 million long tons at December 31, 1998 to 13.7
million long tons at December 31, 1999. Although our estimated
physically producible sulphur reserves have not changed, we have
reduced our estimates of commercially recoverable reserves
primarily based on our expectations of decreased production rates
at the mine, partially offset by an anticipated decrease in
costs. These factors have also caused us to reduce the expected
useful life of the mine from 30 years to 10 years. The reduction
in the anticipated mine life will require us to accelerate
accruals of our estimated $59.5 million abandonment and
reclamation costs for the mine and related facilities, resulting
in an increase in accruals by approximately $3.0 million per
year. We will be required to fund these costs once we
permanently close the mine. The price of suphur is a critical
factor in the determination of commercially recoverable reserves.
A future increase in sulphur prices could result in a restoration
of the reserves being reduced at year-end 1999.
Factors Relating to Our Operations Generally
Our historical financial information may be of limited relevance
because our sulphur operations are included in our historical
financial information only for periods on and after November 17,
1998. Our company was created on November 17, 1998 when McMoRan
Oil & Gas Co. and Freeport-McMoRan Sulphur Inc. combined their
operations in a merger. The transaction was treated for
accounting purposes as a purchase, with McMoRan Oil & Gas as the
acquiring entity. As a result, our financial information for
periods prior to the transaction reflects the historical
operations of McMoRan Oil & Gas. The operations of Freeport
Sulphur are included only on and after November 17, 1998.
Offshore operations are hazardous, and the hazards are not fully
insurable. Our operations are subject to the hazards and risks
inherent in drilling for, producing and transporting sulphur, oil
and natural gas. These hazards and risks include fires, natural
disasters, abnormal pressures in formations, blowouts, cratering,
pipeline ruptures and spills. If any of these or similar events
occur, we could incur substantial losses as a result of death,
personal injury, property damage, pollution and lost production.
Moreover, our drilling, production and transportation operations
in the Gulf of Mexico are subject to operating risks peculiar to
the marine environment. These risks include hurricanes and other
adverse weather conditions, more extensive governmental
regulation (including regulations that may, in certain
circumstances, impose strict liability for pollution damage) and
interruption or termination of operations by governmental
authorities based on environmental, safety or other
considerations.
We have in place liability, property damage, business
interruption and other insurance coverages in types and amounts
that we consider reasonable and believe to be customary in our
business. This insurance provides protection against loss from
some, but not all, potential liabilities incident to the ordinary
conduct of our business. Our insurance includes coverage for
some types of damages associated with environmental and other
liabilities that arise from sudden, unexpected and unforeseen
events, with coverage limits, retentions, deductibles and other
features as we deem appropriate. The occurrence of an event that
is not fully covered by insurance could have a material adverse
effect on our financial condition and results of operations.
Our operations are subject to extensive governmental regulation,
compliance with which is very expensive; changes in the
regulatory environment can occur at any time and generally
increase our costs. Our operations are subject to extensive
regulation under federal and state law, and can be affected
materially by political developments and resulting changes in
laws. The operations and economics of oil and natural gas
exploration, production and development and sulphur production
are, or historically have been, affected by price controls, tax
policy and environmental regulation. We cannot predict how
existing laws may be interpreted by enforcement agencies or the
courts, whether additional laws will be adopted, or the effect
these changes may have on our business or financial condition,
but changes that have occurred in the past generally have been
more restrictive and have increased our cost of operation. See
"Regulation."
To comply with these federal, state and local laws, material
capital and operating expenditures, both with respect to
maintaining current operations and initiating new operations, may
be required in the future. The amount of these expenditures
cannot be estimated at this time, but these costs could have an
adverse effect on our financial condition and results of
operations. There is also a risk that more stringent laws
affecting the operations of natural resources companies could be
enacted, and although such regulations would affect the industry
as a whole, compliance with such new regulations could be costly.
See "Regulation."
<PAGE> 21
Our operations are subject to numerous laws relating to
environmental protection. Public interest in the protection of
the environment has increased dramatically in recent years.
Offshore drilling in some areas has been opposed by environmental
groups and, in some areas, has been restricted. To the extent
laws are enacted or other governmental action is taken that
prohibits or restricts offshore drilling or imposes environmental
protection requirements that result in increased costs to the
natural gas and oil industry in general and the offshore drilling
industry in particular, our business and prospects could be
adversely affected. For example, legislation has been proposed
in Congress from time to time that would reclassify some crude
oil and natural gas exploration and production wastes as
"hazardous wastes," which would make the wastes subject to
significantly more stringent handling, disposal and clean-up
requirements. Initiatives to further regulate the disposal of
crude oil and natural gas wastes are also pending in some states.
We have incurred, and may in the future incur, capital
expenditures and operating expenses to comply with environmental
laws, some of which may be significant.
In addition to compliance costs, government entities and
other third parties may assert claims for substantial liabilities
against owners and operators of sulphur mining and oil and gas
properties for oil spills, discharges of hazardous materials,
remediation and clean-up costs and other environmental damages,
including damages caused by previous property owners. Liability
under these laws can be significant and unpredictable. We may in
the future receive notices from governmental agencies that we are
a potentially responsible party under relevant federal and state
environmental laws, although we are not aware of any pending
notices. Some of these sites may involve significant clean-up
costs. The ultimate settlement of liability for the clean-up of
these sites usually occurs many years after the receipt of
notices identifying potentially responsible parties because of
the many complex technical, legal and financial issues associated
with the site clean-up. We cannot predict our potential
liability for clean-up costs that we may incur in the future.
See "Regulation - Environmental Matters."
In connection with its spin-off from Phosphate Resource
Partners (formerly named Freeport-McMoRan Resource Partners,
Limited Partnership) in December 1997, Freeport Sulphur assumed
responsibility for potential liabilities, including environmental
liabilities, associated with the prior conduct of the businesses
contributed by Phosphate Resource Partners to Freeport Sulphur.
Among these are potential liabilities arising from sulphur mines
that were depleted and closed in the past in accordance with
reclamation and environmental laws in effect at the time,
particularly in coastal or marshland areas that have experienced
subsidence or erosion. We believe that we are in compliance with
existing laws regarding these closed operations, and we have
implemented controls in some areas that we believe exceed our
legal responsibilities. Nevertheless, it is possible that new
laws or actions by governmental agencies could result in
significant unanticipated additional reclamation costs.
We could also be subject to potential liability for personal
injury or property damage relating to wellheads and other
materials at closed mines in coastal areas that have become
exposed through coastal erosion. Although we have insurance in
place to protect against some of these liabilities, we cannot
assure you that this insurance coverage would be sufficient.
There can also be no assurance that our current or future
accruals for reclamation costs will be sufficient to fully cover
the costs.
Hedging our production may result in losses. Our hedging has to
date been limited to natural gas option contracts related to our
Main Pass sulphur operations and forward oil sales contracts
related to our Main Pass oil operations. We may in the future
enter into these and other types of hedging arrangements to
reduce our exposure to fluctuations in the market prices of
natural gas and oil. Hedging exposes us to risk of financial
loss in some circumstances, including if (1) production is less
than expected, (2) the other party to the contract defaults on
its obligations, or (3) there is a change in the expected
differential between the underlying price in the hedging
agreement and actual prices received. In addition, hedging may
limit the benefit we would have otherwise received on a
consolidated basis from increases in the prices for natural gas
and oil. Furthermore, if we do not engage in hedging, we may be
more adversely affected by changes in natural gas and oil prices
than our competitors who engage in hedging.
Our holding company structure may limit our financial
flexibility. We conduct our business through wholly owned
subsidiaries. As a result, we depend on the cash flow of our
subsidiaries and distributions from them to meet our financial
obligations. Future agreements with lenders to our subsidiaries
may contain restrictions or prohibitions on the payment of
dividends by the subsidiaries to us.
<PAGE> 22
GLOSSARY OF NATURAL GAS AND OIL TERMS
Following are definitions of some of the natural gas and oil
industry terms we use:
3-D seismic technology. A relatively new technique used in
exploring for oil and gas involving the interpretation of sound
waves to give a picture of underground structures.
Bbl or Barrel. One stock tank barrel, or 42 U. S. gallons
liquid volume (used in reference to crude oil or other liquid
hydrocarbons).
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the
ratio of six Mcf of natural gas to one barrel of crude oil,
condensate or natural gas liquids.
Block. A block depicted on the Outer Continental Shelf
Leasing and Official Protraction Diagrams issued by the U.S.
Mineral Management Services or a similar depiction on official
protraction or similar diagrams issued by a state bordering on
the Gulf of Mexico.
Btu or British Thermal Unit. The quantity of heat required
to raise the temperature of one pound of water by one degree
Fahrenheit.
Completion. The installation of permanent equipment for the
production of natural gas or oil, or in the case of a dry hole,
the reporting of abandonment to the appropriate agency.
Condensate. Liquid hydrocarbons associated with the
production of a primarily natural gas reserve.
Developed acreage. Acreage in which there are one or more
producing wells or shut-in wells capable of commercial production
and/or acreage with established reserves in quantities we deemed
sufficient to develop.
Development well. A well drilled into a proved natural gas
or oil reservoir to the depth of a stratigraphic horizon known to
be productive.
Dry hole. A well found to be incapable of producing
hydrocarbons in quantities sufficient such that proceeds from the
sale of production would exceed production expenses and taxes.
Exploratory well. A well drilled (1) to find and produce
natural gas or oil reserves not classified as proved, (2) to find
a new reservoir in a field previously found to be productive of
natural gas or oil in another reservoir or (3) to extend a known
reservoir.
Farm-in or farm-out. An agreement under which the owner of
a working interest in a natural gas and oil lease assigns the
working interest or a portion of the working interest to another
party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells at its expense in
order to earn its interest in the acreage. The assignor usually
retains a royalty or reversionary interest in the lease. The
agreement is a "farm-in" to the assignee and a "farm-out" to the
assignor.
Field. An area consisting of a single reservoir or multiple
reservoirs all grouped on or related to the same individual
geological structural feature and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as
the case may be, in which a working interest and/or operating
right is owned.
Gulf of Mexico shelf. The offshore area within the Gulf of
Mexico extending out to 200 nautical miles from the shoreline.
<PAGE> 23
MBbls. One thousand barrels, typically used to measure the
volume of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet, typically used to measure the
volume of natural gas.
Mcfe. One thousand cubic feet equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
MMBbls. One million barrels, typically used to measure the
volume of crude oil or other liquid hydrocarbons.
MMBtu. One million British Thermal Units.
MMcf. One million cubic feet, typically used to measure the
volume of natural gas.
MMcfe. One million cubic feet equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
MMS. Minerals Management Service.
Net acres or net wells. Gross acres multiplied by the
percentage working interest and/or operating right owned.
Net feet of pay. The true vertical thickness of reservoir
rock estimated to both contain hydrocarbons and be capable of
contributing to producing rates.
Net profit interest. An interest in profits realized
through the sale of production, after costs. It is carved out of
the working interest.
Net revenue interest. An interest in a revenue stream net
of all other interests burdening that stream, such as a lessor's
royalty and any overriding royalties. For example, if a lessor
executes a lease with a one-eighth royalty, the lessor's net
revenue interest is 12.5 percent and the lessee's net revenue
interest is 87.5 percent.
Overriding royalty interest. A revenue interest, created
out of a working interest, that entitles its owner to a share of
revenues, free of any operating or production costs. An
overriding royalty is often retained by a lessee assigning an oil
and gas lease.
Pay. Reservoir rock containing oil or gas.
Productive well. A well that is found to be capable of
producing hydrocarbons in quantities sufficient such that
proceeds from the sale of production exceed production expenses
and taxes.
Prospect. A specific geographic area which, based on
supporting geological, geophysical or other data and also
preliminary economic analysis using reasonably anticipated prices
and costs, is deemed to have potential for the discovery of
commercial hydrocarbons.
Proved developed reserves. Proved developed oil and gas
reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating
methods. For additional information, see the SEC's definition in
Regulation S-X Rule 4-10(a)(3).
Proved reserves. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas, and natural gas
liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made. For
additional information, see the SEC's definition in Regulation S-
X Rule 4-10(a)(2).
Proved undeveloped reserves. Proved undeveloped oil and gas
reserves are reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for production to occur.
For additional information, see the SEC's definition in
Regulation S-X Rule 4-10(a)(4).
<PAGE> 24
Reservoir. A porous and permeable underground formation
containing a natural accumulation of producible natural gas
and/or oil that is confined by impermeable rock or water barriers
and is individual and separate from other reservoirs.
Sands. Sandstone or other sedimentary rocks.
Sour. High sulphur content.
Undeveloped acreage. Lease acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of natural gas and oil
regardless of whether the acreage contains proved reserves.
Working interest. The lessee's interest created by the
execution of an oil and as lease that gives the lessee the right
to exploit the minerals on the property.
GLOSSARY OF SULPHUR TERMS
Following are definitions of some of the sulphur industry
terms we use.
Frasch. A process used to mine sulphur, involving drilling
wells and injecting superheated water into an underground sulphur
deposit to melt solid sulphur, which is then recovered in liquid
form.
Long ton. Equals 2,240 pounds.
Recovered sulphur. Sulphur produced as a by-product of the
processing of natural gas that contains hydrogen sulfide and the
refining of sour crude oil.
Terminaling. Storage.
Item 3. Legal Proceedings
Freeport-McMoRan Sulphur LLC v. IMC-Agrico Company, Civ. Act. No.
462,776 (19th Jud. Dist. Ct. for Parish of East Baton Rouge, La.;
filed July 22, 1999). Our sulphur supply agreement with IMC-
Agrico requires good faith renegotiation of the pricing
provisions if a party can prove that fundamental changes in IMC-
Agrico's operations or the sulphur and sulphur transportation
markets invalidate certain assumptions and result in the
performance by that party becoming "commercially impracticable"
or "grossly inequitable." In the fourth quarter of 1998, IMC-
Agrico attempted to invoke this contract provision in an effort
to renegotiate the pricing terms of the agreement. After careful
review of the agreement, IMC-Agrico's operations and the
referenced markets, we determined that there is no basis for
renegotiation of the pricing provisions of the agreement. After
discussions failed to resolve this dispute, we filed suit against
IMC-Agrico seeking a judicial declaration that no basis exists
under the agreement for a renegotiation of its pricing terms.
Homestake Sulphur Company, LLC v. Freeport-McMoRan Sulphur LLC,
Civ. Act. No. 99C-12-195VAB (Del. Superior Ct. New Castle County;
filed December 22, 1999). Homestake Sulphur Company, LLC owns
16.7 percent of the Main Pass mine. The operating agreement for
Main Pass sulphur contains a provision under which Homestake may
elect to waive its right to produce its share of sulphur for one
year at a time if conditions described in the agreements are met.
In that event, Homestake would be relieved of its obligation to
pay some of its share of operating expenses during that year.
Homestake claims that it has made this election for 2000 and
that, as a result, it is also not obligated to pay us any fees
for 2000 under our processing and marketing agreement. We have
advised Homestake that in our opinion the conditions precedent to
its right to make the election do not exist. Homestake has filed
suit seeking a declaratory judgment supporting its position and
has not paid the first two monthly installment of its operating
expenses for 2000. We believe that the election, even if
effectively made, will not have a material adverse effect on our
financial condition or results of operations, except that we may
lose up to $500,000 per quarter of operating income from fees in
2000 under our processing and marketing agreement with Homestake
unless we are successful in the litigation.
<PAGE> 25
Jacob Gottlieb v. James R. Moffett, Richard C. Adkerson, B.M.
Rankin, Henry A. Kissinger, Phosphate Resource Partners Limited
Partnership, McMoRan Oil & Gas Co. and IMC Global Inc., Civ. Act.
No. 16393 (Del. Ch. filed May 19, 1998). On May 19, 1998,
plaintiff filed an action on behalf of a purported class of
plaintiffs who own depository units of Phosphate Resource
Partners. The plaintiff alleges that the individual defendants
breached fiduciary duties in the approval by Freeport-McMoRan,
Inc., as managing partner of Phosphate Resource Partners, of the
$210 million exploration program. The suit also alleges that
McMoRan Oil & Gas Co. conspired with the individual defendants
and aided and abetted their breach of fiduciary duty. The
plaintiff also alleges that IMC Global Inc. and Freeport-McMoRan
Inc. breached fiduciary duties to Phosphate Resource Partners and
Phosphate Resource Partners' public unitholders. The plaintiff
seeks unspecified monetary damages and other relief. We believe
that this suit is without merit and intend to vigorously defend
ourselves.
Daniel W. Krasner v. James R. Moffett; Rene L. Latiolais; J.
Terrell Brown; Thomas D. Clark, Jr.; B.M. Rankin, Jr.; Richard C.
Adkerson; Robert M. Wohleber; Freeport-McMoRan Sulphur Inc. and
McMoRan Oil & Gas Co., Civ. Act. No. 16729-NC (Del. Ch. filed
Oct. 22, 1998). Gregory J. Sheffield and Moise Katz v. Richard
C. Adkerson, J. Terrell Brown, Thomas D. Clark, Jr., Rene L.
Latiolais, James R. Moffett, B.M. Rankin, Jr., Robert M. Wohleber
and McMoRan Exploration Co., (Court of Chancery of the State of
Delaware, filed December 15, 1998.) These two lawsuits were
consolidated on January 13, 1999. The complaint alleges that
Freeport-McMoRan Sulphur Inc.'s directors breached their
fiduciary duty to Freeport-McMoRan Sulphur Inc.'s stockholders in
connection with the combination of Freeport Sulphur and McMoRan
Oil & Gas. The plaintiffs contend that the transaction was
structured to give preference to McMoRan Oil & Gas stockholders
and failed to recognize the true value of Freeport Sulphur. The
plaintiffs claim that the directors failed to take actions that
were necessary to obtain the true value of Freeport Sulphur such
as auctioning the company to the highest bidder or evaluating
Freeport Sulphur's worth as an acquisition candidate. The
plaintiffs also claim that McMoRan Oil & Gas Co. knowingly aided
and abetted the breaches of fiduciary duty committed by the other
defendants. The plaintiffs seek injunctive relief and monetary
damages. We believe that this suit is without merit and intend
to vigorously defend this action.
Other than the proceedings discussed above, we may from time
to time be involved in various legal proceedings of a character
normally incident to the ordinary course of our business. We
believe that potential liability from any of these pending or
threatened proceedings will not have a material adverse effect on
our financial condition or results of operations. We maintain
liability insurance to cover some, but not all, of the potential
liabilities normally incident to the ordinary course of our
businesses as well as other insurance coverages customary in our
business, with coverage limits as we deem prudent.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Listed below are the names and ages, as of February 3, 2000,
of the present executive officers of McMoRan together with the
principal positions and offices with McMoRan held by each.
Name Age Position or Office
---- --- ------------------
James R. Moffett 61 Co-Chairman of the Board
Richard C. Adkerson 53 Co-Chairman of the Board, President and
Chief Executive Officer
Rene L. Latiolais 57 Vice Chairman of the Board
C. Howard Murrish 59 Executive Vice President
Nancy D. Parmelee 48 Senior Vice President, Chief Financial
Officer and Secretary
Michael J. Arnold 47 Senior Vice President
Theodore P. Fowler 48 Senior Vice President
<PAGE> 26
W. Russell King 50 Senior Vice President
John G. Amato 55 General Counsel
James R. Moffett has served as our Co-Chairman of the Board
since November 1998. From 1994 to November 1998 he served as Co-
Chairman of the Board of McMoRan Oil & Gas. From November 1997
to November 1998 he also served as Co-Chairman of the Board of
Freeport Sulphur. Mr. Moffett has also served as the Chairman of
the Board and Chief Executive Officer of Freeport-McMoRan Copper
& Gold Inc. (FCX) since July 1995, and as Chairman of the Board
of FCX since May 1992. Mr. Moffett served as Chairman of the
Board of Freeport-McMoRan Inc. from September 1984 until December
1997. Mr. Moffett's technical background is in geology and he has
been actively engaged in petroleum geological activities in the
areas of our company's operations throughout his business career.
He is a founder of the predecessor of our company.
Richard C. Adkerson has served as our Co-Chairman of the
Board, President and Chief Executive Officer since November 1998.
From April 1994 to November 1998 he was Co-Chairman of the Board
and Chief Executive Officer of McMoRan Oil & Gas. From November
1997 to November 1998 he was Vice Chairman of the Board of
Freeport Sulphur. Mr. Adkerson has also served as President and
Chief Operating Officer of FCX since April 1997. Mr. Adkerson
served as Executive Vice President of FCX from July 1995 to April
1997, and as Senior Vice President of FCX from February 1994 to
July 1995 and as Chief Financial Officer from July 1995 to
November 1998. Mr. Adkerson served as Vice Chairman of Freeport-
McMoRan Inc. until December 1997 and as Senior Vice President and
Chief Financial Officer of Freeport-McMoRan Inc. from 1992 to
1995. He also served as Chairman of the Board of Stratus
Properties Inc. (Stratus), a real estate development company,
from March 1992 to August 1998, as President from August 1995 to
May 1996 and as Chief Executive Officer from August 1995 to May
1998. Prior to 1989, Mr. Adkerson was a partner and managing
director in Arthur Andersen and served as the head of that firm's
worldwide oil and gas practice.
Rene L. Latiolais has served as our Vice Chairman of the
Board since November 1998, and as Vice Chairman of the Board of
FCX since 1994. From 1997 to November 1998, Mr. Latiolais served
as Co-Chairman of the Board of Freeport Sulphur. He also held
the office of President and Chief Executive Officer of Freeport-
McMoRan Inc. from August 1995 until December 1997.
C. Howard Murrish has served as Executive Vice President of
McMoRan since November 1998. He has served as President and
Chief Operating Officer of McMoRan Oil & Gas since September
1994.
Nancy D. Parmelee has served as Senior Vice President and
Chief Financial Officer of McMoRan since August 1999 and Vice
President and Controller -- Accounting Operations from September
1998 through August 1999. She was appointed as Secretary of
McMoRan in January 2000. Ms. Parmelee has served as Assistant
Controller of FCX since July 1994. She also served as Vice
President and Controller - Operations Accountinggooff FFrreeport-
McMoRan Inc. from November 1996 to December 1997 and as Assistant
Controller from August 1993 to November 1996.
Michael J. Arnold has served as Senior Vice President of
McMoRan since November 1998 and of FCX since November 1996. Mr.
Arnold served as Senior Vice President and Treasurer of Freeport
Sulphur from August 1997 to November 1997. From July 1994 to
November 1996, Mr. Arnold was Vice President and Controller -
Operations of FCX. Mr. Arnold served as a Senior Vice President
of Freeport-McMoRan Inc. from November 1996 until December 1997.
From October 1991 to November 1996, he was Vice President of
Freeport-McMoRan Inc., serving as Controller - Operations from
May 1993 to November 1996. Prior to 1991, Mr. Arnold was a
partner in Andersen Consulting.
Theodore P. Fowler has served as a Senior Vice President of
McMoRan since November 1999. Mr. Fowler has been a consultant to
a number of fertilizer industry clients and was Senior Vice
President and Operations Manager of IMC-Agrico Company, a unit of
IMC Global Inc. from February 1996 to November 1998. Mr. Fowler
served as Vice President of Freeport-McMoRan Inc. from August
1995 to January 1996.
W. Russell King was appointed as Senior Vice President of
McMoRan in January 2000. Mr. King has served as Senior Vice
President of FCX since July 1994. He has also served as Senior
Vice President of Freeport-McMoRan Inc. from November 1993 to
December 1997.
<PAGE> 27
John G. Amato has served as our General Counsel since
November 1998. Mr. Amato served as General Counsel to McMoRan
Oil & Gas from April 1994 to November 1998, to Freeport Sulphur
from November 1997 to November 1998, and to Stratus from August
1995 to August 1998. Prior to August 1995, Mr. Amato served as
General Counsel of FCX and to Freeport-McMoRan Inc. Mr. Amato
currently provides legal and business advisory services to FCX
under a consulting arrangement.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock is listed on the New York Stock Exchange
(NYSE) under the symbol "MMR." Our common shares have been
trading since November 18, 1998. The following table sets forth
the range of high and low sales prices, as reported by the NYSE
for the period subsequent to the Merger.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fourth Quarter 1998 $16.00 $13.25
First Quarter 1999 $17.00 $12.00
Second Quarter 1999 22.63 14.63
Third Quarter 1999 21.75 19.50
Fourth Quarter 1999 25.00 18.88
</TABLE>
As of February 3, 2000 there were 12,075 holders of record
of our common stock. We have not in the past paid, and do not
anticipate in the future paying, cash dividends on our common
stock. The decision whether or not to pay dividends and in what
amounts is solely at the discretion of our Board of Directors.
McMoRan Oil & Gas' credit facility contains certain restrictions
on its ability to make distributions to McMoRan.
<PAGE> 28
Item 6. Selected Financial Data
The following table sets forth our selected audited historical
financial and unaudited operating data for each of the five years
in the period ended December 31, 1999. We became a publicly
traded entity on November 17, 1998, when McMoRan Oil & Gas and
Freeport Sulphur (see Note 1 of Notes to Financial Statements)
combined their operations. This transaction was accounted for as
a purchase, with McMoRan Oil & Gas as the acquiring entity.
Accordingly, the information presented below for periods prior to
November 17, 1998 reflects only the historical financial and
operating data attributable to McMoRan Oil & Gas. Financial and
operating data relating to the assets acquired from Freeport
Sulphur are included on and after November 17, 1998. The
information shown in the table below may not be indicative of our
future results. You should read the information below together
with Items 7. and 7A. "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures
About Market Risks" and Item 8 "Financial Statements and
Supplementary Data."
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- --------- --------- -------- ---------
(Financial Data in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Financial Data
Years Ended December 31:
Revenues $244,031 $ 45,902 $ 13,552 $ 4,070 $ 3,267
Exploration expenses 6,411 14,533 11,966 9,818a 11,756
Operating income (loss) 111 (19,324) (9,904) (9,883) (14,799)
Net income (loss) 109 (18,116) (10,538) (9,862) (14,635)
Net income (loss) per share b
Basic $0.01 $(1.96) $(2.80) $(3.55) $(5.31)
Diluted 0.01 (1.96) (2.80) (3.55) (5.31)
Average shares outstanding b
Basic 13,385 9,230 3,769c 2,779 2,754
Diluted 13,651 9,230 3,769c 2,779 2,754
At December 31:
Working capital $ (3,108) $ 20,980 $ 33,749c $ 2,972 $ 8,257
Property, plant and
equipment, net 198,532 187,137 57,705c 18,231 9,878d
Total assets 301,281 320,388 101,088c 30,980 21,633d
Debt, including
current portion 14,000 - - 12,757 623
Stockholders' equity 155,071 178,800 90,698c 8,246 17,605
Operating Data
Sales Volumes:
Gas (thousand cubic
feet, or Mcf) 14,026,000 8,634,100e 4,061,000 631,000 1,093,000
Oil (barrels) 1,353,600f 304,100e,f 34,000 29,000 45,000
Sulphur (long tons) 2,973,100 386,600 - - -
Average realization:
Gas (per Mcf) $ 2.30 $ 2.14 $2.62 $ 2.72 $ 1.63
Oil (per barrel) 15.92f 10.33f 19.19 22.22 18.83
Sulphur (per long ton) 63.16 62.40 - - -
</TABLE>
a.Includes a reduction of $2.1 million ($0.75 per share)
resulting from reimbursement of previously expensed costs.
b.McMoRan Oil & Gas' historical loss per share and average
shares outstanding have been restated to reflect the effective
reverse stock split of McMoRan Oil & Gas' shares as a result
of the acquisition of Freeport Sulphur.
c.Includes issuance of McMoRan Oil & Gas' shares in a rights
offering, the proceeds of which were used to purchase
producing property interests and repay borrowings, with the
remainder held to fund exploration program commitments.
d.After giving effect to transfer of property interests
resulting from the formation of a previous exploration
program.
e.Excludes the prior period effects of the re-determination of
ownership interest in the Vermilion Block 160 field unit,
which reduced volumes of gas and oil by approximately 150,400
Mcf and 6,200 barrels, respectively, and combined revenues by
approximately $486,000.
f.Includes Main Pass oil sales totaling 1,102,600 barrels at
an average realization of $15.50 per barrel during 1999. Main
Pass 1998 oil sales from November 17 to December 31, 1998
totaled 202,700 barrels, at an average realization of $8.60
per barrel.
<PAGE> 29
Items 7. And 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures
About Market Risks
OVERVIEW
We engage in the exploration, development and production of
oil and gas offshore in the Gulf of Mexico and onshore in the
Gulf Coast area and in the mining, purchasing, transporting,
terminaling, processing and marketing of sulphur. We became a
publicly traded entity on November 17, 1998 when McMoRan Oil &
Gas Co. and Freeport-McMoRan Sulphur Inc. combined their
operations. As a result, McMoRan Oil & Gas LLC and Freeport-
McMoRan Sulphur LLC became our wholly owned subsidiaries. We
recorded the transaction as a purchase with McMoRan Oil & Gas as
the acquiring entity (see Note 1). Accordingly, our financial
information results of operations for any period prior to the
transaction reflects only the operations of McMoRan Oil & Gas.
The operations of Freeport Sulphur are included on and after
November 17, 1998.
RECENT DEVELOPMENTS
Oil and Gas. For a discussion of our oil and gas operational
activities during 1999 and early 2000 see Items 1 and 2,
"Business and Properties."
On November 9, 1999, we and Phosphate Resource Partners
Limited Partnership entered into an agreement terminating
Phosphate Resource Partners' participation in the $210 million
exploration program. Under the terms of the agreement, effective
October 1, 1999, we purchased Phosphate Resource Partners' 47
percent interest in the exploration program, which included three
producing oil and gas fields and an inventory of exploration
prospects and leases, for $32.0 million. We used available cash
and existing bank credit availability to fund the purchase. As a
result, we now own a 95 percent interest in the exploration
program, with an individual investor owning the remaining five
percent (see Note 4). Additionally, Phosphate Resource Partners
and its parent, IMC Global Inc., agreed to dismiss with prejudice
their lawsuit against us, as well as four former directors of
Freeport-McMoRan Inc., which merged with IMC Global in December
1997 (see Item 3 "Legal Proceedings").
Effective January 1, 2000 we acquired from Texaco
Exploration and Production Inc. the right to explore and earn
assignments of operating rights in 89 oil and gas properties. The
properties cover about 391,000 gross acres and are located in
water depths ranging from 10 to 2,600 feet in federal and state
waters offshore Louisiana and Texas. Texaco's ownership interests
in the leases in which exploration and operating rights were
acquired ranged from 17 to 100 percent. We have agreed to commit
$110 million for exploration through June 30, 2003 (see Notes 3
and 10). If we drill wells to specified depths that are capable
of producing and commit to install facilities to develop the oil
and gas we discover, we will earn varying interests in the
prospects, depending on the options Texaco elects. Generally, we
will earn at least a majority of Texaco's working interest in the
property, and Texaco can elect to retain either a working
interest or an overriding royalty.
On January 14, 2000, we purchased from Shell Offshore Inc.,
a wholly owned subsidiary of Royal Dutch Petroleum Co., its
interest in 56 exploratory leases for $37.7 million. These leases
contain approximately 260,000 gross acres and are located in the
Gulf of Mexico primarily offshore Louisiana, in varying water
depths up to a maximum of approximately 2,000 feet and expire
ratably over the next four years. Shell retained an overriding
royalty interest in the properties. Shell's ownership interest
in the leases acquired ranged from 25 to 100 percent. Four of
the leases are subject to preferential rights, which if exercised
would exclude these four leases from the purchase and result in a
$2.6 million reduction of the purchase price. The party having
the preferential rights has until mid-February 2000 to elect to
exercise them. We funded the purchase through additional
borrowings under our existing credit facilities (see Note 9).
Sulphur. Our net daily production from the Main Pass mine during
1999 totaled 3,662 long tons. We recently reduced our proved
reserves for our Main Pass mine from 52.4 million long tons at
December 31, 1998 to 13.7 million tons at December 31, 1999.
Although our estimated physically producible sulphur reserves
have not changed, we have reduced our estimates of commercially
recoverable reserves primarily based on our expectations of
decreased production rates at the mine, partially offset by an
anticipated decrease in costs. These factors have also caused us
to reduce the expected remaining useful life of the mine from 30
years to 10 years. The reduction in proved reserves will require
us to accelerate accruals of our estimated $59.5 million of
abandonment and reclamation costs for the mine and its related
facilities by increasing our unit-of-production depreciation
rate. The higher unit rate will increase depreciation and
amortization expense by approximately $3.0 million annually
beginning in 2000. The changes in our expectations regarding the
production rates and costs at the mine have also caused us to
revise downward the portion of the purchase price of Freeport
Sulphur assets tentatively allocated to the mine at the time of
purchase.
<PAGE> 30
Homestake Sulphur Company, LLC owns 16.7 percent of the Main
Pass mine. The operating agreement for Main Pass sulphur contains
a provision under which Homestake may elect to waive its right to
produce its share of sulphur for one year at a time if conditions
described in the agreement are met. In that event, Homestake
would be relieved of its obligation to pay its share of operating
expenses during that year. Homestake claims that it has made this
election for 2000 and that, as a result, it is not obligated to
pay us any fees for 2000 under our processing and marketing
agreement. We have advised Homestake that in our opinion the
conditions necessary to make the election do not exist.
Homestake has filed suit seeking declaratory judgment supporting
its position and has not paid the first two monthly installments
of its operating expenses for 2000. We believe that the election,
even if effectively made, will not have a material adverse effect
on our financial condition or results of operations, except that
we will lose up to $0.5 million per quarter in operating income
from lost fees in 2000 under our processing and marketing
agreement with Homestake unless we are successful in the
litigation.
RESULTS OF OPERATIONS
We have two operating segments: "oil and gas" and "sulphur."
The oil and gas segment includes all operations of McMoRan Oil &
Gas, as well as Freeport Sulphur's oil operations at Main Pass
299. Our sulphur segment includes all of Freeport Sulphur's
sulphur operations. The results of operations reflected below
include all of Freeport Sulphur's operations on and after
November 17, 1998, as well as the historical results of McMoRan
Oil & Gas. For additional information on our segments see Note
11.
Oil and Gas Operations
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Revenues $54,344 $ 21,626 $13,552
Operating loss (722) (18,664) (9,904)
</TABLE>
1999 Compared with 1998
Our oil and gas revenues increased to $54.3 million during
1999 compared with $21.6 million during 1998.
The increase primarily reflects:
. A full year of Main Pass 299 oil operation revenues.
. Main Pass oil revenues totaled $17.2 million in
1999.
. Main Pass oil revenues totaled $1.8 million in
1998, which included only the period from November
17, 1998 through year end 1998.
. Operations commencing at three locations during
1999.
. The Vermilion Block 160 #4 (BJ-1) sidetrack well
in January 1999.
. The Vermilion Block 159 #3 (CJ-1) well in January
1999.
. West Cameron Block 616 in March 1999.
. The purchase of an additional 10.3 percent net
revenue interest in the Vermilion Block 160 field
unit during the first quarter of 1999.
. The purchase of Phosphate Resource Partners'
interest in three producing properties in the fourth
quarter of 1999, most significantly West Cameron
Block 616.
. An increase in the average realizations for both oil
and natural gas during 1999.
The sale of our interest in the Vermilion Block 410 field during
the first quarter of 1999 partially offset these increases. This
sale resulted in our recognizing an approximate $3.0 million
gain.
Depreciation and amortization expense increased to $30.6
million in 1999 compared with $17.2 million during 1998. The
increase primarily reflects higher production volumes and an
increase in depreciable capitalized costs.
Production and delivery expense totaled $16.5 million during
1999 compared with $4.6 million during 1998, reflecting increased
production, the acquisition of additional reserve interests in
our producing fields and the inclusion of a full year of Main
Pass oil production costs, which totaled $8.7 million during
1999. Main Pass production costs in 1998 totaled $1.3 million.
Our exploration expenses fluctuate from period to period
based on the level, results and costs of exploratory drilling
projects and our activities involving the acquisition and
interpretation of seismic data. Exploration expenses during 1999
included approximately $1.6 million of exploratory drilling costs
primarily associated with the farm-in and subsequent drilling of
the #5 exploratory well on Vermilion Block 162 in January 1999.
Our other exploration expenses
<PAGE> 31
totaled approximately $4.8 million
during 1999 and were primarily for geological and geophysical
costs, including the purchase of seismic data. Exploration
expenses in 1999 were less than the prior year as we focused our
efforts on assessing selective growth opportunities, including
our recent acquisitions (see "Recent Developments" above), and
did no exploratory drilling during the second and third quarters
of 1999. For discussions of fourth-quarter 1999 exploratory
drilling operations and future exploratory plans, see Items 1 and
2 "Business and Properties" and "Recent Developments" above.
1998 Compared with 1997
Oil and gas revenues increased to $21.6 million during 1998
compared with $13.6 million for 1997. The increase resulted
primarily from (1) the inclusion of $1.8 million in oil revenues
from Main Pass following its acquisition, (2) increased
production at the Vermilion Block 160 field unit from three wells
that commenced production during the fourth quarter of 1997 and
(3) the purchase in late 1997 of additional net revenue interests
in the Vermilion Block 160 and 410 fields. These increases were
partially offset by lower natural gas and oil prices throughout
1998. Our 1998 revenues were also affected by a cumulative
adjustment for production prior to 1998 for the redetermination
of ownership interests in the Vermilion Block 160 field unit,
which reduced combined oil and gas revenues by approximately
$486,000 during the first quarter of 1998.
Depreciation and amortization totaled $17.2 million in 1998,
compared with $10.1 million in 1997. The increase primarily
reflects the increased capitalized costs and production for the
Vermilion Block 160 and 410 fields.
Production and delivery costs increased to $4.6 million in
1998 compared to $1.2 million in 1997. The increase reflects $1.3
million associated with Main Pass oil assets following its
acquisition, together with the increased production volumes from
our oil and gas properties.
We did not participate in exploratory drilling during the
second half of 1998 because in the first half of 1998 we had
committed all of the funds available to us under our $210 million
exploration program (see "Capital Resources and Liquidity"
below). Exploratory drilling and leasehold costs expensed in
1998 were approximately $9.1 million compared with $6.3 million
in 1997. The 1998 costs were primarily associated with the
unsuccessful Atchafalaya Bay, Grand Isle Block 54 #1, West
Cameron Block 617 #2, and West Cameron Block 157 #1 exploratory
wells.
Interest expense decreased to $0.2 million in 1998 from $1.3
million in 1997 reflecting our repayment of outstanding debt with
the proceeds from our 1997 rights offering (See "Capital
Resources and Liquidity" below).
Sulphur Operations
<TABLE>
<CAPTION>
November 17,
Year Ended Through
December 31, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Revenues $189,687 $24,276
Operating income (loss) 4,130 (660)
</TABLE>
We conduct all of our sulphur operations through Freeport
Sulphur. We acquired our sulphur operations on November 17,
1998. Accordingly, data is not presented for sulphur operating
results prior to November 17, 1998. Our sulphur operations
include the purchase and resale of recovered sulphur, sulphur
services, including the transportation and terminaling of third
party sulphur and the mining of sulphur at the Main Pass mine.
Our sulphur operations had revenues of $189.7 million and
operating income of $4.1 million during 1999. The sulphur segment
results were negatively affected by a $4 per ton decrease in
sulphur market prices during the third quarter and an additional
$5 per ton decrease in the fourth quarter of 1999. Our sulphur
revenues are affected by these market price changes in accordance
with the terms of our sales contracts, which generally
incorporate such changes over periods of one to as many as three
months. Sulphur market fundamentals continue to suffer from
reduced demand resulting from production curtailments by major
phosphate fertilizer producers in response to declining
fertilizer demand. Sulphur market prices primarily impact our
mining operations, but generally do not have a significant effect
on the margins that we earn by marketing and transporting
recovered sulphur. Future sulphur prices will continue to
fluctuate as a result of changes in sulphur market conditions and
can be expected to continue to be weak if current conditions in
the phosphate fertilizer market persist. Sulphur prices have
decreased by an additional $5 per ton in the first
<PAGE> 32
quarter of
2000, resulting in a $57.50 average market price in Tampa,
Florida. The lower sulphur prices resulted in lower cash flows
and a charge of $2.7 million to adjust sulphur inventory at
December 31, 1999 to its net realizable value. Future price
decreases would continue to impact our near-term cash flows and
may result in additional reductions of our sulphur inventory
value.
We sell a significant portion of the sulphur we produce or
purchase to IMC-Agrico Company, a phosphate fertilizer producer,
under a long-term supply contract. Our sales to IMC-Agrico
totaled 55.9 percent of our total revenues and 72.6 percent of
our sulphur sales in 1999. Sales to IMC-Agrico totaled 35.9
percent of our total revenues and 68.4 percent of our sulphur
sales in 1998. Sales to IMC-Agrico are based on market prices and
include a premium with respect to approximately 40 percent of the
sales. The agreement requires IMC-Agrico to purchase
approximately 75 percent of its annual sulphur consumption from
us for as long as it has a requirement for sulphur. In the fourth
quarter of 1999, IMC-Agrico announced a 20 percent production
curtailment, which has resulted and will continue to result in
reduced sales to IMC-Agrico for at least the near term.
Our sulphur supply agreement contains a provision that
requires good faith renegotiation of the pricing provisions if a
party can prove that fundamental changes in IMC-Agrico's
operations or the sulphur and sulphur transportation markets
invalidate certain assumptions and result in the performance by
that party becoming "commercially impracticable" or "grossly
inequitable." In the fourth quarter of 1998, IMC-Agrico
attempted to invoke this contract provision in an effort to
renegotiate the pricing terms of the sulphur supply agreement.
After careful review of the agreement, IMC-Agrico's operations
and the referenced markets, Freeport Sulphur determined that
there is no basis for renegotiation of the pricing provisions
under the terms of the agreement. After discussions failed to
resolve this dispute, Freeport Sulphur filed suit against IMC-
Agrico seeking a judicial declaration that no basis exists under
the agreement for a renegotiation of its pricing terms. See Item
3, "Legal Proceedings" for additional information on this legal
action.
Production costs totaled $172.1 million during 1999. These
costs included the $2.7 million inventory cost adjustment
discussed above and $1.6 million of severance related costs
associated with an early retirement program for certain of our
employees at Main Pass during the third quarter of 1999. We
reduced sulphur production costs by the $3.9 million that we
received from our business interruption claim resulting from the
effects that Hurricane Georges had on Main Pass' production (see
"Capital Resources and Liquidity" below). Sulphur production
costs further benefited from a $3.1 million reduction of an
obligation, the value of which is subject to expected sulphur
market prices (see Note 10, "Other Liabilities"). During the
first quarter of 1999, our sulphur operations incurred
approximately $4.6 million of capitalized drilling costs to
increase the productive capacity of Main Pass, which had been
temporarily reduced in the second half of 1998 by Hurricane
Georges. Subsequent sulphur drilling has been, and future sulphur
well drilling costs will be, charged to expense as incurred.
Production costs for the period of November 17, 1998 through
December 31, 1998 totaled $23.1 million.
Sulphur depreciation expense totaled $6.4 million in 1999,
including $0.3 million of goodwill amortization. During the
fourth quarter of 1999, as a result the decrease in the estimated
proved reserves at Main Pass mine, we recorded an additional
depreciation charge of $1.1 million primarily reflecting an
acceleration of our accrual for the abandonment and reclamation
costs associated with the mine and its related facilities.
Depreciation expense for our sulphur operations totaled $0.6
million, including $0.1 million of goodwill amortization for the
period November 17, 1998 through December 31, 1998.
Other Financial Results
Our general and administrative expense totaled $15.0 million
in 1999 compared with $5.7 million during 1998. The increase
primarily reflects Freeport Sulphur general and administrative
expenses, which totaled $8.0 million in 1999 compared with $1.4
million in 1998. General and administrative expense was also
affected by severance related costs associated with early
retirement programs, which totaled $0.8 million during 1999.
General and administrative expense increased to $5.7 million
in 1998 from $2.1 million in 1997. The increase was primarily
attributed to the acquisition of Freeport Sulphur and the
increased actual general and administrative expense charged to us
for certain services provided by an affiliated company under an
amended services agreement, which prior to 1998 were charged at a
fixed annual amount of $1.0 million (see Note 5).
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by (used in) operating activities totaled
$35.5 million in 1999, $26.2 million in 1998 and $(3.5) million
in 1997. Our increased revenues, primarily from our acquired Main
Pass sulphur and oil assets and the initial oil
<PAGE> 33
and gas
production associated with the facilities discussed in "Results
of Operations" above, contributed to operating cash flows during
1999. These revenues were offset in part by a $4.2 million
increase in inventories and by the payment of $7.4 million of
mine shutdown and reclamation expenditures during 1999. Our
increased revenues and significant collections of outstanding
joint interest receivables during 1998 contributed to the
increase in operating cash flows compared with 1997.
Net cash used in investing activities totaled $42.6 million
in 1999, $36.9 million in 1998 and $57.3 million in 1997. We
incurred $29.8 million of exploration and development
expenditures in 1999. Oil and gas capital expenditures totaled
$21.9 million. This total includes (1) capitalized drilling costs
of $15.5 million primarily associated with the development of the
three properties discussed in "Results of Operations" above and
Brazos Block A-19; (2) geological and geophysical and other
exploration expenses of $4.8 million; and (3) $1.6 million of
expensed drilling costs from the Vermilion Block 162 #5
exploratory well. Sulphur capital expenditures totaled $7.9
million, which included (1) $4.6 million of capitalized costs
associated with drilling the replacement wells for those damaged
in Hurricane Georges (see "Results of Operations" above); (2)
$1.8 million to purchase previously leased sulphur rail cars,
which were subsequently sold in a sale and leaseback transaction
described below; and (3) $1.5 million of other capital
improvements, primarily for our Galveston terminal.
Our 1999 investing activities also reflect our purchase of
certain oil and gas properties for $25.5 million, net of proceeds
from the disposition of certain other oil and gas properties.
The most significant of these purchases was our acquisition of
Phosphate Resource Partners' interest in the $210 million
exploration program (see "Recent Developments," above ) for
approximately $31.9 million, which includes certain customary
closing adjustments. We had net proceeds of $6.4 million from
(1) the first-quarter 1999 sale of additional net revenue
interests in the Vermilion Block 160 field unit and the Vermilion
Block 159 #3 well; (2) the first-quarter 1999 sale of our
approximate 28 percent interest in the Vermilion Block 410 field;
and (3) the sale of our interest in West Cameron Block 492 during
the third quarter of 1999. Our sulphur operations had investing
proceeds of $11.1 million, which include $10.6 million in
connection with an agreement to sell and lease back all of our
previously owned rail cars and a $0.5 million sale of a non-
essential facility.
We incurred $49.8 million of exploration and development
expenditures during 1998. These expenditures consisted of (1)
$32.2 million for capitalized drilling, primarily for development
and facilities costs associated with West Cameron Block 616, the
Vermilion Block 160 #4 sidetrack well, and the Vermilion Block
159 #3 well, as well as the successful drilling costs associated
with the Brazos Block A-19 and the West Cameron Block 617 #1
exploratory wells; (2) geological and geophysical and other
exploratory expenses of $5.4 million; (3) $9.1 million of
expensed drilling and leasehold costs; and (4) $3.1 million of
costs associated with our efforts to restore production at Main
Pass to levels existing prior to Hurricane Georges. In December
1998, we purchased additional interests in the Vermilion Block
160 field unit and Vermilion Block 159 #3 prospect for $5.0
million, net of adjustments, which was offset in part by the
proceeds from our July 1998 sale of our interest in West Cameron
Block 519 for $450,000. We acquired $17.7 million of cash and
cash equivalents, net of related acquisition costs of $3.1
million, when we purchased Freeport Sulphur.
Our 1997 investing activities included exploration and
development expenditures of $33.7 million representing (1) $22.1
million of capitalized drilling costs associated primarily with
the development of the Vermilion Block 160 field unit and with
successful drilling at West Cameron Block 616 and the Vermilion
Block 160 #4 sidetrack well; (2) $5.3 million in geological and
geophysical expense; and (3) $6.3 million in expensed drilling
and leasehold costs. In 1997 we purchased oil and gas properties
from Phosphate Resource Partners and Stratus Properties Inc. for
a total of $26.0 million (see Note 5), offset in part by the sale
of certain properties and assets for $2.4 million.
Net cash provided by (used in) financing activities totaled
$(10.7) million in 1999, $(0.6) million in 1998 and $79.5 million
in 1997. The 1999 activity primarily reflects our purchase of
shares of our common stock on the open market (see below), offset
in part by net borrowings on our existing bank lines of credit
and by stock option exercise proceeds. The 1998 activity
reflects costs associated with acquiring Freeport Sulphur
partially offset by proceeds from stock options exercised. The
proceeds in 1997 reflects the completion of our rights offering,
partially offset by the net repayment of our outstanding debt
from a previous exploration program.
We used proceeds of $92.2 million from our November 1997
rights offering to purchase additional interests in the Vermilion
Block 160 and 410 fields ($24.5 million), to retire our existing
debt ($20.0 million) and to fund a portion of our share of the
$210 million exploration program (see Note 4) in which we now own
a 95 percent interest (see "Recent Developments" above). At
December 31, 1999, approximately $123.9 million had been expended
under the $210 million exploration program. Excluding our
acquisition of Phosphate Resource Partners' interest in the
program (see "Recent Developments" above), our share of these
expenditures totaled $48.1 million.
<PAGE> 34
We must obtain additional financing in early 2000 to fund the
expected increase in our exploration activities as a result of our
recent exploration agreement with Texaco and our acquisition of
properties from Shell. At December 31, 1999, we had $14.0 million
of outstanding borrowings on our revolving bank lines.
In January 2000, McMoRan Oil & Gas amended its existing facility to
increase its bank credit availability from $20 million to $35 million,
under certain conditions. McMoRan Oil & Gas anticipates that its
availability under the amended and restated facility will be no more
than $30 million when its borrowing base is redetermined on April 1,
2000. At January 31, 2000, we had outstanding borrowings of $54.1
million and our remaining bank credit availability totaled
approximately $47.8 million.
We are engaged in discussions with potential investors, including
companies now engaged in the oil and gas industry. We are considering
raising capital from public capital markets and from private financial
investors, and may raise capital from a combination of these potential
sources. On January 21, 2000, we filed a registration statement with
the Securities and Exchange Commission to register $300 million
of securities. The registration statement would permit us to
offer and sell from time to time up to an aggregate of $300
million of securities, including common stock, preferred stock
and debt securities. The net proceeds of any future sale of
these securities would, unless otherwise specified, be used for
general corporate purposes, including working capital, the
repayment or refinancing of indebtedness, future acquisitions
and/or capital expenditures.
For the year ended December 31, 2000, we have budgeted
exploration and development expenditures of approximately $135
million. These budgeted amounts include $40 million for lease
acquisition, including our purchase of the Shell leases.
Development expenditures for 2000 are currently estimated to
total approximately $6 million. The remaining budget amount
would be expended on exploratory activities, primarily the
drilling of exploration wells. These budgeted amounts are subject
to change based on drilling results, the availability of
supplies, equipment and personnel and the continuing evaluation
of properties and prospects which may influence our current
drilling plans. We will require significant amounts of new
capital in order to fund these budgeted amounts, which we
anticipate seeking in early 2000. See "Cautionary Statements."
Also, additional costs will be incurred to restore production at
Brazos Block A-19 (see Items 1 and 2, "Business and Properties-
Principal Producing Properties").
We have received a total of $5.0 million from our business
interruption insurance claim covering the damages and lost
production at our Main Pass sulphur mine resulting from the
effects of Hurricane Georges in September 1998. We recorded the
portion of these proceeds estimated to relate to lost production
prior to Freeport Sulphur's acquisition as an adjustment to
goodwill $(1.1 million) and the remainder as a reduction of 1999
production costs (see "Results of Operations" above). We do not
expect to collect any additional funds on this insurance claim.
During the fourth quarter of 1999, we received $0.7 million of
property damage insurance proceeds associated with a claim
primarily for our Main Pass oil operations to recover damages
resulting from Hurricane Georges. These proceeds were recorded as
a reduction of production expense, which offset the cost of
related repairs incurred during the first half of 1999.
In May 1999, our Board of Directors authorized an open
market share purchase program for up to 1 million shares of our
common stock, representing approximately 7 percent of our then
outstanding 14.1 million common shares. In July 1999, the Board
authorized the purchase of up to an additional 1 million shares
of its common stock. Through December 31, 1999, we have purchased
1,444,735 shares of our common stock for $26.5 million, an
average of $18.31 per share. The purchases included the purchase
of all 769,535 shares of our common stock owned by Phosphate
Resource Partners for $12.8 million, or $16.64 per share. The
timing of our purchases is dependent upon many factors, including
the price of our common stock, our operating results, cash flows
and financial position, and general economic and market
conditions. For the period January 1, 2000 through January 31,
2000, we purchased 255,700 shares of our common stock for $5.1
million, an average of $20.06 per share. As of January 31, 2000
approximately 0.3 million of the total 2 million shares
authorized remain available for purchase.
For discussion of litigation matters see Item 3, "Legal
Proceedings."
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized
systems being written to store and process the year portion of
dates using two digits rather than four. To date, all of our
systems have continued to operate without any disruption related
to Y2K. We will continue to closely monitor areas of particular
risk including our business partners' ability to continue to meet
their commitments throughout the year. The incremental cost
associated with our Y2K efforts totaled less than $0.3 million
through 1999 and we do not expect to incur any additional costs
related to this matter.
<PAGE> 35
DISCLOSURES ABOUT MARKET RISKS
Our revenues are derived from the sale of sulphur, crude oil
and natural gas. In addition, natural gas purchases comprise a
significant portion of the sulphur division's production costs.
Our results of operations and cash flow can vary significantly
with fluctuations in the market prices of these commodities.
Based on projected 2000 sales volumes, each $1 per ton change in
the average realized price on sulphur sales would have an
approximate $3.1 million impact on revenues and an approximate
$0.8 million impact on net income. Based on projected annual
sales volumes from both existing producing properties and those
expected to produce later in 2000 and considering the expected
volumes to be consumed by our Main Pass operations, a $0.10 per
mcf change in the average prices realized on natural gas would
have a $1.0 million net impact on revenues and an approximate
$0.1 million impact on net income. A $1 per barrel change in the
average realization of oil would have a $1.1 million net impact
on revenues and a $0.7 million net impact on net income.
In response to market conditions, we have entered into oil
and gas price protection contracts for some portion of our
expected future production of crude oil and consumption of
natural gas at our Main Pass operations. We have no other price
protection contracts associated with any of our other properties.
Freeport Sulphur has entered into contracts to purchase 900,000
million British thermal units (mmbtu) of natural gas at an
average price of $2.43 per mmbtu during the first quarter of
2000. These contracts had a fair value of $(0.1) million at
December 31, 1999. Additionally, Freeport Sulphur had hedged a
portion of its Main Pass oil production. At December 31, 1999,
Freeport Sulphur had contracts to sell 0.4 million barrels of oil
at an average price of $20.48 per barrel through December 31,
2001. These contracts had a fair value of $(0.5) million at
December 31, 1999. Because we have entered into these contracts
and may enter into future contracts, we are exposed to a risk of
financial loss because production could be less than we expect
and there may be a change in the expected differential between
the underlying price in the hedging agreement and the actual
price received or paid. Additionally, these hedging activities
may limit the benefit we would otherwise receive on a
consolidated basis from increases in prices of oil and gas.
Our revolving lines of credit have variable rates, which
exposes us to interest rate risk. At the present time we do not
hedge our exposure to fluctuations in interest rates. Based on
our December 31, 1999 outstanding bank debt and interest rates, a
change of 100 basis points in applicable annual interest rates
would have an approximate $0.1 million impact on our 2000 net
income.
Since we conduct all our operations within the U.S. in U.S.
dollars and have no investments in equity securities, we
currently are not subject to foreign currency exchange risk or
equity price risk.
ENVIRONMENTAL
We and our predecessors have a history of commitment to
environmental responsibility. Since the 1940's, long before
public attention focused on the importance of maintaining
environmental quality, we have conducted pre-operational,
bioassay, marine ecological and other environmental surveys to
ensure the environmental compatibility of our operations. Our
environmental policy commits our operations to compliance with
local, state, and federal laws and regulations, and prescribes
the use of periodic environmental audits of all facilities to
evaluate compliance status and communicate that information to
management. We believe that our operations are being conducted
pursuant to necessary permits and are in compliance in all
material respects with the applicable laws, rules and
regulations. We have access to environmental specialists who
have developed and implemented corporate-wide environmental
programs. We continue to study methods to reduce discharges and
emissions.
Federal legislation (sometimes referred to as "Superfund"
legislation) imposes liability for cleanup of certain waste
sites, even though waste management activities were performed in
compliance with regulations applicable at the time of disposal.
Under the Superfund legislation, one responsible party may be
required to bear more than its proportional share of cleanup
costs if adequate payments cannot be obtained from other
responsible parties. In addition, federal and state regulatory
programs and legislation mandate clean-up of specific wastes at
operating sites. Governmental authorities have the power to
enforce compliance with these regulations and permits, and
violators are subject to civil and criminal penalties, including
fines, injunctions or both. Third parties also have the right to
pursue legal actions to enforce compliance. Liability under these
laws can be significant and unpredictable. We have, at this
time, no known significant liability under these laws.
Estimated future expenditures to restore properties and
related facilities to a condition that complies with
environmental and other regulations are accrued over the life of
the properties. The future expenditures are estimated based on
current costs, laws and regulations. As of December 31, 1999, we
have fully accrued $31.7 million ($9.2 million of which will be
reimbursed by third parties) for the estimated future abandonment
and restoration costs associated with
<PAGE> 36
our non-operating sulphur
assets, including the Culberson mine, which ceased operations on
June 30, 1999. Current estimated abandonment costs for the Main
Pass sulphur mine and related facilities total $59.5 million, of
which $16.3 million was accrued at December 31, 1999. Our
estimated annual accrual for abandonment costs for the Main Pass
mine and related facilities is expected to increase by
approximately $3.0 million to approximately $4.3 million, as a
result of the reduction of estimated proved reserves associated
with the mine (see "Recent Developments" above). The total
estimated abandonment cost for Main Pass' oil operations is $7.0
million, all of which was accrued at December 31, 1999. The
estimated total abandonment costs associated with our remaining
oil and gas properties totaled $8.5 million, of which $4.0
million was accrued through December 31, 1999. These estimates
are by their nature imprecise and are subject to revision in the
future because of changes in governmental regulations,
operations, technology and inflation.
We have made, and will continue to make, expenditures at our
operations for the protection of the environment. Continued
government and public emphasis on environmental issues can be
expected to result in increased future investments for
environmental controls, which will be charged against income from
future operations. Present and future environmental laws and
regulations applicable to current operations may require
substantial capital expenditures and may affect operations in
other ways that cannot now be accurately predicted.
We maintain insurance coverage in amounts deemed prudent for
certain types of damages associated with environmental
liabilities that arise from sudden, unexpected and unforeseen
events.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition
and Results of Operations and Disclosures about Market Risks
contain forward-looking statements. All statements other than
statements of historical fact included in this report, including,
without limitation, statements regarding plans and objectives of
our management for future operations and our exploration and
development activities are forward-looking statements. Factors
that may cause our future performance to differ from that
projected in the forward-looking statements are described in more
detail under "Cautionary Statements" in Item 1. and 2. in this
Form 10-K.
__________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 37
Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENT
McMoRan Exploration Co. (McMoRan) is responsible for the
preparation of the financial statements and all other information
contained in this Annual Report. The financial statements have
been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's
informed judgments and estimates.
McMoRan maintains a system of internal accounting controls
designed to provide reasonable assurance at reasonable costs that
assets are safeguarded against loss or unauthorized use, that
transactions are executed in accordance with management's
authorization and that transactions are recorded and summarized
properly. The system is tested and evaluated on a regular basis
by McMoRan's internal auditors, PricewaterhouseCoopers LLP. In
accordance with generally accepted auditing standards, McMoRan's
independent public accountants, Arthur Andersen LLP, have
developed an overall understanding of our accounting and
financial controls and have conducted other tests as they
consider necessary to support their opinion on the financial
statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing
the integrity and reliability of McMoRan's accounting and
financial reporting practices and the effectiveness of its system
of internal controls. Arthur Andersen LLP and
PricewaterhouseCoopers LLP meet regularly with, and have access
to, this committee, with and without management present, to
discuss the results of their audit work.
James R. Moffett Richard C. Adkerson Nancy D. Parmelee
Co-Chairman of the Board Co-Chairman of the Board, Senior Vice President,
President Chief Financial Officer
and Chief Executive Officer and Secretary
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF McMoRan EXPLORATION
CO.:
We have audited the accompanying balance sheets of McMoRan
Exploration Co. (a Delaware Corporation) as of December 31, 1999
and 1998 and the related statements of operations, cash flow and
changes in stockholders' equity for each of the three years in
the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of McMoRan Exploration Co. as of December 31, 1999 and 1998 and
the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 19, 2000
<PAGE> 38
<TABLE>
<CAPTION>
McMoRan EXPLORATION CO.
BALANCE SHEETS
December 31,
--------------------
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 17,816
Accounts receivable:
Customers 21,470 21,136
Joint interest participants 913 6,939
Other 3,269 4,001
Inventories:
Product 10,441 5,810
Material and supplies 6,178 9,105
Deferred tax asset 2,571 3,166
Prepaid expenses 1,665 1,596
Total current assets 46,507 69,569
-------- --------
Property, plant and
equipment, net (see Note 6) 198,532 187,137
Deferred tax asset 32,370 31,834
Goodwill (net of accumulated
amortization of $451 and $144,
respectively) 11,602 18,078
Other assets 12,270 13,770
-------- --------
Total assets $301,281 $320,388
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,070 $ 27,549
Accrued liabilities 12,727 13,895
Current portion of abandonment,
reclamation and
mine shutdown reserves 3,838 6,536
Other 980 609
Total current liabilities 49,615 48,589
-------- --------
Abandonment, reclamation and
mine shutdown reserves 55,126 60,047
Long-term debt 14,000 -
Other liabilities 27,469 32,952
Stockholders' equity:
Preferred stock, par value
$0.01, 50,000,000 shares authorized
and unissued - -
Common stock, par value
$0.01, 150,000,000 shares authorized,
14,229,904 shares and 14,080,033 shares
issued and outstanding, respectively 142 141
Capital in excess of par value
of common stock 249,625 247,010
Accumulated deficit (68,242) (68,351)
Common stock held in treasury
- 1,444,735 shares, at cost (26,454) -
Total stockholders' equity 155,071 178,800
-------- --------
Total liabilities and stockholders' equity $301,281 $320,388
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 39
<TABLE>
<CAPTION>
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Revenues $244,031 $ 45,902 $ 13,552
Costs and expenses:
Production and delivery costs 188,548 27,728 1,180
Depreciation and amortization 37,059 17,733 10,071
Exploration expenses 6,411 14,533 12,380
General and
administrative expenses 15,007 5,679 2,114
Gain on sale of property,
plant and equipment (3,105) (447) (2,289)
-------- ------- -------
Total costs and expenses 243,920 65,226 23,456
-------- ------- -------
Operating income (loss) 111 (19,324) (9,904)
Interest expense (679) (238) (1,272)
Other income, net 748 1,446 638
-------- ------- -------
Net income (loss)
before income taxes 180 (18,116) (10,538)
Income tax provision (71) - -
-------- -------- --------
Net income (loss) $ 109 $(18,116) $(10,538)
======== ======== ========
Net income (loss) per share
of common stock:
Basic $0.01 $(1.96) $(2.80)
===== ====== ======
Diluted $0.01 $(1.96) $(2.80)
===== ====== ======
Average common shares outstanding:
Basic 13,385 9,230 3,769
====== ===== =====
Diluted 13,651 9,230 3,769
====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 40
<TABLE>
<CAPTION>
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOW
Years Ended December 31,
--------------------------------
1999 1998 1997
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 109 $(18,116) $(10,538)
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 37,059 17,733 10,071
Exploration expenses 6,411 14,533 12,380
Gain on sale of property, plant
and equipment (3,105) (447) (2,289)
Reclamation and mine shutdown
expenditures (7,351) - -
Change in assets and liabilities,
net of effects of acquisitions:
(Increase) decrease in working capital:
Accounts receivable 2,244 10,291 (11,367)
Accounts payable and
accrued liabilities 6,691 (1,120) (1,305)
Inventories, prepaid expense
and other (4,274) 585 (617)
Other (2,256) 2,753 153
------- -------- --------
Net cash provided by (used in)
operating activities 35,528 26,212 (3,512)
------- -------- --------
Cash flow from investing activities:
Exploration and development
expenditures (29,847) (49,750) (33,677)
Purchase of oil and gas interests (35,030) (5,037) (26,005)
Proceeds from the disposition of
oil and gas properties 9,509 450 2,884
Proceeds from the disposition of
sulphur property,
plant and equipment 11,059 - -
Cash and cash equivalents acquired
from Freeport Sulphur,
net of transaction costs - 17,699 -
Other 1,692 (293) (502)
-------- -------- --------
Net cash used in investing activities (42,617) (36,931) (57,300)
-------- -------- --------
Cash flow from financing activities:
Purchase of McMoRan common stock (26,367) - -
Borrowings on revolving credit
facility, net 14,000 - -
Proceeds from exercise of stock options 1,973 293 -
Freeport Sulphur acquisition costs
and other (333) (907) -
Net proceeds from rights offering - - 92,217
Proceeds from production loan - - 13,520
Payments on production loan - - (26,276)
-------- -------- --------
Net cash provided by (used in)
financing activities (10,727) (614) 79,461
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (17,816) (11,333) 18,649
Cash and cash equivalents at
beginning of year 17,816 29,149 10,500
-------- -------- --------
Cash and cash equivalents at
end of year $ - $ 17,816 $ 29,149
======== ======== ========
Interest paid $ 783 $ 238 $ 1,272
======== ======== ========
Income taxes paid $ 12 $ - $ -
======== ======== ========
</TABLE>
The accompanying notes, which include information in Notes 2, 3,
7, 8 and 10 regarding noncash transactions, are an integral part
of these financial statements.
<PAGE> 41
<TABLE>
<CAPTION>
McMoRan EXPLORATION CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
Capital in Common
Excess Stock
Preferred Common of Par Held in Accumulated
Stock Stock Value Treasury Deficit Total
--------- ------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 $ - $ 140 $ 47,803 $ - $(39,697) $ 8,246
Shares issued in
rights offering - 286 91,931 - - 92,217
Stock payments to CLK, stock
option exercises and other - 1 772 - - 773
Net loss - - - - (10,538) (10,538)
----- ----- -------- -------- -------- ---------
Balance at December 31, 1997 - 427 140,506 - (50,235) 90,698
Effective five to one reverse stock
split resulting from the Freeport
Sulphur acquisition - (342) 342 - - -
Shares issued to acquire Freeport
Sulphur - 55 105,695 - - 105,750
Stock payments to CLK,
stock option exercises
and other, net of
acquisition costs of
$0.9 million - 1 467 - - 468
Net loss - - - - (18,116) (18,116)
----- ----- -------- -------- -------- ---------
Balance at December 31, 1998 - 141 247,010 - (68,351) 178,800
Stock payments to CLK,
stock option
exercises and other - 1 2,615 - - 2,616
Purchase of 1,444,735 shares of
McMoRan common stock - - - (26,454) - (26,454)
Net income - - - - 109 109
------ ----- -------- -------- -------- ---------
Balance at
December 31, 1999 $ - $ 142 $249,625 $(26,454) $(68,242) $(155,071)
====== ===== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 42
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. McMoRan Exploration Co. (McMoRan), a Delaware
corporation, became a publicly traded entity on November 17, 1998
when McMoRan Oil & Gas Co. and Freeport-McMoRan Sulphur Inc.
combined their respective operations (the Merger). As a result,
both McMoRan Oil and Gas LLC and Freeport-McMoRan Sulphur LLC
(Freeport Sulphur) became wholly owned subsidiaries and operating
segments of McMoRan. In the Merger, Freeport Sulphur's
shareholders received 0.625 McMoRan common shares for each
Freeport Sulphur outstanding common share or a total of 5.5
million McMoRan shares, while McMoRan Oil & Gas' shareholders
received 0.20 McMoRan common shares for each McMoRan Oil & Gas
outstanding common share, or a total of 8.6 million McMoRan
common shares. McMoRan's Board of Directors and executive
management include former members of the Boards of Directors and
executive management of both McMoRan Oil & Gas and Freeport
Sulphur.
Basis of Presentation. The Merger is reflected in the
accompanying financial statements using the purchase method of
accounting, with McMoRan Oil & Gas as the acquiring entity.
Accordingly, these financial statements reflect historical
assets, liabilities, revenues and expenses attributable to
McMoRan Oil & Gas as the predecessor of McMoRan and all
subsequent references to McMoRan for the period prior to the
Merger refer to the oil and gas operations previously conducted
by McMoRan Oil & Gas. Operating results of the acquired assets
are included on and after November 17, 1998. Prior years'
earnings per share, weighted average shares outstanding and
certain stock option information have been restated to reflect
the effective reverse stock split of McMoRan Oil & Gas' shares
resulting from the Merger. The assets acquired and liabilities
assumed from Freeport Sulphur were recorded at estimated fair
values based on cash flow models and independent appraisals (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. Investments in joint ventures and
partnerships in which McMoRan owns an undivided interest in the
underlying assets are reflected in the accompanying financial
statements using the proportionate consolidation method in
accordance with standard industry practice.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and the
accompanying notes. The more significant estimates include
useful lives for depreciation and amortization, valuation
allowances for deferred tax assets, reclamation and environmental
obligations, postretirement and other employee benefits, and
estimates of proved oil, gas and sulphur reserves and related
future cash flows. Actual results could differ from those
estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash
equivalents.
Inventories. Inventories are stated at the lower of average cost
or market. McMoRan recorded a $2.7 million reduction of its
sulphur inventory cost in the fourth quarter of 1999, so that its
sulphur inventory carrying cost at December 31, 1999 approximates
its net realizable value.
Property, Plant and Equipment.
Oil and Gas. McMoRan follows the successful efforts method of
accounting for its oil and gas exploration and development
activities. Geological and geophysical costs and costs of
carrying and retaining undeveloped properties are charged to
expense as incurred. Costs of exploratory wells are capitalized
if the wells find proved reserves and otherwise are expensed.
Costs of leases and development activities are also capitalized.
Other exploration costs are expensed. Depreciation and
amortization are determined on a field-by-field basis using the
unit-of-production method. Gains or losses are included in
earnings when properties are sold.
Sulphur. McMoRan's sulphur property, plant and equipment are
carried at cost, which includes the estimated fair values of
assets acquired in the Merger (Note 3) together with subsequent
expenditures for improvements which extend the lives of the
related assets. Depreciation for sulphur mining and production
assets, including related estimated future abandonment and
restoration costs, is determined using the unit-of-production
method based on estimated proved reserves. Other sulphur-related
assets are depreciated on a straight line basis over estimated
lives of 30 years for terminals and certain transportation assets
and 5 to 15 years for machinery, equipment and the remaining
transportation assets.
<PAGE> 43
Other. Other property, plant and equipment are carried at cost
less salvage value and are depreciated on a straight-line basis
over their estimated remaining useful life.
Costs for unproved oil and gas properties are assessed
periodically, and a loss is recognized if the properties are
impaired. When events or circumstances indicate that a proved
oil and gas property, sulphur property or other long-lived asset
carrying amounts may not be recoverable, a reduction of the
carrying amount of long-lived assets to fair value is required.
Measurement of the impairment loss is based on the fair value of
the asset. Generally, McMoRan determines fair value using
valuation techniques such as expected future cash flows. No
impairment losses are reflected in the accompanying financial
statements.
Financial Instruments and Contracts. Based on its assessment of
market conditions, McMoRan may enter into financial contracts to
manage certain risks resulting from fluctuations in commodity
prices (oil and natural gas). Costs or premiums and gains or
losses on contracts meeting deferral criteria, including closed
contracts, are recognized with the hedged transactions. Also,
gains or losses are recognized if the hedged transaction is no
longer expected to occur or if deferral criteria are not met.
McMoRan monitors its credit risk on an ongoing basis and
considers this risk to be minimal because its contracts are with
financially strong counterparties. During 1999, McMoRan
recognized a $1.1 million gain associated with changes in the
fair value of a natural gas put option that existed at the Merger
date. McMoRan had recorded a $1.1 million liability in its
original purchase price determination related to this put option.
At December 31, 1999, McMoRan had outstanding natural gas option
contracts related to its Main Pass sulphur operations and forward
oil sales contracts related to its Main Pass oil operations.
Freeport Sulphur has a price protection program covering
approximately 50 percent of its Main Pass sulphur mine natural
gas requirements for the first quarter of 2000. As of December
31, 1999, Freeport Sulphur had contracts to purchase
approximately 900,000 million British thermal units (mmbtu) of
natural gas at an average price of $2.43 per mmbtu. These
contracts had a fair value of approximately $(0.1) million as of
December 31, 1999.
Freeport Sulphur also has oil forward sales contracts
related to its Main Pass oil production. Gains or losses on these
contracts are recognized with the hedged transaction. Freeport
Sulphur settled contracts on 0.1 million barrels of oil at a cost
of $0.2 million during the fourth quarter of 1999. As of
December 31, 1999, Freeport Sulphur had contracts to sell 0.4
million barrels of oil at an average price of $20.48 per barrel
through December 2001. These contracts had a fair value of
approximately $(0.5) million as of December 31, 1999.
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), which establishes accounting and reporting standards
that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. In
June 1999, the FASB delayed SFAS 133's effective date by one year
to fiscal years beginning after June 15, 2000, with earlier
application permitted. McMoRan has tentatively determined it
will adopt SFAS 133 effective January 1, 2001 and does not
believe adoption will have a material impact on its financial
position or results of operations.
Environmental Remediation and Compliance. McMoRan incurs costs
for environmental programs and projects. Expenditures pertaining
to future revenues from operations are capitalized. Expenditures
resulting from the remediation of conditions caused by past
operations that do not contribute to future revenue generation
are expensed. Liabilities are recognized for remedial activities
when the efforts are probable and the costs can be reasonably
estimated.
Estimated future expenditures to restore properties and
related facilities to a condition that complies with
environmental and other regulations are accrued over the life of
the properties. These future expenditures are estimated based on
current costs, laws and regulations. At December 31, 1999,
McMoRan had $59.0 million in accrued abandonment, reclamation and
mine shutdown costs, collectively referred to as abandonment
costs hereafter. This total includes $31.7 million for the fully
accrued estimated abandonment costs associated with its non-
operating sulphur assets, including the Culberson mine, which
permanently ceased operations on June 30, 1999. This amount is
partially offset by a $9.2 million receivable included in "Other
Assets," representing a third party reimbursement commitment
relating to another non-operating sulphur property. Additionally,
at December 31, 1999, McMoRan's estimated abandonment costs of
its Main Pass oil operations totaling $7.0 million were fully
accrued. McMoRan's share of estimated abandonment costs
associated with its Main Pass sulphur mine and related facilities
totaled $59.5 million at December 31, 1999, of which $16.3
million was accrued. McMoRan's share of estimated abandonment
costs associated with its oil and gas properties, excluding Main
Pass oil, totaled $8.5 million at December 31, 1999, of which
$4.0 million was accrued. These estimates
<PAGE> 44
are by their nature
imprecise and can be expected to be revised over time because of
changes in government regulations, operations, technology and
inflation.
Share Repurchase Program. In May 1999, McMoRan's Board of
Directors authorized an open market share purchase program for up
to 1 million shares of its common stock, representing
approximately 7 percent of its then outstanding 14.1 million
common shares. In July 1999, the Board authorized the purchase of
up to an additional 1 million shares of McMoRan's common stock.
As of December 31, 1999, McMoRan had purchased 1,444,735 shares
of its common stock at an average cost of $18.31 per share.
Earnings Per Share. Basic net income (loss) per share was
calculated by dividing net income (loss) applicable to common
stock by the weighted-average number of common shares outstanding
during the years presented. Diluted net income (loss) per share
was calculated by dividing net income by the weighted-average
number of common shares outstanding during the years presented
plus outstanding dilutive options, which represented
approximately 266,000 shares of common stock during 1999.
McMoRan had outstanding options representing approximately
164,000 shares of common stock in 1998 and 125,000 shares of
common stock in 1997 that otherwise would have been included in
the calculation of diluted net loss per share, but were excluded
as anti-dilutive considering the losses incurred during the
respective years.
Outstanding options to purchase approximately 472,000 shares
of common stock, at an average exercise price of $22.15 in 1999,
813,000 shares of common stock at an average exercise price of
$19.31 in 1998, and 428,000 shares of common stock at an average
exercise price of $18.30 in 1997 were excluded from the diluted
net income (loss) per share calculation because their exercise
prices were greater than the average market price of McMoRan's
common shares for the years presented.
3. ACQUISITIONS
As a result of the Merger, McMoRan acquired Freeport Sulphur, a
business engaged in the mining, purchasing, transporting,
terminaling, processing, and marketing of sulphur and the
production of related oil reserves. The purchase price ($109.1
million) was based on the market value of Freeport Sulphur's
stock at the time the Merger was announced plus related Merger
costs. The excess purchase price over the estimated fair value
of the net assets acquired was allocated to goodwill, which is
being amortized on a straight-line basis over the estimated
average remaining lives of the assets acquired (30 years). The
final purchase price allocation follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 61,334a
Property, plant and equipment 106,906
Deferred tax asset 35,000
Goodwill 12,053
Current liabilities (26,845)b
Reclamation and mine shutdown reserves (net) (53,939)a
Other long-term liabilitiesand assets (net) (25,453)a
---------
Investment in Freeport Sulphur $ 109,056
=========
</TABLE>
a. Includes all reclamation and mine shutdown reserves offset by
a $0.1 million current receivable and a $9.6 million long-term
receivable, which represents a third party obligation to
reimburse McMoRan for costs.
b. Excludes current portions of reclamation and mine shutdown
reserves totaling $8.8 million.
The allocation of purchase price was adjusted in 1999 upon
the final determination of the valuation of certain assets
acquired and liabilities assumed. The most significant
adjustments included an increase in value assigned to McMoRan's
sulphur transportation and terminaling assets of $22.1 million
and a decrease in value assigned to the Main Pass sulphur mine
assets of $19.6 million. The increase in value of the
transportation and terminaling assets resulted from the
finalization of appraised values with additional valuation
information obtained during 1999. The Main Pass re-allocation was
the result of the evaluation of certain uncertainties that
existed at the time of the Merger. The most significant of these
include the sustainable production rates associated with the mine
and certain production cost savings that were excluded from
McMoRan's initial evaluation.
Effective January 1, 2000, McMoRan acquired from Texaco
Exploration and Production Inc. (Texaco) the right to explore and
earn assignments of operating rights in 89 oil and gas
properties. The properties cover about 391,000 gross acres and
are located in water depths ranging from 10 to 2,600 feet in
federal and state waters offshore Louisiana and Texas. McMoRan
has committed to $110 million of exploration expenditures by June
30, 2003 (see Note 10).
<PAGE> 45
On January 14, 2000, McMoRan purchased from Shell Offshore
Inc. (Shell), a wholly owned subsidiary of Royal Dutch Petroleum
Co., Shell's interest in 56 exploration leases for $37.7 million.
The leases cover approximately 260,000 gross acres and are
located in varying water depths of up to a maximum of
approximately 2,000 feet in the offshore Louisiana area. Four of
the leases are subject to preferential rights and may ultimately
be excluded from the purchase, which would result in an
adjustment of approximately $2.6 million to the purchase price.
McMoRan funded the purchase with borrowings under its existing
bank lines of credit (see Note 9).
The following unaudited selected pro forma information
presents the results of operations of McMoRan as if the Merger
had occurred on January 1, 1997 and as if McMoRan's acquisitions
described in Notes 4 and 5 had occurred on January 1, 1997,
except for the purchase of Phosphate Resource Partners' interest
in the exploration program which date is January 1, 1998. These
unaudited pro forma results of operations have been prepared for
informational purposes only and do not necessarily indicate the
results of operations that actually would have occurred had the
acquisitions taken place on these dates, or which may result in
the future.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(In Thousands, except per share data)
<S> <C> <C> <C>
Revenue $ 253,476 $ 198,324 $ 220,168
Net loss (8,620) (46,990) (13,885)
Basic and diluted net loss
per share (0.61) (3.34) (0.99)
</TABLE>
4. RIGHTS OFFERING AND EXPLORATION PROGRAM
In November 1997, McMoRan received net proceeds of $92.2 million
from the sale of 28.6 million shares of common stock at $3.50 per
share (equivalent to approximately 5.7 million McMoRan common
stock shares at $17.50 per share, as adjusted to reflect the
effects of the Merger) under the terms of a rights offering to
existing shareholders (the Rights Offering). The proceeds
included $13.5 million from Phosphate Resource Partners Limited
Partnership (Phosphate Resource Partners) (see Note 5). McMoRan
used approximately $44.5 million of the Rights Offering proceeds
to purchase from Phosphate Resource Partners certain assets of,
and to repay borrowings under, a previous exploration program
with MCN Energy Group Inc. (MCN Energy Group) (the MCN Program).
McMoRan used the remaining portion of the Rights Offering
proceeds to fund a portion of its share of an aggregate $210
million, multi-year oil and gas exploration program to explore
and develop prospects primarily offshore in the Gulf of Mexico
and onshore in the Gulf Coast region (the Exploration Program).
Phosphate Resource Partners and McMoRan contributed all of their
joint interests in exploration properties formerly part of the
MCN Program and certain other properties to the Exploration
Program. On November 9, 1999, McMoRan purchased Phosphate
Resource Partners' 47 percent interest in the Exploration Program
for $32 million, excluding certain customary purchase price
adjustments and related acquisition costs. Phosphate Resource
Partners and its parent, IMC Global Inc., also agreed to dismiss
with prejudice a lawsuit against McMoRan (see Note 10). McMoRan
currently owns a 95 percent interest in the Exploration Program,
with Mr. Gerald J. Ford, a member of McMoRan's Board of
Directors, owning the remaining five percent.
5. TRANSACTIONS WITH AFFILIATES
Management Services. FM Services Company (FM Services) provides
certain management and administrative services to McMoRan
including technical, administrative, accounting, financial, tax
and other services under a management services agreement.
Related amounts charged to McMoRan, which include the actual
costs of these services and related overhead, totaled $9.9
million in 1999 and $4.3 million in 1998. FM Services provided
services for a fixed annual fee of $1 million during 1997.
Effective with the Merger, McMoRan owned 45 percent of FM
Services. Prior to the Merger, McMoRan owned 25 percent of FM
Services. Management believes the costs for these services do
not differ materially from the costs that would have been
incurred had the relevant personnel providing the services been
employed directly by McMoRan during 1999 and 1998.
Phosphate Resource Partners Limited Partnership. As discussed in
Note 4, in November 1997, Phosphate Resource Partners purchased
approximately 9 percent or 3.9 million of McMoRan's total shares
(equivalent to approximately 5.5 percent or 770,000 of McMoRan's
post Merger total shares) for $13.5 million in fulfillment of its
commitment to purchase any shares relating to unexercised rights
from the Rights Offering (the Stand-By Commitment). In August
1997, Phosphate Resource Partners purchased MCN Energy Group's
interest in the Vermilion Blocks 160 and 410 oil and gas fields
($24.5 million), and assumed the then outstanding debt owed by
McMoRan under the MCN Program ($20.0 million). McMoRan paid
Phosphate Resource Partners a $6.0 million Stand-By Commitment
fee for acquiring and holding these assets until completion of
the Rights Offering, for entering into the Stand-By Commitment
and for
<PAGE> 46
agreeing to enter the Exploration Program. During the
third quarter of 1999, as part of McMoRan's open market share
purchase program (see Note 2), McMoRan purchased all of the
shares owned by Phosphate Resource Partners for $12.8 million or
$16.64 per share. For further discussion of certain litigation
involving Phosphate Resource Partners
see Note 10.
Property Purchase. In September 1997, McMoRan purchased for $4.5
million all of the oil and gas interests owned by Stratus
Properties Inc., a publicly traded company affiliated with
McMoRan at the time of the sale because it shared common
management and a common director. These properties, which
included three exploration prospects representing $3.0 million of
the purchase price and numerous property interests, are located
offshore in the Gulf of Mexico and in various onshore areas of
the United States. The acquisition cost of the three exploration
properties was shared 60 percent by Phosphate Resource Partners
and 40 percent by McMoRan and was included in the Exploration
Program.
Program Participant. Effective December 15, 1997, Mr. Gerald J.
Ford, an individual investor elected to McMoRan's Board of
Directors in January 1998, became an individual participant in
the Exploration Program. Through December 31, 1999, Mr. Ford has
paid $5.6 million for his proportionate share of the Exploration
Program and related development costs incurred.
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
The components of net property, plant and equipment follow (in
thousands):
December 31,
------------------------
1999 1998
--------- ----------
<S> <C> <C>
Buildings and facilities, other
than oil and gas $ 27,761 $ 42,598
Oil and gas exploration and
development costs 137,046 108,212
Transportation and terminaling 76,477 62,034
Other 1,741 1,562
--------- ---------
Property, plant and equipment 243,025 214,406
Accumulated depreciation and
amortization (44,493) (27,269)
--------- ---------
Property, plant and equipment, net $ 198,532 $ 187,137
========= =========
</TABLE>
7. EMPLOYEE BENEFITS
Stock Options. Prior to the Merger, both McMoRan Oil & Gas and
Freeport Sulphur had outstanding non-qualified stock options and
McMoRan Oil & Gas had outstanding stock appreciation rights
(collectively, stock-based awards) previously granted under
certain McMoRan Oil & Gas and Freeport Sulphur benefit plans.
Pursuant to the Merger, all outstanding stock-based awards were
cancelled and substituted with McMoRan stock options granted
under the McMoRan Adjusted Stock Award Plan (McMoRan Adjusted
Plan).
The McMoRan Adjusted Plan issued stock options on the same
basis as the McMoRan common shares that were distributed to the
former McMoRan Oil & Gas and Freeport Sulphur shareholders upon
consummation of the Merger (see Note 1). Accordingly, for each
McMoRan Oil & Gas and Freeport Sulphur stock-based award
outstanding at the Merger date, McMoRan stock options were
granted in amounts and with exercise prices equal to the previous
McMoRan Oil & Gas and Freeport Sulphur awards, as adjusted to
reflect the Merger. Each McMoRan stock option has the same
vesting schedule, expiration date and substantially the same
terms and conditions as the original McMoRan Oil & Gas and
Freeport Sulphur stock-based awards.
In November 1998, the McMoRan Oil & Gas and Freeport Sulphur
shareholders approved the McMoRan 1998 stock option plan (the
1998 Plan) in connection with the Merger. The 1998 Plan is
authorized to grant options representing up to 775,000 McMoRan
common shares. McMoRan also adopted the McMoRan 1998 Stock
Option Plan for Non-Employee Directors (the Director Plan),
authorizing McMoRan to grant directors options to purchase up to
75,000 McMoRan common shares. Generally, stock options granted
are exercisable in 25 percent annual increments beginning one
year from the date of grant and will expire 10 years after the
date of grant. However, in early 1999, an investor group's
beneficial ownership of McMoRan common stock increased to a level
that exceeded the 20 percent threshold that triggers acceleration
of the vesting periods under the provision of the McMoRan
Adjusted Plan. As a result, all options issued under the McMoRan
Adjusted Plan became fully exercisable. Options to purchase
152,250 shares under the 1998 Plan and 72,000 shares under the
Director Plan were available for new grants as of December 31,
1999.
<PAGE> 47
A summary of stock options outstanding (with prior years'
outstanding McMoRan Oil & Gas options adjusted to reflect the
effective reverse stock split as a result of the Merger) follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ ------------------
Average Average Average
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
--------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 1,501,884 $ 16.82 1,021,227 $ 15.80 427,939 $ 19.40
Granted 646,000 17.49 65,500 24.95 469,546 17.95
Issued to Freeport
Sulphur
optionholders - - 464,784 17.87 -
Adjustments - - - - 156,449 -
Exercised (121,666) 16.16 (19,885) 15.23 (6,932) 16.40
Expired/forfeited (135,105) 17.21 (29,742) 17.70 (25,775) 17.70
--------- --------- ---------
End of year 1,891,113 17.06 1,501,884 16.82 1,021,227 15.80
========= =========
</TABLE>
In July 1997, pursuant to a new stock option plan approved
by Board of Directors, options exercisable over a four-year
period to purchase 390,800 equivalent McMoRan common shares were
granted to certain officers, employees, and others. All such
options were granted at the July 1997 market price of $18.13.
McMoRan's shareholders approved the new stock option plan and
subsequent grants in October 1997, at which time the market price
of McMoRan's stock was $21.35 per share. McMoRan recognizes non-
cash compensation expense for the market price differential.
Summary information of stock options outstanding at December
31, 1999 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Option Number Option
Range of Exercise Prices of Options Life Price Of Options Price
- ------------------------ ---------- ----------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
$9.44 to $13.89 723,090 5.9 years $ 12.76 389,590 $ 11.81
$14.20 to $21.01 828,297 5.4 years 18.52 817,297 18.50
$21.70 to $25.31 339,726 7.4 years 22.65 64,726 24.86
--------- ---------
1,891,113 1,271,613
========= =========
</TABLE>
McMoRan has adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock Based Compensation," and continues to
apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. Accordingly,
no compensation cost has been recognized for McMoRan's stock
option grants except as discussed above. Had compensation cost
for McMoRan's stock option grants been determined based on the
fair value at the grant dates for awards under those plans
consistent with SFAS 123, McMoRan's proforma results would have
reflected an $8.6 million net loss ($0.63 per share) compared to
its $0.1 million ($0.01 per share) reported net income for 1999.
These 1999 proforma results include approximately $8.0 million of
compensation associated with the accelerated vesting of options
granted under the McMoRan Adjusted Plan. McMoRan's SFAS 123
proforma results would have reflected an increase in its net
losses by $3.0 million to $21.1 million ($2.29 per share) in
1998, and by $1.1 million to $11.6 million ($3.08 per share) in
1997. For the pro forma computations, the fair values of the
option grants were estimated on the dates of grant using the
Black-Scholes option pricing model. The weighted average fair
value for stock option grants was $10.00 per option in 1999, and
$7.89 per option in 1998 and $14.45 per option in 1997, as
adjusted for the effects of the Merger. The weighted average
assumptions used include a risk-free interest rate of 5.6 percent
in 1999, 5.3 percent in 1998 and 6.6 percent in 1997, with
expected volatility of 34 percent in 1999, 47 percent in 1998 and
67 percent in 1997 and expected lives of 10 years. The pro forma
effects on net income are not representative of future years
because of the accelerated vesting in 1999 and because they do
not take into consideration grants made prior to 1995. No other
discounts or restrictions related to vesting or the likelihood of
vesting of stock options were applied.
Pension Plans and Other Benefits. McMoRan's defined benefit plan
assets and liabilities and related costs prior to the Merger were
immaterial due to its limited number of employees. In connection
with the Merger, McMoRan acquired Freeport Sulphur's defined
benefit plan and merged its plan into Freeport Sulphur's.
Substantially all employees are covered by McMoRan's defined
benefit plan. Under the plan, McMoRan credits each participant's
account annually with at least 4 percent of the participant's
qualifying compensation. Additionally, interest is credited
annually to each participant's account
<PAGE> 48
balance. McMoRan funds its
respective pension liability in accordance with Internal Revenue
Service guidelines. Additionally, for those employees in the
qualified defined benefit plan whose benefits are limited under
federal income tax laws, McMoRan sponsors an unfunded,
nonqualified plan. McMoRan, as a result of the Merger, also
provides certain health care and life insurance benefits (Other
Benefits) for retired employees. In connection with certain early
retirement programs implemented during 1999, McMoRan increased
its benefit obiligation by approximately $3.0 million in special
termination benefits granted to retiring employees. McMoRan has
the right to modify or terminate these benefits. Information on
the McMoRan plans follows (dollars in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- ------------------
1999 1998 1999 1998
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at the beginning
of the year $ (10,366) $ - $ (1,953) $ -
Acquisition of Freeport Sulphur - (10,860) - (1,856)
Service cost (782) (60) (104) (9)
Interest cost (783) (60) (128) (10)
Plan amendments - - (65) -
Special termination benefits (3,031) - - -
Actuarial gain (losses) 261 613 492 (78)
Benefits paid 2,149 1 8 -
--------- -------- -------- -------
Benefit obligation at end of year (12,552) (10,366) (1,750) (1,953)
--------- -------- -------- -------
Change in plan assets:
Fair value of plan assets at
beginning of year 15,306 - - -
Acquisition of Freeport Sulphur - 14,714 - -
Actual return on plan assets 2,478 593 - -
Employer contributions - - 8 -
Benefits paid (2,149) (1) (8) -
--------- -------- -------- -------
Fair value of plan assets at
end of year 15,635 15,306 - -
--------- -------- -------- -------
Funded status 3,083 4,940 (1,750) (1,953)
Unrecognized net actuarial
(gain) loss (2,496) (1,095) (414) 78
Unrecognized prior service cost - - 60 -
--------- -------- -------- -------
Prepaid (accrued) benefit cost $ 587 $ 3,845 $ (2,104) $(1,875)
========= ======== ======== =======
Weighted-average assumptions
(percent):
Discount rate 8.00 6.75 8.00 6.75
Expected return on plan assets 9.00 9.00 - -
Rate of compensation increase 4.25 4.25 - -
</TABLE>
The initial health care cost trend rate used for the other
benefits was 7.0 percent for 1999, decreasing ratably annually
until 2004 reaching 4.75 percent. A one-percentage point
increase or decrease is assumed health care cost trend rates
would not have a significant impact on service or interest costs.
The components of net periodic benefit cost for McMoRan's plans
follow (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Service cost $ 782 $ 60 $ 104 $ 9
Interest cost 783 60 128 10
Expected return on plan assets (1,339) (112) - -
Amortization of prior service costs - - 5 -
------- ------ ------ ------
Net periodic benefit cost $ 226 $ 8 $ 237 $ 19
======= ====== ====== ======
</TABLE>
McMoRan has a savings plan under Section 401(k) of the
Internal Revenue Code. The plan allows eligible employees to
contribute up to 20 percent of their pre-tax compensation subject
to limitations prescribed by the Internal Revenue Code, which for
both 1998 and 1999 was $10,000. McMoRan matches 100 percent of
the first 5 percent of the employees' contribution, with such
matching amounts vesting after 5 years of service, the amount of
which was $0.7 million in 1999. These amounts were immaterial in
1998 and 1997. McMoRan has other employee benefit plans, certain
of which are related to McMoRan's performance, which costs are
recognized currently in general and administrative expense.
<PAGE> 49
8. INCOME TAXES
McMoRan recorded a $35.0 million net deferred tax asset pursuant
to SFAS 109, "Accounting for Income Taxes," upon the acquisition
of Freeport Suphur's assets (see Note 3). McMoRan's results of
operations are highly dependent upon oil, gas and sulphur prices
and production quantities, which may vary from estimates.
McMoRan has evaluated the realizability of the net deferred tax
asset in light of estimates of production quantities, oil, gas
and sulphur prices and the level of expected future expenses.
Although McMoRan currently believes that these net deferred tax
assets more likely than not will be realized through future
earnings and/or tax planning strategies, changes in estimates of
projected operating results could result in changes in the amount
of deferred tax assets considered realizable. Recognition of
future tax benefits resulting from reduction of the valuation
allowance relating to the Freeport Sulphur acquisition will
reduce any related goodwill remaining at that time, while other
changes in the valuation allowance will be charged to earnings.
The components of McMoRan's net deferred tax asset at December
31, 1999 and 1998 follow (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards
(expire 2006-2019) $ 43,871 $ 43,157
Capital loss carryforwards (expired in 1999) - 4,924
Property, plant and equipment 30,673 29,714
Reclamation and shutdown reserves 20,833 19,060
Deferred compensation, postretirement
and pension benefits 3,650 3,650
Goodwill 3,234 3,529
Other 3,199 957
Less valuation allowance (70,519) (69,991)
-------- --------
Net deferred tax asset $ 34,941 $ 35,000
======== ========
</TABLE>
McMoRan recognized no income tax provision or benefit prior
to 1999. Income taxes totaled $71,000 in 1999, which included
state income taxes of $12,000 and deferred federal income taxes
of $59,000.
<TABLE>
<CAPTION>
Reconciliations of the differences between income taxes computed
at the federal statutory tax rate and the income taxes recorded
follow (dollars in thousands):
1999 1998 1997
-------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes
computed at the federal
statutory income tax rate $ (63) (35)% $ 6,341 35 % $ 3,688 35 %
Change in valuation allowance (525) (291)% (6,341) (35)% (3,688) (35)%
State taxes and other 517 287 % - - - -
------ ---- ------- --- ------- ----
Income tax provision $ (71) (39)% - - - -
====== ==== ======= === ======= ====
</TABLE>
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
--------- --------
(In Thousands)
<S> <C> <C>
Freeport Sulphur credit facility, average rate
7.48% in 1999 $ 14,000 $ -
McMoRan Oil & Gas credit facility, average
rate 8.21% in 1999 - -
--------- --------
$ 14,000 $ -
========= ========
</TABLE>
McMoRan has two separate credit facilities, providing for
aggregate borrowings of up to $135 million, subject to certain
restrictions. As a result of the Merger, McMoRan assumed a $100
million variable rate revolving credit facility (approximately
$50 million unborrowed availability available at December 31,
1999) with a group of banks previously established by Freeport
Sulphur. The variable rate facility matures in December 2002,
requires minimum levels of cash
<PAGE> 50
flow to interest coverage and
permits a maximum allowable debt to cash flow level for
McMoRan's sulphur subsidiary. The facility is subject to a
negative pledge on certain of McMoRan's sulphur assets. Facility
fees on the unused $100 million commitment are variable, with a
minimum of 0.2 percent annually.
In August 1998, McMoRan Oil & Gas entered into a one-year,
unsecured variable rate $15 million line of credit with a group
of banks. During the third quarter of 1999 McMoRan Oil & Gas
exercised a provision of the credit facility agreement, which
subject to certain conditions, including providing security for
the facility, increased the size of the facility to $20 million.
McMoRan Oil & Gas also exercised its option to extend the term
for approximately two additional years. In January 2000, this
facility was amended and restated. Under the terms of the
amended and restated facility, McMoRan Oil & Gas can borrow up to
$35 million. Borrowings under this facility are subject to a
borrowing base, which will be redetermined on April 1, 2000 and
then semi-annually thereafter. If on April 1, 2000 borrowings exceed
the applicable redetermined borrowing base in effect, McMoRan Oil
& Gas would have 28 days to repay the excess or otherwise be in
default under the agreement. After April 28, 2000 McMoRan will
have 45 days to cure any borrowing base deficiencies. The facility is
secured by McMoRan Oil & Gas'assets, including its oil and gas reserves,
and will mature in January 2002.
10. COMMITMENTS AND CONTINGENCIES
Commitments. At December 31, 1999, McMoRan had actual year 2000
commitments for drilling and related expenditures of
approximately $31.0 million. Actual expenditures could be
significantly higher during 2000 as McMoRan commits to additional
drilling on prospects it has recently acquired (Note 3).
Effective January 1, 2000 McMoRan entered into an agreement with
Texaco that committed it to expend $110 million on exploration by
June 30, 2003 (see Note 4). Under the terms of the agreement
McMoRan is required to spend a minimum of $10 million during
2000, an additional $40 million through June 30, 2001, an
additional $30 million through June 30, 2002 and an additional
$30 million by June 30, 2003. If McMoRan does not meet this
commitment schedule it will be subject to a penalty payment of 25
percent of the remaining unexpended and uncommitted minimum
amount for the applicable period.
Additionally, McMoRan has a contract with CLK Company
L.L.C., a company independently owned by its employees, to
provide geological and geophysical services to McMoRan on an
exclusive basis. The contract provides for an annual retainer
fee of $2.5 million ($0.5 million of the annual fee paid in
McMoRan common stock, recorded at fair market value at the time
issued), plus certain expenses and a 3 percent overriding royalty
interest in prospects accepted by McMoRan. Cost of services
provided by CLK totaled $2.7 million in 1999, $2.6 million in
1998 and $3.0 million in 1997.
Long-term Contracts and Operating Leases. McMoRan's minimum
annual contractual charges under non-cancelable long-term
contracts and operating leases total $150.9 million, with $20.4
million in 2000, $16.4 million in 2001, $15.2 million in 2002,
$15.0 million in 2003, $15.0 million in 2004 and $68.9 million
thereafter. These operating lease payments are primarily
associated with McMoRan leasing the services of an additional
tanker to enhance its sulphur marine transportation services and
the leasing of its previously owned sulphur rail cars.
Other Liabilities. Freeport Sulphur has a liability to IMC
Global Inc. for a portion of IMC Global's postretirement benefits
costs relating to certain retired employees of Freeport Sulphur.
At December 31, 1999 the liability was estimated to total $12.3
million, including $1.7 million in current liabilities. Future
changes to this estimate because of changes in assumptions or
actual results varying from projected results will be recorded in
earnings.
Additionally, Freeport Sulphur has a liability to Pennzoil
Company, which subsequently became Devon Energy Corporation
(Pennzoil), arising from Freeport Sulphur's previous acquisition
of Pennzoil's sulphur division, including the Culberson mine in
west Texas. Production at the Culberson mine permanently ceased
on June 30, 1999. As part of our original acquisition of the
Culberson mine, we are required to make quarterly payments to
Pennzoil whether or not Culberson mine is operational. The
amount of these quarterly payments varies based on the average
market price of sulphur for a given quarter, which also
determines what assumed volumes of sulphur would be produced
during that specific quarter. The payments terminate on the
earlier of 2015 or the quarter in which the cumulative assumed
volume of production exceeds 18.6 million long tons of sulphur.
Under this arrangement we paid Pennzoil $0.4 million for the
period following the acquisition of Freeport Sulphur in 1998 and
$3.1 million in 1999. The estimated future installment payments,
based on estimated long-term sulphur prices, were recorded in
McMoRan's accrued long-term liabilities. Beginning on January 1,
1999 and each subsequent third anniversary of that date, the
installment payments may be terminated earlier either by Freeport
Sulphur or Pennzoil. Freeport Sulphur has the option of making a
$65 million lump sum payment less a cumulative inflation
adjustment on the date the right is exercised, but in no event
less than $10 million. Pennzoil, within a defined time period
after each option date, can request Freeport Sulphur to make a
$10 million lump sum payment in exchange for it relinquishing its
rights to receive further payments under the
<PAGE> 51
agreement. Changes
to this estimate because of changes in assumptions or actual
results varying from projected results are reflected in earnings
as a component of production costs. During the fourth quarter of
1999, McMoRan reduced this obligation by $3.1 million to reflect
the impact of a change in expected future sulphur prices.
Litigation. In May 1998, IMC Global, the managing partner of
Phosphate Resource Partners, and Phosphate Resource Partners
filed suit against four former directors of Freeport-McMoRan Inc.
and McMoRan Oil & Gas. A second suit was filed subsequently on
behalf of a purported class of plaintiffs who own depository
units of Phosphate Resource Partners naming the same defendants
as above as well as IMC Global and Phosphate Resource Partners.
The plaintiffs in both cases allege the defendants breached their
fiduciary duties in the approval of the Exploration Program. The
plaintiffs sought unspecified monetary damages and recission or
equitable reformation of the Exploration Program agreement. On
November 9, 1999, in connection with McMoRan's purchase of
Phosphate Resource Partners' interest in the Exploration Program,
Phosphate Resource Partners and IMC Global agreed to dismiss
their litigation with prejudice against McMoRan and the four
former directors of Freeport-McMoRan and McMoRan Oil & Gas.
On October 22, 1998, a plaintiff purporting to represent a
class of public stockholders of Freeport Sulphur filed a
complaint against Freeport Sulphur, certain directors or officers
of Freeport Sulphur and McMoRan Oil & Gas. A second class action
suit was filed on December 15, 1998 naming the same individual
directors as above and McMoRan as defendants. These lawsuits
were later consolidated into one suit on January 13, 1999. The
plaintiffs allege that the individual defendants breached their
fiduciary duties in structuring the Merger in a manner unfair to
former Freeport Sulphur shareholders and failed to obtain the
true value of Freeport Sulphur. The plaintiffs also allege that
McMoRan Oil & Gas aided and abetted the alleged breach of
fiduciary duties. The plaintiffs seek damages and other relief.
McMoRan believes that this suit is without merit and intends to
vigorously defend itself.
On July 22, 1999, Freeport Sulphur filed a lawsuit against
IMC-Agrico Company (see Note 11) seeking a judicial declaration
that IMC-Agrico has no basis to renegotiate the terms of the 1993
Supply Agreement between Freeport Sulphur and IMC-Agrico.
Freeport Sulphur will continue to vigorously pursue this lawsuit
against IMC-Agrico.
On December 22, 1999, Freeport Sulphur's 16.7 percent
partner in Main Pass, Homestake Sulphur Company LLC, filed suit
seeking a declaratory judgement supporting its position that it
has the right, pursuant to the Sulphur Joint Operating Agreement,
to waive its share of Main Pass' year 2000 production and its
obligations under the processing and marketing agreements.
Freeport Sulphur has advised Homestake that in its opinion the
conditions precedent to its right to make the election do not
exist.
Environmental. McMoRan has made, and will continue to make,
expenditures for the protection of the environment. McMoRan is
subject to contingencies as a result of environmental laws and
regulations. Increased emphasis on environmental matters could
affect present and future environmental laws and regulations
applicable to McMoRan's operations which could require
substantial capital expenditures or could adversely affect its
operations in other ways that cannot be accurately predicted at
this time.
11. BUSINESS SEGMENTS
McMoRan has adopted Statement of Financial Accounting Standards
131, "Disclosures About Segments of an Enterprise and Related
Information," which requires that companies disclose segment data
based on how management makes decisions about allocating
resources to segments and measuring their performance. McMoRan
had only one operating segment until the Merger, when it acquired
sulphur assets from Freeport Sulphur. McMoRan's oil and gas are
produced offshore in the Gulf of Mexico and currently include its
facilities at Vermilion Blocks 160 and 159, West Cameron Block
616 and Brazos Block A-19. McMoRan's oil and gas segment also
includes the oil produced at Main Pass 299 from the same geologic
formation containing the deposit's sulphur. The sulphur business
segment includes purchasing recovered sulphur and the
transporting and terminaling of sulphur, both mined and
purchased, utilizing its extensive logistics network of sulphur
terminaling and transportation assets in the Gulf Coast region.
Additionally, Frasch sulphur is produced at the Main Pass mine
located 32 miles offshore Louisiana and was produced from the
Culberson mine in west Texas, until it permanently ceased
production on June 30, 1999.
A significant portion of the sulphur produced or purchased
is sold to IMC-Agrico, a chemical fertilizer producer jointly
owned by IMC Global and Phosphate Resource Partners, under a
long-term supply contract that extends for as long as IMC-Agrico
has a requirement for sulphur. Sales to IMC-Agrico totaled 55.9
percent of McMoRan's total revenues and 72.6 percent of its
sulphur sales during 1999 and 35.9 percent of its total revenues
and 68.4 percent of its sulphur sales for the 1998 period after
the Merger. At December 31, 1999 the receivable from IMC-Agrico
totaled 50.8 percent of total customer accounts receivable and
70.0 percent of sulphur customer receivables. Oil produced from
the
<PAGE> 52
Main Pass facility has been sold exclusively to Amoco
Production Company since the Merger date under a sales contract
which has been extended to June 30, 2000. McMoRan's remaining oil
and gas production is sold to various U.S. purchasers, including
one gas purchaser comprising over 90 percent of total gas
revenue. No other single customer accounted for greater than 10
percent of total revenues in 1999, 1998 or 1997. All of McMoRan's
customers are currently located in the United States.
<TABLE>
<CAPTION>
Sulphur Oil & Gas Other Total
--------- --------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
1999
Revenues $ 189,687 $ 54,344 $ - $ 244,031
Production and delivery 172,057 16,491 - 188,548
Depreciation and amortization 6,426 30,633 - 37,059
Exploration expense - 6,411 - 6,411
General and administrative expense 7,629 4,081 3,297 15,007
Gain on sale of property (555) (2,550) - (3,105)
--------- --------- -------- ---------
Operating income (loss) 4,130 (722) (3,297) 111
Interest expense (379) (300) - (679)
Interest and other income 352 396 - 748
Income tax provision - (12) (59) (71)
--------- --------- -------- ---------
Net income (loss) $ 4,103 $ (638) $ (3,356) $ 109
========= ========= ======== =========
Capital expenditures, net $ 7,933 21,914 $ a $ 29,847
========= ========= ======== =========
Total assets $ 160,284 $ 104,743 $ 36,254b $ 301,281
========= ========= ======== =========
1998
Revenues $ 24,276 $ 21,626 $ - $ 45,902
Production and delivery 23,096 4,632 - 27,728
Depreciation and amortization 573 17,160 - 17,733
Exploration expense - 14,533 - 14,533
General and administrative expense 1,267 4,412 - 5,679
Gain on sale of property - (447) - (447)
--------- --------- -------- ---------
Operating loss (660) (18,664) - (19,324)
Interest expense (50) (188) - (238)
Interest and other income 132 1,314 - 1,446
--------- --------- -------- ---------
Net loss $ (578) $ (17,538) $ - $ (18,116)
========= ========= ======== =========
Capital expenditures, net $ 3,087 $ 51,543a $ - $ 54,630
========= ========= ======== =========
Total assets $ 190,310 $ 90,485 $ 39,593b $ 320,388
========= ========= ======== =========
</TABLE>
(a) Includes oil and gas exploration and development costs incurred.
(b) Represents assets held by the parent company, the most significant of
which include McMoRan's deferred tax assets and certain prepaid pension
benefits.
12. SUPPLEMENTARY OIL AND GAS INFORMATION
McMoRan's oil and gas exploration, development and production
activities are conducted in the offshore Gulf of Mexico and
onshore Gulf Coast areas of the United States. Supplementary
information presented below is prepared in accordance with
requirements prescribed by SFAS 69 "Disclosures about Oil and
Gas Producing Activities."
<TABLE>
<CAPTION>
Oil and Gas Capitalized Costs.
Years Ended
December 31,
--------------------
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Unevaluated properties $ 9,702 $ 5,953
Evaluated 127,344 102,259
--------- ---------
Subtotal 137,046 108,212
Less accumulated depreciation, depletion
and amortization (40,419) (26,941)
--------- ---------
Net oil and gas properties $ 96,627 $ 81,271
========= =========
</TABLE>
<PAGE> 53
Costs Incurred in Oil and Gas Property Acquisition, Exploration
and Development Activities.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Acquisition of properties:
Proved $ 34,172 $ 5,037 $ 26,005
Unproved 2,388 103 3,332
Exploration costs 12,000 19,006 20,551
Development costs 10,764 27,554 9,794
-------- -------- --------
$ 59,324 $ 51,700 $ 59,682
======== ======== ========
</TABLE>
Proved Oil and Gas Reserves (Unaudited). Proved oil and gas
reserves at December 31, 1999 have been estimated by independent
petroleum engineers in accordance with guidelines established by
the Securities and Exchange Commission (SEC). Thus, the
following reserve estimates are based upon existing economic and
operating conditions; they are only estimates and should not be
construed as being exact. Substantially all of McMoRan's proved
reserves, including the 3,668,000 barrels of oil acquired at Main
Pass on November 17, 1998, are located in offshore United States
waters. Oil, including condensate and plant products, is stated
in thousands of barrels and natural gas is in millions of cubic
feet.
<TABLE>
<CAPTION>
Oil Gas
------------------- -----------------------
1999 1998 1997 1999 1998 1997
------ ----- ---- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year 3,996 463 168 58,461 40,234 16,054
Revisions of previous estimates 1,823 14 1 (1,102) 4,111 38
Discoveries and extensions 746 68 195 589 18,788 21,481
Production (1,354) (304) (34 (14,026) (8,634) (4,061)
Sale of reserves (5) - (17) (7,112) - (3,307)
Purchase of reserves 39 3,755 150 25,765 3,962 10,029
----- ----- ---- ------ ------ ------
End of year 5,245 3,996 463 62,575 58,461 40,234
===== ===== ==== ====== ====== ======
Proved developed reserves:
Beginning of year 3,984 383 58 39,428 23,086 7,530
===== ===== ==== ======= ====== ======
End of year 4,499 3,984 383 61,630 39,428 23,086
===== ===== ==== ======= ====== ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves (Unaudited).
McMoRan's standardized measure of discounted future net cash
flows and changes therein relating to proved oil and gas reserves
were computed using reserve valuations based on regulations
prescribed by the SEC. These regulations provide for the use of
year-end oil and gas prices (escalated only when known and
determinable price changes are provided by contract and law) in
the projection of future net cash flows.
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- ---------
(In Thousands)
<S> <C> <C>
Future cash inflows $ 265,683a $ 165,216
Future costs applicable to future cash flows:
Production costs (87,744) (51,226)
Development and abandonment costs (30,795) (33,527)
Future net cash flows before income taxes 147,144 80,463
Future income taxes - -
Future net cash flows 147,144 80,463
Discount for estimated timing of net cash
flows (10% discount rate) (33,981) (13,012)
----------- ---------
$ 113,163 $ 67,451
=========== =========
</TABLE>
a. Includes a reduction of approximately $2.1 million to future
cash inflows resulting from the hedged positions of Main Pass'
oil, as discussed in Note 1, "Financial Instruments and
Contracts."
Because McMoRan has sufficient tax deductions and losses to
utilize against estimated future taxable income, in accordance
with SFAS 69 no deductions for future income taxes have been made
above.
<PAGE> 54
Changes in Standardized Measure of Discounted Future Net Cash
Flows From Proved Oil and Gas Reserves (Unaudited).
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998 1997
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Beginning of year $ 67,451 $ 45,623 $ 35,341
Revisions:
Changes in prices 26,745 (9,128) (13,869)
Accretion of discount 6,745 4,562 3,534
Other changes, including revised
estimates of development costs and
rates of production (927) 1,029 (6,040)
Discoveries and extensions, less related costs 6,135 10,273 15,502
Development costs incurred during the year 14,590 24,007 6,630
Revenues, less production costs (37,853) (16,994) (10,193)
Sale of reserves in place (5,260) - (3,437)
Purchase of reserves in place 35,537 8,079 18,155
--------- -------- --------
End of year $ 113,163 $ 67,451 $ 45,623
========= ======== ========
</TABLE>
13. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)
Proved and probable sulphur reserves for the Main Pass mine
totaled approximately 13.7 million long tons at December 31, 1999
and are subject to a 12.5 percent royalty based on net mine
revenues. Main Pass' estimated reserves reflect a substantial
decrease from the 52.4 million long tons reported at December 31,
1998. Although Main Pass' estimated physically producible
sulphur reserves have not changed, McMoRan reduced the estimates
of commercially recoverable reserves primarily based on its
expectations of decreased production rates at the mine, partially
offset by anticipated cost savings.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Net Income(Loss)
per Share
Operating Net Income ---------------
Revenues Income (Loss) (Loss) Basic Diluted
--------- ------------ ---------- ------ -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1999
1st Quarter $ 62,111 $ 1,895 $ 1,314 $ 0.09 $ 0.09
2nd Quarter 63,289 1,067 839 0.06 0.06
3rd Quarter 60,102 (1,968) (1,271) (0.10) (0.10)
4th Quarter 58,529 (883) (773) (0.06) (0.06)
--------- ------------ ----------
$ 244,031 $ 111 $ 109 0.01 0.01
========= ============ ==========
1998 a
1st Quarter $ 5,779 $ (7,421) $ (7,020) $ (0.82)$ (0.82)
2nd Quarter 5,999 (8,189) (7,858) (0.92) (0.92)
3rd Quarter 4,147 (1,490) (1,102) (0.13) (0.13)
4th Quarter b 29,977 (2,224) (2,136) (0.16) (0.16)
--------- ------------ ----------
$ 45,902 $ (19,324) $ (18,116) (1.96) (1.96)
========= ============ ==========
</TABLE>
a. Earnings per share dated restated to reflect the effective
reverse stock split resulting from the Merger.
b. Includes the results of Freeport Sulphur, subsequent to its
acquisition on November 17, 1998 (see Notes 1 and 3).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding executive officers required by
Item 10 may be found following Item 4 of this report.
Information concerning McMoRan's directors required by Item 10 is
incorporated by reference from McMoRan's definitive proxy
statement for its 2000 Annual Meeting of Stockholders.
<PAGE> 55
Item 11. Executive Compensation
Information concerning the compensation of McMoRan's
executive officers required by Item 11 is incorporated by
reference from McMoRan's definitive proxy statement for its 2000
Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain
beneficial owners and management required by Item 12 is
incorporated by reference from McMoRan's definitive proxy
statement for its 2000 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related
transactions required by Item 13 is incorporated by reference
from McMoRan's definitive proxy statement for its 2000 Annual
Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1). Financial Statements. Reference is made to Item 8
hereof.
(a)(2). Financial Statement Schedules. Schedules have not
been included because they are not required, not
applicable or the information required has been included
elsewhere herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted
auditing standards, the financial statements as of December 31,
1999 and 1998 for each of the three years in the period ended
December 31, 1999 included in McMoRan Exploration Co.'s annual
report to shareholders included elsewhere in this Form 10-K, and
have issued our report thereon dated January 19, 2000. Our
audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule below is the
responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP
New Orleans, Louisiana
January 19, 2000
<PAGE> 56
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Other Balance
Beginning Costs and Other Add at End
of Year Expense Accounts (Deduct) of Year
---------- ---------- ---------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Reclamation and mine
shutdown reserves:
1999
- ----
Sulphur $ 56,597 $ 1,878 $ - $(10,487) a $ 47,988
Oil 9,986 1,061 - (71) b 10,976
------------ -------- ------- -------- --------
$ 66,583 $ 2,939 $ - $(10,558) $ 58,964
============ ======== ======= ======== ========
1998
- ----
Sulphur $ - $ 100 $ - $ 56,497 c $ 56,597
Oil 584 1,100 - 8,302 d,e 9,986
------------ -------- ------- -------- --------
$ 584 $ 1,200 $ - $ 64,799 $ 66,583
============ ======== ======= ======== ========
1997
- ----
Oil $ 110 $ 474 $ - $ - $ 584
============ ======== ======= ======== ========
$ 110 $ 474 $ - $ - $ 584
============ ======== ======= ======== ========
</TABLE>
a. Reflects reclamation and abandonment costs incurred during
1999, primarily associated with efforts ongoing at the
Culberson mine, in west Texas ($9.1 million).
b. Includes the sale of McMoRan's interest in the Vermilion
Block 410 field ($1.1 million) offset in part by the
purchase of additional ownership interest in Vermilion Block
144 Platform ($1.0 million).
c. Includes the liabilities assumed in connection with the
acquisition of Freeport Sulphur's operations.
d. Includes the $7.0 million liability assumed in connection
with the acquisition of Freeport Sulphur's oil operations at
Main Pass.
e. Includes the $1.3 million liability assumed in connection
with the acquisition of the platform at Vermilion Block 144.
____________________
No other schedules have been included because they are not
required, not applicable or the information has been included
elsewhere herein.
(a)(3) Exhibits
Reference is made to the Exhibit Index beginning on
page E-1 hereof.
(b) Reports on Form 8-K
The registrant filed two Current Reports on Form 8-K dated
December 21, 1999 and January 19, 2000 reporting events under
Item 5. Additionally, the registrant filed a Current Report on
Form 8-K dated January 14, 2000 reporting under Items 2 and 7
reporting the acquisition of oil and gas interests from Shell
Offshore Inc.
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 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 on February 7, 2000.
McMoRan Exploration Co.
By: /s/ Richard C. Adkerson
-------------------------------------
Richard C. Adkerson
Co-Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and the capacities indicated,
on February 7, 2000.
*
------------------------ Co-Chairman of the Board
James R. Moffett
/s/ Richard C. Adkerson
------------------------ Co-Chairman of the Board, President
Richard C. Adkerson and Chief Executive Officer
(Principal Executive Officer)
*
------------------------ Vice Chairman of the Board
Rene L. Latiolais
/s/ Nancy D. Parmelee Senior Vice President, Chief
------------------------ Financial Officer and Secretary
Nancy D. Parmelee (Principal Financial Officer)
*
------------------------ Vice President and Controller
C. Donald Whitmire - Financial Reporting
(Principal Accounting Officer)
*
---------------------- Director
Morrison C. Bethea
*
---------------------- Director
Robert A. Day
*
---------------------- Director
Gerald J. Ford
*
--------------------- Director
H. Devon Graham, Jr.
*
--------------------- Director
Gabrielle K. McDonald
*
--------------------- Director
B. M. Rankin, Jr.
*
--------------------- Director
J. Taylor Wharton
*By: /s/ Richard C. Adkerson
-----------------------
Richard C. Adkerson
Attorney-in-Fact
<PAGE> S-1
McMoRan Exploration Co.
Exhibit Index
Exhibit Number
2.1 Agreement and Plan of Mergers dated as of August 1,
1998. (Incorporated by reference to Annex A to
McMoRan's Registration Statement on Form S-4
(Registration No. 333-61171) filed with the SEC on
October 6, 1998 (the McMoRan S-4)).
3.1 Amended and Restated Certificate of Incorporation of
McMoRan. (Incorporated by reference to Exhibit 3.1 to
McMoRan's 1998 Annual Report on Form 10-K (the McMoRan
1998 Form 10-K).
3.2 By-laws of McMoRan as amended effective February 11,
1999. (Incorporated by reference to Exhibit 3.2 to the
McMoRan 1998 Form 10-K).
4.1 Form of Certificate of McMoRan Common Stock
(Incorporated by reference to Exhibit 4.1 of the
McMoRan S-4).
4.2 Rights Agreement dated as of November 13, 1998.
(Incorporated by reference to Exhibit 4.2 to McMoRan
1998 Form 10-K).
4.3 Amendment to Rights Agreement dated December 28, 1998.
(Incorporated by reference to Exhibit 4.3 to McMoRan
1998 Form 10-K).
4.4 Standstill Agreement dated August 5,1999 between
McMoRan and Alpine Capital, L.P., Robert W. Bruce III,
Algenpar, Inc, J.Taylor Crandall, Susan C. Bruce,
Keystone, Inc., Robert M. Bass, the Anne T. and Robert
M. Bass Foundation, Anne T. Bass and The Robert Bruce
Management Company, Inc. Defined Benefit Pension Trust.
(Incorporated by reference to Exhibit 4.4 to McMoRan's
Third Quarter 1999 Form 10-Q).
10.1 McMoRan Adjusted Stock Award Plan. (Incorporated by
reference to Exhibit 10.1 of the McMoRan S-4).
10.2 McMoRan 1998 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.2
of the McMoRan S-4).
10.3 McMoRan 1998 Stock Option Plan. (Incorporated by
reference to Annex D to the McMoRan S-4).
10.4 Stock Bonus Plan (Incorporated by reference from
McMoRan's Registration Statement on Form S-8
(Registration No. 333-67963) filed with the SEC on
November 25, 1998.
10.5 Agreement for Purchase and Sale dated as of August 1,
1997 between FM Properties Operating Co. and McMoRan
Oil & Gas (Incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed by McMoRan Oil &
Gas dated as of September 2, 1997).
10.6 Participation Agreement between McMoRan Oil & Gas and
Gerald J. Ford dated as of December 15, 1997
(Incorporated by reference to Exhibit 10.6 to the MOXY
1997 10-K).
10.7 Services Agreement dated as of November 17, 1998
between McMoRan and FM Services Company. (Incorporated
by reference to Exhibit 10.11 to McMoRan 1998 Form 10-K).
10.8 McMoRan Financial Counseling and Tax Return Preparation
and Certification Program, effective September 30,
1998. (Incorporated by reference to Exhibit 10.13 to
McMoRan 1998 Form 10-K).
<PAGE> E-1
10.9 Employee Benefits Agreement by and between Freeport-
McMoRan Inc. and Freeport Sulphur. (Incorporated by
reference to Exhibit 10.1 to Freeport Sulphur's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997 (the "Freeport Sulphur 1997 10-K")).
10.10 Asset Sale Agreement for Main Pass
Block 299 between Freeport-McMoRan Resource Partners,
Limited Partnership ("Freeport-McMoRan Resource
Partners") and Chevron USA, Inc. dated as of May 2,
1990. (Incorporated by reference to Exhibit 10.2 to
Freeport Sulphur's Registration Statement on Form S-1
(Registration No. 333-40375) filed with the SEC on
November 17, 1997 (the "Freeport Sulphur S-1")).
10.11 Main Pass 299 Sulphur and Salt Lease,
effective May 1, 1988. (Incorporated by reference to
Exhibit 10.3 to the Freeport Sulphur S-1).
10.12 Joint Operating Agreement by and
between Freeport-McMoRan Resource Partners,
IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated
as of June 5, 1990. (Incorporated by reference to
Exhibit 10.4 to the Freeport Sulphur S-1)
10.13 Joint Operating Agreement by and between Freeport-
McMoRan Resource Partners, IMC-Fertilizer, Inc. and
Felmont Oil Corporation, dated as of May 1, 1988.
(Incorporated by reference to Exhibit 10.5 to the
Freeport Sulphur S-1).
10.14 Amendment No. 1 to Joint Operating
Agreement dated July 1, 1993 between Freeport McMoRan
Resource Partners, IMC Fertilizer, Inc. and Homestake
Sulphur Company.
10.15 Amendment No. 2 to Joint Operating
Agreement dated November 30, 1993 between Freeport
McMoRan Resource Partners, IMC Fertilizer, Inc. and
Homestake Sulphur Company.
10.16 Agreement to Coordinate Operating Agreements by
and between Freeport-McMoRan Resource Partners,
IMC-Fertilizer and Felmont Oil Corporation, dated as
of May 1, 1988. (Incorporated by reference to Exhibit
10.6 to the Freeport Sulphur S-1).
10.17 Asset Purchase Agreement between
Freeport-McMoRan Resource Partners and Pennzoil Company
dated as of October 22, 1994 (the "Asset Purchase
Agreement"). (Incorporated by reference to Exhibit 10.7
to the Freeport Sulphur S-1)
10.18 Amendment No. 1 to the Asset Purchase
Agreement dated as of January 3, 1995. (Incorporated by
reference to Exhibit 10.8 to the Freeport Sulphur S-1)
10.19 Agreement for Sulphur Supply, as
amended, dated as of July 1, 1993 among Freeport-
McMoRan Resource Partners, IMC Fertilizer and
IMC-Agrico Company (the "Sulphur Supply Agreement").
(Incorporated by reference to Exhibit 10.9 to the
Freeport Sulphur S-1)
10.20 Side letter with IGL regarding the
Sulphur Supply Agreement. (Incorporated by reference to
Exhibit 10.10 to the Freeport Sulphur S-1)
10.21 Processing and Marketing Agreement
between the Freeport Sulphur (a division of Freeport-
McMoRan Resource Partners) and Felmont Oil Corporation
dated as of June 19, 1990 (the "Processing Agreement").
(Incorporated by reference to Exhibit 10.11 to the
Freeport Sulphur S-1)
10.22 Amendment Number 1 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.12
to the Freeport Sulphur S-1)
10.23 Amendment Number 2 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.13
to the Freeport Sulphur S-1)
<PAGE> E-2
10.24 Amended and Restated Credit Agreement
dated November 17, 1998 among Freeport Sulphur, as
borrower, McMoRan, as Guarantor and, the financial
institutions party thereto. (Incorporated by reference
to Exhibit 10.29 to McMoRan 1998 Form 10-K).
10.25 Letter Agreement between FM Services
and Rene L. Latiolais effective as of January 1, 1999.
(Incorporated by reference to Exhibit 10.31 to McMoRan
1998 Form 10-K).
10.26 Agreement for Consulting Services between Freeport-
McMoRan and B. M. Rankin, Jr. effective as of January
1, 1991)(assigned to FM Services as of January 1,
1996); as amended on December 15, 1997 and on December
7, 1998. (Incorporated by reference to Exhibit 10.32
to McMoRan 1998 Form 10-K).
10.27 Processing and Marketing Agreement
between the Freeport Sulphur (a division of Freeport
Resource Partners) and Felmont Oil Corporation dated as
of June 19, 1990 (the "Processing Agreement").
(Incorporated by reference to Exhibit 10.11 to the
Freeport Sulphur S-1).
10.28 Amendment Number 1 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.12
to the Freeport Sulphur S-1).
10.29 Amendment Number 2 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.13
to the Freeport Sulphur S-1).
10.30 McMoRan's Performance Incentive Awards Program as
amended effective February 1, 1999. (Incorporated by
reference to Exhibit 10.18 to McMoRan's 1998 Form 10-
K).
10.31 Supplemental Letter Agreement between FM Services and
Rene' L. Latiolais effective August 1, 1999.
(Incorporated by reference to Exhibit 10.33 to
McMoRan's Third Quarter 1999 Form 10-Q).
10.32 Amended and Restated Credit Agreement
dated January 18, 2000 among McMoRan Oil and Gas, as
borrower, Chase Bank of Texas, National Association, as
agent and the Lenders Signatory thereto.
10.33 Asset Purchase Agreement dated
effective December 1, 1999 between SOI Finance Inc.,
Shell Offshore Inc. and McMoRan Oil & Gas.
10.34 Offshore Exploration Agreement dated
December 20, 1999 between Texaco Exploration and
Production Inc. and McMoRan Oil & Gas.
21.1 List of Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ryder Scott Company, L.P.
24.1 Certified resolution of the Board of Directors of
McMoRan authorizing this report to be signed on behalf
of any officer or director pursuant to a Power of
Attorney.
24.2 Powers of Attorney pursuant to which this report has
been signed on behalf of certain officers and directors
of McMoRan.
27.1 McMoRan Financial Data Schedule.
<PAGE> E-3
Exhibit 10.14
Execution Copy
AMENDMENT NO. 1 TO JOINT OPERATING AGREEMENT
THIS AMENDMENT NO. 1 TO JOINT OPERATING AGREEMENT
("Amendment"), dated as of July 1, 1993, is entered into between
FREEPORT-McMORAN RESOURCE PARTNERS, Limited Partnership, a Delaware
limited partnership ("Freeport"), IMC FERTILIZER, INC., a Delaware
corporation ("IMC") and HOMESTAKE SULPHUR COMPANY, a Delaware
corporation ("Homestake"). Capitalized terms used herein without
definition shall have the meanings given them in the Joint
Operating Agreement (as defined below).
W I T N E S S E T H:
WHEREAS:
A. Freeport, IMC and Homestake (by assignment from Felmont
Oil Corporation ) are parties to that certain Joint Operating
Agreement dated as of May 1, 1988, as amended ("Joint Operating
Agreement").
B. Freeport, IMC and Homestake desire to amend certain
provisions of Attachment 3 to the Joint Operating Agreement as set
forth herein.
NOW, THEREFORE, Freeport, IMC and Homestake hereby agree as
follows:
1. Amendment to Joint Operating Agreement.
1.1 Definitions. Article I of Attachment 3 to the Joint
Operating Agreement is hereby amended by adding thereto the
following defined terms:
"CTI" shall mean Crescent Technology, Inc.
"FSCO" shall mean the Freeport Sulphur Company Division of
Freeport.
"FM" shall mean Freeport-McMoRan, Inc.
"Production Ratio" shall mean for any accounting period the
ratio of total sulphur production from Joint Operations for
that period to the sum of total sulphur production from Joint
Operations plus total sulphur production from all other mines
operated by FSCO for that period.
"Sulphur Local G&A" shall mean personnel and related costs of
the President's Staff of FSCO, the Commercial Marketing, Mine
Planning and Purchasing Departments of FSCO, and any other
departments that FSCO may maintain from time to time that
provide local G&A services consistent with those provided as
of June 30, 1993, including cash compensation, benefits,
payroll overhead, office rent, office supplies, communications
and other department costs, but excluding costs associated
with the Commercial Marketing Department and Recovered Sulphur
Purchasing activities of FSCO, costs associated with the FSCO
Purchasing Department's activities related to P.T. Freeport
Indonesia's copper and gold operations, and costs relating to
any other non-sulphur activities of FSCO departments.
"Adjustment Period" shall mean the period from July 1, 1996 to
June 30, 1999, and each consecutive three-year period
thereafter.
"GNP Deflator Index" shall mean the GNP Deflator Index (final)
as published by the U.S. Department of Commerce.
"Corporate G & A Charge" shall mean (i) for 1993 and 1994
$12,736,000 and (ii) for each calendar year after 1994 the sum
of (x) the Corporate G&A Charge for the immediately preceding
calendar year plus (y) the product of the Corporate G & A
Charge for the immediately preceding calendar year multiplied
by the percentage change in the GNP Deflator Index from the
immediately preceding calendar year (in every case subject to
adjustment as necessary to reasonably reflect any increase in
FTX Corporate Personnel and FTX Service Costs that result from
increases in government mandated taxes and charges imposed on
employers to cover employee and retiree health care costs and
subject to Section 5(B) of this Attachment 3).
1.2 Amendment to Article IV of Attachment 3. Article IV of
Attachment 3 to the Joint Operating Agreement is amended to read in
its entirety as follows:
IV. INDIRECT CHARGES
1. Sulphur Local G&A. Sulphur Local G&A will be
charged to the Joint Operations at actual cost allocated to
the Joint Operations on the basis of the Production Ratio.
2. Other Costs. The following will be charged to Joint
Operations at actual cost allocated to the Joint Operations on
the basis of the Production Ratio: (i) CTI charges to FSCO
for contract engineering, environmental, safety and analytical
services and FSCO's allocation of costs incurred by FM on
CTI's behalf under the Services Agreement dated February 1,
1993 between FM and CTI, including facilities costs, MIS
contract costs and other costs as provided therein; and (ii)
FM Hydrocarbon costs allocated to FSCO for securing and
administering supplies of natural gas to the Joint Operations.
3. Aircraft. Fully loaded costs of aircraft (except
"Mallard") owned by or chartered to FM will be charged to the
Joint Operations on the basis of actual usage by FSCO
allocated to the Joint Operations on the basis of the
Production Ratio. Fully loaded costs of the "Mallard" (or
other aircraft dedicated exclusively to mine operations) will
be allocated to the Joint Operations on the basis of the
Production Ratio (excluding, however, from the calculation of
the Production Ratio in determining such allocation any
sulphur production from mines not serviced by the Mallard or
such other aircraft). "Fully loaded costs" include all costs
of ownership and operation of aircraft including hangering,
maintenance and depreciation.
4. Outside Legal. Outside legal costs directly related
to FSCO sulphur business will be allocated to the Joint
Operations on the basis of the Production Ratio, excluding any
such costs that are directly related to another mine operated
by FSCO. Outside legal costs directly related to the Joint
Operations will be charged 100% to the Joint Operations.
5. Corporate G&A.
(A) FM corporate general and administrative services
included in the categories FTX Corporate Personnel Costs,
Facilities' Management/Internal Security Costs, FTX Service
Costs and FTX General Corporate Costs as set out in Annex 1
hereto for each year during the term of this Agreement will be
covered by an annual fee calculated by multiplying the
Corporate G & A Charge for that year by the Production Ratio
for that year.
(B) If the Operator or any Non-Operator believes that
the Corporate G&A Charge then in effect no longer reasonably
reflects the actual costs experienced by FM in the categories
set out in paragraph 5(A) above and Annex 1 hereto that
comprise the Corporate G&A Charge, that Party may so notify
the other Parties (which notice shall be in writing) not
earlier than 90 days or later than 30 days prior to the
commencement of an Adjustment Period and request an adjustment
to the Corporate G&A Charge for the ensuing Adjustment Period.
In the event such notice is given the Parties shall have
until the commencement of the ensuing Adjustment Period to
agree upon the amount of Corporate G&A Charge for such an
Adjustment Period. If the Parties are unable to agree upon
the amount of the Corporate G&A Charge for the ensuing
Adjustment Period before the commencement of such Adjustment
Period the Corporate G&A Charge shall be determined through a
proceeding for resolution of dispute submitted to Endispute
Incorporated ("Endispute") in San Francisco, California. The
Non-Operators participating in such proceeding, whether one or
more, shall act as a single party. Not later than 60 days
after commencement of the applicable Adjustment Period,
Operator, on the one hand, and Non-Operator(s), on the other,
each shall submit to Endispute the amount it proposes as the
Corporate G&A Charge for the Adjustment Period. Endispute,
after conducting such investigation and review as it deems
appropriate shall adopt the amount proposed by operator or the
amount proposed by Non-Operator(s), but not any other amount.
The decision of Endispute shall be final and binding on the
Parties and shall establish the Corporate G&A Charge for the
entire Adjustment Period, including retroactively for any
portion of the Adjustment Period that precedes the decision.
The prevailing side in such proceeding shall be entitled to
recover its reasonable attorney's fees and expenses from the
other side. If at the time such proceeding is to commence,
Endispute is not in the business of resolving disputes in San
Francisco, California any Party may ask the Chief Judge of the
United States Court of Appeals for the Ninth Circuit to select
a similar firm located in San Francisco, California.
(C) Section 5(B) above notwithstanding, the Parties
agree that no adjustment will be made pursuant to Section 5(B)
with respect to any increase in the following Corporate G&A
Charge categories at any time: Shareholder Reports and
Meetings - $234,000; Transfer Fees - $97,000; Advertising -
$308,000; Golf Tournament - $385,000; and External Facilities
- - $138,000.
6. Conditions Precedent to Effectiveness of this Amendment.
This Amendment shall become effective as of the date first above
written when each of the Parties has delivered to the others duly
executed counterparts hereof.
7. Absence of Waiver. The Parties agree that the amendments
set forth in Section 1 hereof shall be limited precisely as written
and shall not be deemed to:
(a) be a consent to any waiver or modification of any other
term or condition of the Joint Operating Agreement;
(b) be a consent to, or waiver of, any default under the
Joint Operating Agreement;
(c) impose upon any Party any obligation, express or implied,
to consent to any further amendment or modification of the Joint
Operating Agreement; or
(d) prejudice any right or remedy which any Party may now
have under the Joint Operating Agreement or may have in the future
under or in connection with the Joint Operating Agreement
including, without limitation, any right or remedy resulting from
any default.
8. Representations. Each Party hereby represents and
warrants to the other Parties that:
(a) It is a corporation (or in the case of Freeport a limited
partnership) duly organized and validly existing under the laws of
the State of Delaware;
(b) The execution, delivery and performance of this Amendment
by it are within its corporate (or in the case of Freeport
partnership) powers, have been duly authorized by all necessary
corporate (or in the case of Freeport partnership) action, have
received all necessary consents and approvals (if any shall be
required), and do not and will not contravene or conflict with any
provision of law or of its charter or bylaws, or of any agreement
binding upon it or its property; and
(c) This Amendment is its legal, valid and binding
obligation, enforceable against it in accordance with this
Amendment's terms.
9. Miscellaneous.
(a) Section headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Agreement.
(b) This Amendment may be executed in any number of
counterparts and by the different Parties on separate counterparts
and each such counterpart shall be deemed to be an original, but
all such counterparts shall together be constituted but one and the
same agreement.
(c) This Amendment is a contract made under and governed by
the laws of the State of Louisiana, without giving effect to
principles of conflicts of laws.
(d) All obligations and rights of the Parties that are
expressed herein, shall be in addition to and not in limitation of
those provided by applicable law.
(e) Whenever possible, each provision of this Amendment shall
be interpreted in such manner as to be effective and valid under
applicable law; but if any provision of this Amendment shall be
prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
(f) This Amendment shall be binding upon each of the Parties
and their respective successors and assigns, and shall inure to the
benefit of their respective successors and assigns.
IN WITNESS WHEREOF, the Parties hereto have caused this
Amendment to be executed as of the date first above written.
FREEPORT-McMORAN RESOURCE PARTNERS,
Limited Partnership
By:_______________________________________
Title:______________________________________
IMC FERTILIZER, INC.
By:______________________________________
Title:____________________________________
HOMESTAKE SULPHUR COMPANY
By:_____________________________________
Title:___________________________________
Exhibit 10.15
Execution Copy
AMENDMENT NO. 2 TO JOINT OPERATING AGREEMENT
THIS AMENDMENT NO. 2 TO JOINT OPERATING AGREEMENT
("Amendment"), dated as of November 30, 1993, is entered into
between FREEPORT-McMORAN RESOURCE PARTNERS, Limited Partnership, a
Delaware limited partnership ("Freeport"), IMC FERTILIZER, INC., a
Delaware corporation ("IMC") and HOMESTAKE SULPHUR COMPANY, a
Delaware corporation ("Homestake"). Capitalized terms used herein
without definition shall have the meanings given them in the Joint
Operating Agreement (as defined below).
W I T N E S S E T H:
WHEREAS:
A. Freeport, IMC and Homestake (by assignment from Felmont
Oil Corporation ) are parties to that certain Joint Operating
Agreement dated as of May 1, 1988, as amended ("Joint Operating
Agreement").
B. Freeport, IMC and Homestake desire to amend certain
provisions of the Joint Operating Agreement as set forth herein.
NOW, THEREFORE, Freeport, IMC and Homestake hereby agree as
follows:
1. Amendment of Joint Operating Agreement.
1.1 Definitions. Article I of the Joint Operating Agreement
is hereby amended by adding thereto the following defined terms:
1.38 "Closure Cost" shall mean the total cost of abandonment
and reclamation of the Property and the Joint Assets,
including costs required by government or other legal
authority.
1.39 "Closure Cost Estimate" shall mean the estimate of the
Closure Cost as updated from time to time pursuant to Section
20.03 hereof.
1.40 "Closure Cost Share" shall mean, with respect to any
Party at any time, an amount of money equal to the product
obtained by multiplying (i) the Closure Cost Estimate at such
time, by (ii) a percentage equal to the percentage
constituting such party's Participating Interest at such time.
1.41 "Net Cash Flow" shall mean net cash flow from continuing
operations determined in accordance with generally accepted
accounting principles except that net cash flow to a Party, or
its Affiliate, as applicable, which is from any entity
partially owned by such Party or Affiliate and accounted for
under the equity method, shall be included only to the extent
of net cash distributions received.
1.42 "Financial Assurance' shall mean, with respect to any
Party, any one of the following:
(a) A representation by such Party to the other Parties
certified by such Party's chief financial officer,
that such Party's Net Cash Flow, during the period
comprising the four fiscal quarters immediately
preceding the quarter in which the notice was
given, was an amount in excess of the amount
obtained by multiplying by 2 such Party's Closure
Cost Share as of the end of such period; or
(b) A written commitment by an Affiliate of such Party,
made to the other Parties, to guarantee such
Party's payment of its Closure Cost Share, provided
such Affiliate's chief financial officer can
certify that the Affiliate's Net Cash Flow, during
the period comprising the four fiscal quarters
immediately preceding the quarter in which the
notice was given, was an amount in excess of the
amount obtained by multiplying by 2 such Party's
Closure Cost Share as of the end of such period; or
(c) A performance bond or letter of credit issued by a
Non-Party in an amount equal to such Party's
Closure Cost Share as of the time of issuance of
such bond or letter, provided the issuing Non-Party
and the terms of draw-down are acceptable to each
of the other Parties; or
(d) Such other form of assurance as shall be agreed to
by all Parties.
1.43 "Funding Party" shall have the meaning prescribed for
such term in Section 20.03 hereof.
1.44 "Previously Non-Funding Party" shall have the meaning
prescribed for such term in Section 20.03 hereof.
1.45 "Interim Closure Fund" shall mean, with respect to any
Funding Party, an account funded by that Funding Party and
maintained by Operator prior to January 1, 2006 to fund that
Funding Party's Closure Cost Share.
1.46 "Closure Fund" shall mean, with respect to any Party, an
account funded by that Party and maintained by Operator on and
after January 1, 2006 to fund that Party's Closure Cost Share.
1.47 "Initial Funding Date" shall have the meaning prescribed
for such term in Section 20.03 hereof.
1.48 "Remaining Tonnage" shall mean, with respect to any
Funding Party, the number of tons obtained by multiplying (i)
Operator's estimate of the commercially producible tonnage of
sulphur reserves remaining to be produced from the Mine on the
Property as of the Initial Funding Date, by (ii) the
percentage equal to the percentage constituting that
Participating Interest of the Funding Party as of such time.
1.2 Amendment to Section 20.03 of the Joint Operating
Agreement. Section 20.03 of the Joint Operating Agreement is
amended to read in its entirety as follows:
20.03 Reclamation and Abandonment Security. On or before
February 1, 1994, Operator shall submit to Non-Operators a
Closure Cost Estimate dated as of such date. On or before
each subsequent February 1 during the term of this Agreement:
(i) Operator shall deliver to Non-Operators written notice
stating whether Operator has become aware of any changed
circumstance that would significantly affect the then current
Closure Cost Estimate and describing any such circumstance,
and (ii) if on or before the immediately preceding December 1
Operator has become aware of any changed circumstance that
would significantly affect the then current Closure Cost
Estimate or any one or more of the Non-Operators requests in
writing an updated Closure Cost Estimate, Operator shall
submit to Non-Operators an updated Closure Cost Estimate dated
as of that February 1. As described in more detail
hereinafter in this Section 20.03, the Closure Cost Estimate
shall serve as the basis upon which the Parties shall provide
funds to be applied against each Party's Closure Cost Share.
If at any time prior to January 1, 2006 a Party should
require assurance as to the ability of each Party to pay its
Closure Cost Share, the Party requiring such assurance shall
so notify the other Parties. Within 30 days after the date
upon which such notice was transmitted to the Parties, each
Party (including the Party giving the notice) shall provide
Financial Assurance to the other Parties.
If prior to January 1, 2006 a Party fails to provide
requested Financial Assurance as required above, then Operator
shall promptly establish for such Party (a "Funding Party") an
Interim Closure Fund. Such Interim Closure Fund shall be
funded by a per ton charge collected by Operator from the
Funding Party (through Operator's monthly statement or billing
to the Funding Party) on each ton of sulphur produced
hereunder for the account of the Funding Party during the
period beginning on the first day of the month following the
month in which the Funding Party failed to provide requested
Financial Assurance as required above (the "Initial Funding
Date") and ending on the earlier of January 1, 2006 or the
date of release of the Interim Closure Fund to the Funding
Party in accordance with the further provisions of this
Section 20.03. Such per ton charge shall be equal to the
dollar amount obtained by dividing the Funding Party's Closure
Cost Share as of the Initial Funding Date by the Funding
Party's Remaining Tonnage as of such time. The per ton charge
shall be revised from time to time (but not more than twice
per year) by the operator to take into account changes in the
Closure Cost Estimate, changes in the Remaining Tonnage,
changes in the Funding Party's Participating Interest, and
earnings accrued on amounts previously collected from the
Funding Party and maintained in the Interim Closure Fund.
Each Interim Closure Fund shall be invested in U.S.
government securities or certificates of deposit of banks
mutually agreed to among the Parties. Each Interim Closure
Fund shall be released to the applicable Funding Party only
upon the occurrence of one of the following events: (i) the
Funding Party provides Financial Assurance to each of the
other Parties; or (ii) such release is expressly agreed to by
all of the Parties.
In the case of each Party for which no Interim Closure
Fund is maintained as of January 1, 2006 ( a "Previously Non-
Funding Party") Operator shall establish a Closure Fund. Each
such Previously Non-Funding Party's Closure Fund shall be
funded by a monthly charge to be collected by Operator from
the Previously Non-Funding Party (through Operator's monthly
statement or billing to the Previously Non-Funding Party) for
the month of January 2006 and for each month during the term
of this Agreement thereafter until the Closure Cost has been
paid in full. The amount of such monthly charge shall be equal
to the dollar amount obtained by dividing the Previously Non-
Funding Party's Closure Cost Share as of January 1, 2006 by
Operator's estimate of the number of months of the remaining
productive life of the Mine on the Property as of such date.
In the case of each Funding Party for which an Interim
Closure Fund is maintained as of January 1, 2006, such Interim
Closure Fund shall on such date automatically convert to, and
thereafter be, such Funding Party's Closure Fund. Each such
Funding Party's Closure Fund shall be funded by a monthly
charge to be collected by Operator from the Funding Party
(through Operator's monthly statement or billing to the
Funding Party) for the month of January 2006 and for each
month during the term of this agreement thereafter until the
Closure Cost has been paid in full. The amount of such
monthly charge shall be equal to the dollar amount obtained by
(i) subtracting the number of dollars in such Funding Party's
Interim Closure Fund immediately prior to such Fund's
conversion to a Closure Fund on January 1, 2006 from such
Funding Party's Closure Cost Share as of January 1, 2006 and
(ii) dividing the difference by Operator's estimate of the
number of months of the remaining productive life of the Mine
on the Property as of such date.
The monthly charge to be collected from each Funding
Party, if any, and the monthly charge to be collected from
each Previously Non-Funding Party, if any, to fund the Closure
Funds shall each be revised from time to time (but not more
than twice per year) by Operator to take into account changes
in the Closure Cost Estimate, changes in the estimate of the
remaining productive life of the Mine on the Property, changes
in the Participating Interest of the Funding Party or the
Previously Non-Funding Party (as the case may be), and
earnings accrued on amounts previously collected and
maintained in the applicable Closure Fund.
The Closure Fund of each Party (irrespective of such
Party's status as a Funding Party or Previously Non-Funding
Party) shall be: (i) invested in U.S. government securities or
certificates of deposit of banks mutually agreed to among the
Parties; and (ii) unavailable for refund to such Party except
as hereinafter provided in this Section 20.03.
At such time as the Closure Cost is finally determined,
Operator shall compare the dollar amount of each Party's
Closure Cost Share as of such time against the dollar amount
balance of such Party's Closure Fund at such time (inclusive
of earnings on deposits therein). If the comparison indicates
that such Party's Closure Cost Share exceeds such Party's
Closure Fund balance, Operator shall cause the entire Closure
Fund balance to be applied against the Closure Cost and shall
invoice such Party for the amount by which the Party's Closure
Cost Share exceeds such balance. The invoiced Party's shall
pay such invoice in full promptly following such Party's
receipt thereof. If the comparison indicates that such
Party's Closure Fund balance exceeds such Party's Closure Cost
Share, Operator shall cause to be promptly refunded to such
Party from such Party's Closure fund the amount by which such
Closure Fund balance exceeds such Closure Cost Share, and
shall cause the entire Closure Fund balance remaining after
such refund to be applied against the Closure Cost.
Operator also shall cause to be paid to each Party all
interest or other amounts earned following such time as the
Closure Cost is finally determined and the comparisons
provided for in the immediately preceding paragraph are
completed on that Party's Closure Fund balance to the extent
the Closure Fund balance is not disbursed at such time to pay
the Closure Cost; provided that operator in its sole
discretion may from time to time set-off such interest and
other amounts payable to a Party against any amount by which
that Party's Closure Cost Share exceeds that Party's Closure
Fund balance. Subject to Operator's right to set-off as just
described, payment of any such interest and other amounts
earned shall be made not less than quarterly by the 15th day
of each calendar quarter following the quarter in which such
interest or other amounts were earned.
2. Conditions Precedent to Effectiveness of this
Amendment. This Amendment shall become effective as of the date
first above written when each of the Parties has delivered to the
others duly executed counterparts hereof.
3. Absence of Waiver. The Parties agree that the
amendments set forth in Section 1 hereof shall be limited precisely
as written and shall not be deemed to:
(a) be a consent to any waiver or modification of any
other term or condition of the Joint Operating Agreement;
(b) be a consent to, or waiver of, any default under the
Joint Operating Agreement;
(c) impose upon any Party any obligation, express or
implied, to consent to any further amendment or modification of the
Joint Operating Agreement; or
(d) prejudice any right or remedy which any Party may
now have under the Joint Operating Agreement or may have in the
future under or in connection with the Joint Operating Agreement
including, without limitation, any right or remedy resulting from
any default.
4. Representations. Each Party hereby represents and
warrants to the other Parties that:
(a) It is a corporation (or in the case of Freeport a
limited partnership) duly organized and validly existing under the
laws of the State of Delaware;
(b) The execution, delivery and performance of this
Amendment by it are within its corporate (or in the case of
Freeport partnership) powers, have been duly authorized by all
necessary corporate (or in the case of Freeport partnership)
action, have received all necessary consents and approvals (if any
shall be required), and do not and will not contravene or conflict
with any provision of law or of its charter or by-laws, or of any
agreement binding upon it or its property; and
(c) This Amendment is its legal, valid and binding
obligation, enforceable against it in accordance with this
Amendment's terms.
5. Miscellaneous
(a) Section headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Agreement.
(b) This Amendment may be executed in any number of
counterparts and by the different Parties on separate counterparts
and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the
same agreement.
(c) This Amendment is a contract made under and governed
by the laws of the State of Louisiana, without giving effect to
principles of conflicts of laws.
(d) All obligations and rights of the Parties that are
expressed herein, shall be in addition to and not in limitation of
those provided by applicable law.
(e) Whenever possible, each provision of this Amendment
shall be interpreted in such manner as to be effective and valid
under applicable law; but if any provision of this Amendment shall
be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Amendment.
(f) This Amendment shall be binding upon each of the
Parties and their respective successors and assigns, and shall
inure to the benefit of their respective successors and assigns.
IN WITNESS WHEREOF, the Parties hereto have caused this
Amendment to be executed as of the date first above written.
FREEPORT-McMORAN RESOURCE PARTNERS,
Limited Partnership
By:_______________________________________
Title:______________________________________
IMC FERTILIZER, INC.
By:______________________________________
Title:____________________________________
HOMESTAKE SULPHUR COMPANY
By:_____________________________________
Title:___________________________________
Exhibit 10.32
AMENDED AND RESTATED CREDIT AGREEMENT
Among
McMoRan OIL & GAS LLC,
as Borrower,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Agent,
and
THE LENDERS SIGNATORY HERETO
Dated as of January ___, 2000
$35,000,000 Revolving Credit Facility
TABLE OF CONTENTS
Page
ARTICLE I Definitions and Accounting Matters -1-
Section 1.01 Terms Defined Above -1-
Section 1.02 Certain Defined Terms -1-
Section 1.03 Accounting Terms and Determinations -14-
ARTICLE II Commitments -15-
Section 2.01 Loans and Letters of Credit -15-
Section 2.02 Borrowings, Continuations and Conversions,
Letters of Credit -15-
Section 2.03 Changes of Commitments -17-
Section 2.04 Fees -18-
Section 2.05 Several Obligations -19-
Section 2.06 Notes -19-
Section 2.07 Prepayments -20-
Section 2.08 Borrowing Base; Threshold Amount -21-
Section 2.09 Assumption of Risks -23-
Section 2.10 Obligation to Reimburse and to Prepay -24-
Section 2.11 Lending Offices -25-
ARTICLE III Payments of Principal and Interest -25-
Section 3.01 Repayment of Loans -25-
Section 3.02 Interest -25-
ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc. -26-
Section 4.01 Payments -26-
Section 4.02 Pro Rata Treatment -27-
Section 4.03 Computations -27-
Section 4.04 Non-receipt of Funds by the Agent -27-
Section 4.05 Set-off, Sharing of Payments, Etc. -28-
Section 4.06 Taxes -28-
Section 4.07 Disposition of Proceeds -31-
ARTICLE V Capital Adequacy -32-
Section 5.01 Additional Costs -32-
Section 5.02 Limitation on Eurodollar Loans -33-
Section 5.03 Illegality -34-
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03 -34-
Section 5.05 Compensation -34-
Section 5.06 Replacement Lenders. -35-
ARTICLE VI Conditions Precedent -36-
Section 6.01 Initial Funding -36-
Section 6.02 Initial and Subsequent Loans and Letters of
Credit -38-
Section 6.03 Conditions Relating to Letters of Credit -38-
ARTICLE VII Representations and Warranties -39-
Section 7.01 Existence -39-
Section 7.02 Financial Condition -39-
Section 7.03 Litigation -39-
Section 7.04 No Breach -40-
Section 7.05 Authority -40-
Section 7.06 Approvals -40-
Section 7.07 Use of Loans -40-
Section 7.08 ERISA -41-
Section 7.09 Taxes -42-
Section 7.10 Titles, etc. -42-
Section 7.11 No Material Misstatements -43-
Section 7.12 Investment Company Act -43-
Section 7.13 Public Utility Holding Company Act -43-
Section 7.14 Subsidiaries -43-
Section 7.15 Location of Business and Offices -43-
Section 7.16 Defaults -43-
Section 7.17 Environmental Matters -43-
Section 7.18 Compliance with the Law -45-
Section 7.19 Insurance -45-
Section 7.20 Hedging Agreements -46-
Section 7.21 Restriction on Liens -46-
Section 7.22 Material Agreements -46-
Section 7.23 Gas Imbalances -46-
Section 7.24 Year 2000 -46-
ARTICLE VIII Affirmative Covenants -47-
Section 8.01 Financial Statements -47-
Section 8.02 Litigation -49-
Section 8.03 Maintenance, Etc. -49-
Section 8.04 Environmental Matters -50-
Section 8.05 Further Assurances -51-
Section 8.06 Performance of Obligations -51-
Section 8.07 Engineering Reports -51-
Section 8.08 Title Information -53-
Section 8.09 Collateral -53-
Section 8.10 ERISA Information and Compliance -54-
ARTICLE IX Negative Covenants -54-
Section 9.01 Debt -55-
Section 9.02 Liens -56-
Section 9.03 Investments, Loans and Advances -56-
Section 9.04 Dividends, Distributions and Redemptions -57-
Section 9.05 Sales and Leasebacks -58-
Section 9.06 Nature of Business -58-
Section 9.07 Mergers, Etc. -58-
Section 9.08 Proceeds of Notes -59-
Section 9.09 ERISA Compliance -59-
Section 9.10 Sale or Discount of Receivables -60-
Section 9.11 Ratio of Debt to EBITDAX -60-
Section 9.12 Interest Coverage Ratio -60-
Section 9.13 Sale of Oil and Gas Properties -61-
Section 9.14 Environmental Matters -61-
Section 9.15 Transactions with Affiliates -61-
Section 9.16 Subsidiaries -61-
Section 9.17 Negative Pledge Agreements -62-
Section 9.18 Gas Imbalances, Take-or-Pay or Other
Prepayments -62-
ARTICLE X Events of Default; Remedies -62-
Section 10.01 Events of Default -62-
Section 10.02 Remedies -64-
ARTICLE XI The Agent -65-
Section 11.01 Appointment, Powers and Immunities -65-
Section 11.02 Reliance by Agent -66-
Section 11.03 Defaults -66-
Section 11.04 Rights as a Lender -66-
Section 11.05 INDEMNIFICATION -66-
Section 11.06 Non-Reliance on Agent and other Lenders -67-
Section 11.07 Action by Agent -67-
Section 11.08 Resignation or Removal of Agent -67-
ARTICLE XII Miscellaneous -68-
Section 12.01 Waiver -68-
Section 12.02 Notices -68-
Section 12.03 Payment of Expenses, Indemnities, etc -68-
Section 12.04 Amendments, Etc. -71-
Section 12.05 Successors and Assigns -71-
Section 12.06 Assignments and Participations -71-
Section 12.07 Invalidity -73-
Section 12.08 Counterparts -73-
Section 12.09 References -73-
Section 12.10 Survival -73-
Section 12.11 Captions -73-
Section 12.12 NO ORAL AGREEMENTS -73-
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION -74-
Section 12.14 Interest -75-
Section 12.15 Confidentiality -76-
Section 12.16 Effectiveness -77-
Section 12.17 EXCULPATION PROVISIONS -77-
Annex I - List of Maximum Credit Amounts
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Legal Opinion of Jones, Walker, Waechter,
Poitevent,Carrere & Denegre L.L.P.
Exhibit E - List of Security Instruments
Exhibit F - Form of Assignment Agreement
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Unrestricted Subsidiaries
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 7.21 - Restrictions on Liens
Schedule 7.22 - Material Agreements and Properties
Schedule 7.23 - Gas Imbalances
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of
January ___, 2000 is among: McMoRan OIL & GAS LLC (successor by
merger with McMoRan Oil & Gas Co.), formed under the laws of the
State of Delaware (together with its successors and assigns, the
"Borrower"); each of the lenders that is a signatory hereto or
which becomes a signatory hereto as provided in Section 12.06
(individually, together with its successors and assigns, a "Lender"
and, collectively, the "Lenders"); and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, a national banking association (in its
individual capacity, "Chase"), as agent for the Lenders (in such
capacity, together with its successors in such capacity, the
"Agent").
R E C I T A L S
A. Pursuant to that certain Credit Agreement dated as of
August 19, 1998, by and among the Company, the Agent and the
lenders party thereto (such Credit Agreement, as heretofore amended
and supplemented, the "Existing Credit Agreement"), the Company
received certain loans and extensions of credit under a revolving
credit facility made available to the Company under the Existing
Credit Agreement, evidenced by those certain promissory notes in
the aggregate principal amount of $20,000,000, issued by the
Company under and pursuant to the Existing Credit Agreement (the
"Prior Notes").
B. The Company, the Agent and the Lenders mutually desire to
amend and restate in its entirety the Existing Credit Agreement to,
among other things, provide for the modifications described above.
C. In consideration of the mutual covenants and agreements
herein contained and of the loans, extensions of credit and
commitments hereinafter referred to, the parties hereto agree that
the Existing Credit Agreement is hereby amended and restated in its
entirety to read as follows:
ARTICLE I
Definitions and Accounting Matters
tc \l1 " ARTICLE I Definitions and Accounting Matters
Section 1.01 Terms Defined Above tc \l2 "Section
1.01 Terms Defined Above . As used in this Agreement, the terms
"Agent," "Borrower," "Chase," "Existing Credit Agreement,"
"Lender," "Lenders" and "Prior Notes" shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms tc \l2 "Section
1.02 Certain Defined Terms . As used herein, the following terms
shall have the following meanings (all terms defined in this
Article I or in other provisions of this Agreement in the singular
to have the same meanings when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in
Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control
with such first Person, (ii) any director or officer of such first
Person or of any Person referred to in clause (i) above and (iii)
if any Person in clause (i) above is an individual, any member of
the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any
Person who is controlled by any such member or trust. For purposes
of this definition, any Person which owns directly or indirectly
35% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or
35% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person)
will be deemed to "control" (including, with its correlative
meanings, "controlled by" and "under common control with") such
corporation or other Person.
"Agreement" shall mean this Credit Agreement, as the same may
from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03(a) hereof.
"Aggregate Maximum Credit Amount" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders ($35,000,000), as
the same may be reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of
an Affiliate of such Lender) as such Lender may from time to time
specify to the Agent and the Borrower as the office by which its
Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, the applicable per annum
percentage set forth at the appropriate intersection in the table
shown below, based on the Threshold Amount Utilization Percentage
as in effect from time to time:
Threshold Amount Utilization Percentage Eurodollar Rate Base Rate
Less than or equal to 33% 1.75% 0.0%
Greater than 33% but less than
or equal to 66% 2.00% 0.25%
Greater than 66% but less than
or equal to 100% 2.25% 0.50%
Greater than 100% 2.75% 1.00%
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any such
day plus 1/2 of 1% or (ii) the Prime Rate for such day. Each
change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect at
the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Borrowing Base" shall mean at any time an amount equal to the
amount determined in accordance with Section 2.08(f).
"Borrowing Base Deficiency" shall have the meaning assigned
such term in Section 2.07(c).
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in Houston,
Texas and, where such term is used in the definition of "Quarterly
Date" or if such day relates to a borrowing or continuation of, a
payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar
Loan or a notice by the Borrower with respect to any such borrowing
or continuation, payment, prepayment, conversion or Interest
Period, any day which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Closing Date" shall mean January ___, 2000.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to (i)
make Loans up to the lesser of such Lender's Maximum Credit Amount
or the Lender's Percentage Share of the then effective Borrowing
Base and (ii) participate in the issuance of Letters of Credit as
provided in Section 2.01(b).
"Consolidated Subsidiaries" shall mean with regard to any
entity each Subsidiary of such entity (whether now existing or
hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial
statements of such entity in accordance with GAAP.
"Debt" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money (including principal,
interest, fees and charges), (b) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments
(including principal, interest, fees and charges), (c) all
obligations of such Person for the unearned balance of any payment
received under any contract outstanding for 180 days, (d) all
obligations of such Person under conditional sale or other title
retention agreements relating to Property or assets purchased by
such Person, (e) all obligations of such Person issued or assumed
as the deferred purchase price of Property or services (excluding
trade accounts payable and accrued obligations incurred in the
ordinary course of business so long as the same are not 180 days
overdue or, if overdue, are being contested in good faith and by
appropriate proceedings), (f) all Debt of others secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on Property owned or acquired
by such Person, whether or not the obligations secured thereby have
been assumed, (g) all obligations of such Person, contingent or
otherwise, guaranteeing or having the economic effect of
guaranteeing Debt of others, (h) all obligations of such Person to
pay rent or other amounts under a capital lease, (i) all recourse
obligations of such Person with respect to sales of accounts
receivable which would be shown under GAAP on the balance sheet of
such Person as a liability, (j) all obligations of such Person as
an account party (including reimbursement obligations to the issuer
of a letter of credit) in respect of bankers' acceptances and
letters of credit guaranteeing Debt, (k) all noncontingent
obligations of such Person as an account party (including
reimbursement obligations to the issuer of a letter of credit) in
respect of letters of credit other than those referred to in clause
(j) above, (l) all obligations under leases which require such
Person to make payments over the term of such lease, including
payments at termination, which are substantially equal to at least
eighty percent (80%) of the purchase price of the Property subject
to such lease plus interest at an imputed rate of interest, (m) all
obligations or undertakings of such Person to maintain or cause to
be maintained the financial position or covenants of others or to
purchase the Debt or Property of others, (n) obligations
outstanding for 180 days or more to deliver goods or services
including Hydrocarbons in consideration of advance payments, (o)
obligations to pay for goods or services in the event that such
goods or services are not actually received or utilized by such
Person, (p) any capital stock of such Person in which such Person
has a mandatory obligation to redeem such stock within two (2)
years after the Termination Date (plus any extension of such date),
(q) any Debt of a Special Entity for which such Person is liable
either by agreement or because of a Governmental Requirement, (r)
the undischarged balance of any production payment created by such
Person or for the creation of which such Person directly received
payment; and (s) all obligations of such Person under Hedging
Agreements. The Debt of any person shall exclude obligations under
leases which are characterized as operating leases.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of
Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDAX" shall mean, for any period, the sum of consolidated
net income for such period plus the following expenses or charges
to the extent deducted from consolidated net income in such period:
interest paid or accrued on the Loans to the Borrower and on other
Debt of the Borrower during such period, taxes, depreciation,
depletion, amortization and exploration expenses. As used herein,
"consolidated net income" shall mean, for any period, the amount
which, in conformity with GAAP, would be set forth opposite the
caption "net income or loss" (or any like caption) on a
consolidated income statement of the Borrower and its Consolidated
Subsidiaries (before deducting minority interests in net income of
Consolidated Subsidiaries, but disregarding all extraordinary or
unusual noncash items in calculating such consolidated net income).
The calculation of each of the items specified above will exclude
items relating to Unrestricted Subsidiaries.
"Effective Date" shall have the meaning assigned such term in
Section 12.16.
"Engineering Reports" shall have the meaning assigned such
term in Section 2.08.
"Environmental Laws" shall mean any and all applicable
Governmental Requirements pertaining to health or the environment
in effect in jurisdictions in which the Borrower or any Subsidiary
is conducting or at any time has conducted business, or where any
Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the
meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that (i) in
the event either OPA, CERCLA or RCRA is amended so as to broaden
the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of the
Borrower or any Subsidiary is located establish a meaning for
"oil," "hazardous substance," "release," "solid waste" or
"disposal" which is broader than that specified in either OPA,
CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any
Subsidiary would be deemed to be a "single employer" within the
meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m)
or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) with respect to any plan, as to
which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302
of ERISA, including, without limitation, the failure to make on or
before its due date a required installment under Section 412(m) of
the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii)
the withdrawal of the Borrower, any Subsidiary or any ERISA
Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings to terminate a Plan
by the PBGC or (v) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Eurodollar Rate".
"Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) quoted by the Agent at approximately 11:00 a.m.
London time (or as soon thereafter as practicable) two (2) Business
Days prior to the first day of the Interest Period for such Loan
for the offering by the Agent to leading banks in the London
interbank market of Dollar deposits having a term comparable to
such Interest Period and in an amount comparable to the principal
amount of the Eurodollar Loan to be made by the Lenders for such
Interest Period.
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are
being contested in good faith by appropriate action and for which
adequate reserves have been maintained; (ii) Liens in connection
with workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations not yet
due or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's,
construction or other like Liens arising by operation of law or
lien in favor of operators or co-interest owners under contract in
the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties or
statutory landlord's liens, each of which is in respect of
obligations that have not been outstanding more than 90 days or
which are being contested in good faith by appropriate proceedings
and for which adequate reserves have been maintained in accordance
with GAAP; (iv) any Liens reserved in leases or farmout agreements
for rent or royalties and for compliance with the terms of the
farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for
the purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject
thereto; (v) encumbrances (other than to secure the payment of
borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any rights of
way or other Property of the Borrower or any Subsidiary for the
purpose of roads, pipelines, transmission lines, transportation
lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint
or common use of real estate, rights of way, facilities and
equipment, and defects, irregularities, zoning restrictions and
deficiencies in title of any rights of way or other Property which
in the aggregate do not materially impair the use of such rights of
way or other Property for the purposes of which such rights of way
and other Property are held by the Borrower or any Subsidiary or
materially impair the value of such Property subject thereto; (vi)
deposits of cash or securities to secure the performance of bids,
trade contracts, leases, statutory obligations and other
obligations of a like nature incurred in the ordinary course of
business; (vii) Liens permitted by the Security Instruments ;
(viii) required margin deposits on permitted Hedging Agreements
arising in the ordinary course of business; (ix) Liens on assets or
Properties not owned as of the Closing Date by the Borrower or any
Restricted Subsidiary securing only purchase money Debt of the
Borrower or such Restricted Subsidiary permitted by Section
9.01(f), which Liens are limited to the specific Property the
purchase of which is financed by such Debt; (x) Liens existing at
the time of acquisition by the Borrower or any Restricted
Subsidiary of the majority of the capital stock or other ownership
interests or substantially all of the assets of any other Person or
existing at the time of the merger of any such other Person into
the Borrower or any Restricted Subsidiary, on such capital stock or
other ownership interests or assets so acquired or on the assets of
the Person so merged into the Borrower or such Restricted
Subsidiary; provided, however, that such acquisition or merger (and
the discharge of such Liens referred to in the immediately
succeeding proviso) shall not otherwise result in an Event of
Default or Default; and provided further that all such Liens shall
be discharged within 180 days after the date of the respective
acquisition or merger; (xi) Liens of lessors of Property (in such
capacity) leased by the Borrower or any Restricted Subsidiary
pursuant to an operating lease or permitted capital lease, which
Lien in any such case is limited to the Property leased thereunder;
and (xii) Liens on equity or debt investments in Third Parties
owned by the Borrower or a Restricted Subsidiary (which Lien in any
case is limited to such pledged equity or debt investment) which
secure Debt of Third Parties or other Third Party obligations (or
guaranties thereof); provided that such pledged investments were
initially acquired in accordance with Section 9.03.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight federal
funds transactions with a member of the Federal Reserve System
arranged by federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the date for which such
rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding
Business Day, and (ii) if such rate is not so published for any
day, the Federal Funds Rate for such day shall be the average rate
charged to the Agent on such day on such transactions as determined
by the Agent.
"Fee Letter" shall mean that certain letter agreement dated
January ____, 2000 from Chase to the Borrower, concerning certain
fees in connection with this Agreement and any agreements or
instruments executed in connection therewith, as the same may be
amended, supplemented or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and its Consolidated Subsidiaries
described or referred to in Section 7.02.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction
over any such Person or such Person's Property, and any court,
agency, department, commission, board, bureau or instrumentality of
any of them including monetary authorities which exercises valid
jurisdiction over any such Person or such Person's Property.
Unless otherwise specified, all references to Governmental
Authority herein shall mean a Governmental Authority having
jurisdiction over, where applicable, the Borrower, the Subsidiaries
or any of their Property or the Agent, any Lender or any Applicable
Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment,
decree, injunction, franchise, permit, certificate, license,
authorization or other directive or requirement (whether or not
having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, cap, floor, collar, forward agreement or other
exchange or protection agreements or any option with respect to any
such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved, charged
or received on the Notes or on other Indebtedness under laws
applicable to such Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious
interest rate than applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and
gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and
royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever
nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower or any Restricted Subsidiary to the Agent
and/or Lenders in connection with the Loan Documents and the Letter
of Credit Agreements, and any Hedging Agreements now or hereafter
arising between the Borrower or any Restricted Subsidiary and any
Lender or any Affiliate of such Lender and permitted by the terms
of this Agreement and all renewals, refinancings, extensions and/or
rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or
inquiries), claims, demands and causes of action made or threatened
against a Person and, in connection therewith, all losses,
liabilities, damages (including, without limitation, consequential
damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or
concurrent negligence of such Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans
or issuance of the initial Letters of Credit, whichever occurs
first, pursuant to Section 6.01 hereof.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is
made and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower
may select as provided in Section 2.02 (or such longer period as
may be requested by the Borrower and agreed to by the Majority
Lenders), except that each Interest Period which commences on the
last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of
the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Termination Date; (ii) each
Interest Period which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if
such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) no
Interest Period shall have a duration of less than one month and,
if the Interest Period for any Eurodollar Loans would otherwise be
for a shorter period, such Loans shall not be available hereunder.
"LC Commitment" at any time shall mean $7,000,000.00
"LC Exposure" at any time shall mean the aggregate face amount
of all undrawn and uncancelled Letters of Credit and the aggregate
of all amounts drawn under all Letters of Credit and not yet
reimbursed.
"Letter of Credit Agreements" shall mean the written
agreements with the Agent, as issuing lender for any Letter of
Credit, executed or hereafter executed in connection with the
issuance by the Agent of the Letters of Credit, such agreements to
be on the Agent's customary form for letters of credit of
comparable amount and purpose as from time to time in effect or as
otherwise agreed to by the Borrower and the Agent.
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(b) and all reimbursement obligations
pertaining to any such letters of credit, and "Letter of Credit"
shall mean any one of the Letters of Credit and the reimbursement
obligations pertaining thereto.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed
or contingent, and including but not limited to (i) the lien or
security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes or (ii) production
payments and the like payable out of Oil and Gas Properties. The
term "Lien" shall include reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting
Property. For the purposes of this Agreement, the Borrower or any
Subsidiary shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, or
leases under a financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some
other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes and the
Security Instruments.
"Loans" shall mean the loans as provided for by Section
2.01(a).
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least seventy-five percent (75%) of
the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least seventy-five percent (75%) of
the outstanding aggregate principal amount of the Loans (without
regard to any sale by a Lender of a participation in any Loan under
Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition,
business, operations or affairs of the Borrower and the Restricted
Subsidiaries taken as a whole or from the facts represented or
warranted in any Loan Document, or (ii) the ability of the Borrower
and the Restricted Subsidiaries taken as a whole to carry out their
business as at the Closing Date or as proposed as of the Closing
Date to be conducted or meet their obligations under the Loan
Documents on a timely basis.
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced
pursuant to Section 2.03(b) hereof pro rata to each Lender based on
its Percentage Share) as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
"MMR" shall mean McMoRan Exploration Co., a Delaware
corporation and the sole member of the Borrower.
"Mortgaged Property" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist
under the terms of the Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in Sec-
tion 3(37) or 4001(a)(3) of ERISA.
"net dividends, distributions and redemptions" shall mean the
gross amount of all dividends, distributions and redemptions under
Section 9.04 of the Existing Credit Agreement after August 27,
1999, less the amount of cash contributed to the capital of the
Borrower after August 27, 1999.
"Notes" shall mean the promissory note or notes (whether one
or more) of the Borrower provided for by Section 2.06 and in the
form of Exhibit A hereto, together with any and all renewals,
extensions for any period, increases, rearrangements, substitutions
or modifications thereof.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon
Interests; all presently existing or future unitization, pooling
agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under
orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; all
operating agreements, contracts and other agreements which relate
to any of the Hydrocarbon Interests or the production, sale,
purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; all Hydrocarbons in and
under and which may be produced and saved or attributable to the
Hydrocarbon Interests, including all oil in tanks, the lands
covered thereby and all rents, issues, profits, proceeds, products,
revenues and other incomes from or attributable to the Hydrocarbon
Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties,
rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or
useful in connection with the operating, working or development of
any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be
on such premises for the purpose of drilling a well or for other
similar temporary uses) and including any and all oil wells, gas
wells, injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments
to any and all of the foregoing.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to
reflect any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form
of entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or
hereafter sponsored, maintained or contributed to by the Borrower,
any Subsidiary or an ERISA Affiliate or (ii) was at any time during
the preceding six calendar years sponsored, maintained or
contributed to, by the Borrower, any Subsidiary or an ERISA
Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note, a rate per annum during the period
commencing on the date of an Event of Default until such amount is
paid in full or all Events of Default are cured or waived equal to
2% per annum above the Base Rate as in effect from time to time
plus the Applicable Margin (if any), but in no event to exceed the
Highest Lawful Rate provided that, for a Eurodollar Loan, the
"Post-Default Rate" for such principal shall be, for the period
commencing on the date of the Event of Default and ending on the
earlier to occur of the last day of the Interest Period therefor or
the date all Events of Default are cured or waived, 2% per annum
above the interest rate for such Loan as provided in Section
3.02(ii), but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Agent at the Principal Office as its
prime commercial lending rate. Such rate is set by the Agent as a
general reference rate of interest, taking into account such
factors as the Agent may deem appropriate, it being understood that
many of the Agent's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or
best rate actually charged to any customer and that the Agent may
make various commercial or other loans at rates of interest having
no relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 600 Travis, Houston, Texas 77002 or
such other location as designated by the Agent from time to time.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be
March 31, 2000; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next succeeding
Business Day.
"Redetermination Date" shall have the meaning assigned such
term in Section 2.08(a).
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the
same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class
of lenders (including such Lender or its Applicable Lending Office)
of or under any Governmental Requirement (whether or not having the
force of law) by any Governmental Authority charged with the
interpretation or administration thereof.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agent, to be delivered prior to March 1 of each
year, setting forth as of prior year-end: (i) the oil and gas
reserves attributable to certain of the Borrower's Oil and Gas
Properties together with a projection of the rate of production and
future net income, taxes, operating expenses and capital
expenditures with respect thereto as of such date, based upon the
pricing assumptions consistent with SEC reporting requirements at
the time, and (ii) such other information as the Agent may
reasonably request. The term "Reserve Report" shall also include
the information to be provided by the Borrower pursuant to
Section 8.07(a) prior to September 1 of each year, setting forth,
as of July 1 of such year, the information required in clauses (i)
and (ii) of the preceding sentence.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such
Person and, with respect to financial matters, the term
"Responsible Officer" shall include the Chief Financial Officer or
the Treasurer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible
Officer of the Borrower.
"Restricted Subsidiary" means any direct or indirect
Subsidiary of the Borrower that is not an Unrestricted Subsidiary.
"Scheduled Redetermination Date" shall have the meaning
assigned such term in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"Security Instruments" shall mean the Letters of Credit, the
Letter of Credit Agreements, the Fee Letter, the agreements or
instruments described or referred to in Exhibit E, and any and all
other agreements or instruments now or hereafter executed and
delivered by the Borrower or any other Person (other than
participation or similar agreements between any Lender and any
other lender or creditor with respect to any Indebtedness pursuant
to this Agreement) in connection with, or as security for the
payment or performance of the Notes or this Agreement, or
reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to
time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or
any other type of partnership or company other than a corporation
in which the Borrower or one or more of its other Subsidiaries is
a member, owner, partner or joint venturer and owns, directly or
indirectly, at least a majority of the equity of such entity or
controls such entity, but excluding any tax partnerships that are
not classified as partnerships under state law. For purposes of
this definition, any Person which owns directly or indirectly an
equity investment in another Person which allows the first Person
to manage or elect managers who manage the normal activities of
such second Person will be deemed to "control" such second Person
(e.g. a sole general partner controls a limited partnership).
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by
the Borrower and one or more of its Subsidiaries and (ii) any
Special Entity. Unless otherwise indicated herein, each reference
to the term "Subsidiary" shall mean a Subsidiary of the Borrower.
"Taxes" shall have the meaning assigned such term in
Section 4.06(a).
"Termination Date" shall mean, unless the Commitments are
sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof,
January ___, 2002.
"Third Party" shall have the meaning assigned such term in
Section 9.03.
"Threshold Amount" shall mean (i) during the period from and
including the Closing Date to but excluding April 28, 2000,
$30,000,000, subject to optional monthly redeterminations pursuant
to Section 2.08(d), and (ii) on April 28, 2000 and at all times
thereafter, the amount equal to the Borrowing Base.
"Threshold Amount Utilization Percentage" shall mean, as of
any day, the fraction expressed as a percentage, the numerator of
which is the sum of (i) the LC Exposure, plus (ii) the aggregate
principal amount of all outstanding Loans on such day, and the
denominator of which is the Threshold Amount in effect on such day.
For purposes of this calculation, the value of the denominator
shall be limited to the lesser of (i) the Threshold Amount then in
effect, or (ii) the Aggregate Commitments.
"Type" shall mean, with respect to any Loan, a Base Rate Loan
or a Eurodollar Loan.
"Unrestricted Subsidiary" shall mean (i) any of the
Subsidiaries listed on Schedule 7.14 hereto as an Unrestricted
Subsidiary, (ii) any Subsidiary of any Unrestricted Subsidiary,
(iii) any surviving Person (other than the Borrower or a Restricted
Subsidiary) into which any of such Persons referred to in clause
(i) or (ii) is merged or consolidated and (iv) any Subsidiary
organized after the date of this Agreement and designated as an
Unrestricted Subsidiary by the Borrower (pursuant to Section
9.16(b) hereof). By written notice to the Agent, the Borrower may
(x) declare any Unrestricted Subsidiary to be a Restricted
Subsidiary and such former Unrestricted Subsidiary shall thereafter
be deemed to be a Restricted Subsidiary for all purposes of this
Agreement (subject to the limitations of this Agreement and
pursuant to Section 9.16 hereof) or (y) at any time other than when
a Default or Event of Default has occurred and is continuing or
would exist after giving effect to such declaration, in any fiscal
year, declare one or more Restricted Subsidiaries, to be an
Unrestricted Subsidiary, subject to the limitations contained in
Section 9.03 hereof, and any such former Restricted Subsidiary
shall thereafter be deemed to be an Unrestricted Subsidiary for all
purposes of this Agreement.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having
by the terms thereof ordinary voting power to elect the board of
directors of such corporation, other than directors' qualifying
shares, are owned or controlled by the Borrower or one or more of
the Wholly-Owned Subsidiaries or by the Borrower and one or more of
the Wholly-Owned Subsidiaries.
Section 1.03 Accounting Terms and Determinations tc \l2
"Section 1.03 Accounting Terms and Determinations . Unless
otherwise specified herein, all accounting terms used herein shall
be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and
certificates and reports as to financial matters required to be
furnished to the Agent or the Lenders hereunder shall be prepared,
in accordance with GAAP, applied on a basis consistent with the
audited financial statements of the Borrower referred to in Section
7.02 (except for changes concurred with by the Borrower's
independent public accountants).
ARTICLE II
Commitments
tc \l1 " ARTICLE II Commitments
Section 2.01 Loans and Letters of Credit tc \l2 "Section
2.01 Loans and Letters of Credit .
(a) Loans. Each Lender severally agrees, on the terms
of this Agreement, to make Loans to the Borrower during the
period from and including (i) the Closing Date or (ii) such
later date that such Lender becomes a party to this Agreement
as provided in Section 12.06(b), to but excluding, the
Termination Date in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount of such
Lender's Commitment as then in effect; provided, however, that
the aggregate principal amount of all Loans by all Lenders
hereunder at any one time outstanding together with the LC
Exposure shall not exceed the Aggregate Commitments. Subject
to the terms of this Agreement, during the period from the
Closing Date to but excluding the Termination Date, the
Borrower may borrow, repay and reborrow the amount described
in this Section 2.01(a).
(b) Letters of Credit. During the period from and
including the Closing Date to but excluding the Termination
Date, the Agent, as issuing bank for the Lenders, agrees, on
the terms of this Agreement, to extend credit for the account
of the Borrower at any time and from time to time by issuing,
renewing, extending or reissuing Letters of Credit; provided
however, the LC Exposure at any one time outstanding shall not
exceed the lesser of (i) the LC Commitment or (ii) the
Aggregate Commitments, as then in effect, minus the aggregate
principal amount of all Loans then outstanding. The Lenders
shall participate in such Letters of Credit according to their
respective Percentage Shares.
(c) Limitation on Types of Loans. Subject to the other
terms and provisions of this Agreement, at the option of the
Borrower, the Loans may be Base Rate Loans or Eurodollar
Loans; provided that, without the prior written consent of the
Majority Lenders, no more than six (6) Eurodollar Loans may be
outstanding at any time to any Lender.
Section 2.02 Borrowings, Continuations and Conversions,
Letters of Credit tc \l2 "Section 2.02 Borrowings, Continuations
and Conversions, Letters of Credit .
(a) Borrowings. The Borrower shall give the Agent
(which shall promptly notify the Lenders) advance notice as
hereinafter provided of each borrowing hereunder, which shall
specify the aggregate amount of such borrowing, the Type and
the date (which shall be a Business Day) of the Loans to be
borrowed and (in the case of Eurodollar Loans) the duration of
the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings
shall be in amounts of at least $1,000,000 or the remaining
balance of the Aggregate Commitments, if less, or any whole
multiple of $1,000,000 in excess thereof, and all Eurodollar
Loans shall be in amounts of at least $1,000,000 or any whole
multiple of $1,000,000 in excess thereof.
(c) Notices. The initial borrowing and all subsequent
borrowings, continuations and conversions shall require
advance written notice to the Agent (which shall promptly
notify the Lenders) in the form of Exhibit B hereto (or
telephonic notice promptly confirmed by such a written
notice), which in each case may be revocable or irrevocable,
from the Borrower to be received by the Agent not later than
11:00 a.m. Houston, Texas time on the date of each Base Rate
Loan borrowing and three Business Days prior to the date of
each Eurodollar Loan borrowing, continuation or conversion.
Without in any way limiting the Borrower's obligation to
confirm in writing any telephonic notice, the Agent may act
without liability upon the basis of telephonic notice believed
by the Agent in good faith to be from the Borrower prior to
receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Agent's record
of the terms of such telephonic notice except in the case of
gross negligence or willful misconduct by the Agent.
(d) Continuation Options. Subject to the provisions
made in this Section 2.02(d), the Borrower may elect to
continue all or any part of any Eurodollar Loan beyond the
expiration of the then current Interest Period relating
thereto by giving advance notice as provided in Section
2.02(c) to the Agent (which shall promptly notify the Lenders)
of such election, specifying the amount of such Loan to be
continued and the Interest Period therefor. In the absence of
such a timely and proper election, the Borrower shall be
deemed to have elected to convert such Eurodollar Loan to a
Base Rate Loan pursuant to Section 2.02(e). All or any part
of any Eurodollar Loan may be continued as provided herein,
provided that (i) any continuation of any such Loan shall be
(as to each Loan as continued for an applicable Interest
Period) in amounts of at least $1,000,000 or any whole
multiple of $1,000,000 in excess thereof and (ii) no Default
shall have occurred and be continuing. If a Default shall
have occurred and be continuing, each Eurodollar Loan shall be
converted to a Base Rate Loan on the last day of the Interest
Period applicable thereto.
(e) Conversion Options. The Borrower may elect to
convert all or any part of any Eurodollar Loan on the last day
of the then current Interest Period relating thereto to a Base
Rate Loan by giving advance notice to the Agent (which shall
promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may
elect to convert all or any part of any Base Rate Loan at any
time and from time to time to a Eurodollar Loan by giving
advance notice as provided in Section 2.02(c) to the Agent
(which shall promptly notify the Lenders) of such election.
All or any part of any outstanding Loan may be converted as
provided herein, provided that (i) any conversion of any Base
Rate Loan into a Eurodollar Loan shall be (as to each such
Loan into which there is a conversion for an applicable
Interest Period) in amounts of at least $1,000,000 or any
whole multiple of $1,000,000 in excess thereof and (ii) no
Default shall have occurred and be continuing. If a Default
shall have occurred and be continuing, no Base Rate Loan may
be converted into a Eurodollar Loan.
(f) Advances. Not later than 1:00 p.m. Houston, Texas
time on the date specified for each borrowing hereunder, each
Lender shall make available the amount of the Loan to be made
by it on such date to the Agent, to an account which the Agent
shall specify, in immediately available funds, for the account
of the Borrower. The amounts so received by the Agent shall,
subject to the terms and conditions of this Agreement, be made
available to the Borrower by depositing the same, in
immediately available funds, in an account of the Borrower,
designated by the Borrower and maintained at the Principal
Office.
(g) Letters of Credit. The Borrower shall give the
Agent (which shall promptly notify the Lenders of such
request) advance revocable or irrevocable notice to be
received by the Agent not later than 11:00 a.m. Houston, Texas
time not less than three (3) Business Days prior thereto of
each request for the issuance and at least thirty (30)
Business Days prior to the date of the renewal or extension of
a Letter of Credit hereunder which request shall specify the
amount of such Letter of Credit, the date (which shall be a
Business Day) such Letter of Credit is to be issued, renewed
or extended, the duration thereof, the name and address of the
beneficiary thereof, the form of the Letter of Credit and such
other information as the Agent may reasonably request all of
which shall be reasonably satisfactory to the Agent. Subject
to the terms and conditions of this Agreement, on the date
specified for the issuance, renewal or extension of a Letter
of Credit, the Agent shall issue such Letter of Credit to the
beneficiary thereof.
In conjunction with the issuance of each Letter of
Credit, the Borrower shall execute a Letter of Credit
Agreement. In the event of any conflict between any provision
of a Letter of Credit Agreement and this Agreement, the
Borrower, the Agent and the Lenders hereby agree that the
provisions of this Agreement shall govern.
The Agent will send to the Borrower and each Lender, upon
issuance of any Letter of Credit, or an amendment thereto, a
true and complete copy of such Letter of Credit, or such
amendment thereto.
Section 2.03 Changes of Commitments tc \l2 "Section 2.03
Changes of Commitments .
(a) The Aggregate Commitments shall at all times be
equal to the lesser of (i) the Aggregate Maximum Credit Amount
after adjustments resulting from reductions pursuant to
Section 2.03(b) hereof or (ii) the Borrowing Base as
determined from time to time pursuant to Section 2.08(f)
hereof.
(b) The Borrower shall have the right to terminate or to
reduce the amount of the Aggregate Maximum Credit Amounts at
any time or from time to time upon not less than three (3)
Business Days' prior notice to the Agent (which shall promptly
notify the Lenders) of each such termination or reduction,
which notice shall specify the effective date thereof and the
amount of any such reduction (which shall not be less than
$2,500,000 or any whole multiple of $1,000,000 in excess
thereof) and may be revocable or irrevocable and effective
only upon receipt by the Agent. The Aggregate Maximum Credit
Amounts once terminated or reduced pursuant to this Section
2.03(b) may not be reinstated.
Section 2.04 Fees tc \l2 "Section 2.04 Fees .
(a) The Borrower agrees to pay to the Agent, for the
account of each Lender, a commitment fee on the daily average
of the amount by which the Aggregate Commitments exceed the
sum of (A) the LC Exposure, plus (B) the aggregate principal
amount of all outstanding Loans for the period from and
including the Closing Date up to but excluding the earlier of
the date the Aggregate Commitments are terminated or the
Termination Date at a rate per annum set forth at the
appropriate intersection in the table shown below based upon
the Threshold Amount Utilization Percentage as in effect from
time to time on each day during the period in question:
Threshold Amount Utilization Percentage Commitment Fee
Less than or equal to 33% 0.50%
Greater than 33% but less than
or equal to 66% 0.50%
Greater than 66% but less than
or equal to 100% 0.50%
Greater than 100% 0.50%
All such commitment fees shall be calculated on the basis of
a year of 365 (or, in a leap year, 366) days for the actual number
of days elapsed. The accrued commitment fees shall be due and
payable quarterly in arrears on each Quarterly Date and on the
earlier of the date the Aggregate Commitments are terminated or the
Termination Date.
(b) The Borrower agrees to pay the Agent, for the
account of each Lender, commissions for issuing the Letters of
Credit on the daily average outstanding of the maximum
liability of the Agent existing from time to time under such
Letter of Credit (calculated separately for each Letter of
Credit) at the applicable per annum percentage set forth at
the appropriate intersection in the table shown below,
provided that each Letter of Credit shall bear a minimum
commission of $300.00. Each Letter of Credit shall be deemed
to be outstanding up to the full face amount of the Letter of
Credit until the Agent has received the canceled Letter of
Credit or a written cancellation of the Letter of Credit from
the beneficiary of such Letter of Credit in form and substance
acceptable to the Agent, or for any reductions in the amount
of the Letter of Credit (other than from a drawing), written
notification from the beneficiary of such Letter of Credit.
Such commissions are payable quarterly in arrears.
Threshold Amount Utilization Percentage Letter of Credit
Fee
Less than or equal to 33% 1.75%
Greater than 33% but less than
or equal to 66% 2.00%
Greater than 66% but less than
or equal to 100% 2.25%
Greater than 100% 2.75%
(c) The Agent, for its own account, shall retain 0.125%
of the Letter of Credit fee (as described in subsection (b)
above) as an issuing fee and shall pay the balance of such
Letter of Credit fee to the Lenders pro rata.
(d) The Borrower shall pay to the Agent for its account
such other fees as are set forth in the Fee Letter on the
dates specified therein to the extent not paid prior to the
Closing Date.
(e) If the Borrower exercises its option to cause the
Lenders to redetermine the Borrowing Base pursuant to Section
2.08(d), then for each exercise of such option, the Borrower
shall pay a fee to the Agent in the amount of $2,000 to be
shared by the Lenders pro rata in proportion to their
Percentage Share. Such fee shall be due and payable at the
time the Borrower gives notice of its election to exercise
such option.
Section 2.05 Several Obligations tc \l2 "Section 2.05
Several Obligations . The failure of any Lender to make any Loan
to be made by it or to provide funds for disbursements or
reimbursements under Letters of Credit on the date specified
therefor shall not relieve any other Lender of its obligation to
make its Loan or provide funds on such date, but no Lender shall be
responsible for the failure of any other Lender to make a Loan to
be made by such other Lender or to provide funds to be provided by
such other Lender.
Section 2.06 Notes tc \l2 "Section 2.06 Notes . The
Loans made by each Lender shall be evidenced by a single promissory
note of the Borrower in substantially the form of Exhibit A hereto,
dated (i) the Closing Date or (ii) the effective date of an
Assignment pursuant to Section 12.06(b), payable to the order of
such Lender in a principal amount equal to its Maximum Credit
Amount as in effect and otherwise duly completed and such
substitute Notes as required by Section 12.06(b). The date,
amount, Type, interest rate and Interest Period of each Loan made
by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its
Notes, and, prior to any transfer, may be endorsed by such Lender
on a schedule attached to such Notes or any continuation thereof or
on any separate record maintained by such Lender. Failure to make
any such notation or to attach a schedule shall not affect any
Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its
Notes.
Section 2.07 Prepayments tc \l2 "Section 2.07
Prepayments .
(a) The Borrower may prepay the Base Rate Loans upon one
(1) Business Day's prior notice to the Agent (which shall
promptly notify the Lenders), which notice shall specify the
prepayment date (which shall be a Business Day) and the amount
of the prepayment (which shall be at least $1,000,000 or the
remaining aggregate principal balance outstanding on the
Notes) and may be revocable or irrevocable and effective only
upon receipt by the Agent, provided that interest on the
principal prepaid, accrued to the prepayment date, shall be
paid on the prepayment date. The Borrower may prepay all or
any portion of Eurodollar Loans upon not less than three (3)
Business Day's prior notice to the Agent (which shall promptly
notify the Lenders), which notice shall specify the prepayment
date (which shall be a Business Day) and the amount of the
prepayment (which shall be at least $1,000,000 or the
remaining aggregate principal balance outstanding on the
Notes) and may be revocable or irrevocable and effective only
upon receipt by the Agent, provided that interest on the
principal prepaid, accrued to the prepayment date, shall be
paid on the prepayment date. In addition, prepayments of
Eurodollar Loans shall be subject to the terms of Section
5.05.
(b) If, after giving effect to any termination or
reduction of the Aggregate Maximum Credit Amounts pursuant to
Section 2.03(b), the outstanding aggregate principal amount of
the Loans plus the LC Exposure exceeds the Aggregate Maximum
Credit Amounts, the Borrower shall (i) prepay the Loans on the
date of such termination or reduction in an aggregate
principal amount equal to the excess, together with interest
on the principal amount paid accrued to the date of such
prepayment and (ii) if any excess remains after prepaying all
of the Loans, pay to the Agent on behalf of the Lenders an
amount equal to the excess to be held as cash collateral as
provided in Section 2.10(b) hereof.
(c) Upon any adjustment or redetermination of the amount
of the Borrowing Base in accordance with Sections 2.07(e),
2.07(f), 2.08, 6.02, 8.08(c), 9.01(e), 9.03(i) or 9.12 or
otherwise, if the adjusted or redetermined Borrowing Base is
less than the sum of the aggregate outstanding principal
amount of the Loans and the LC Exposure (a "Borrowing Base
Deficiency"), then (i) the Borrower shall cure such Borrowing
Base Deficiency by prepaying the Loans or reducing the LC
Exposure in an aggregate principal amount equal to such
excess, together with interest on the principal amount paid
which has accrued to the date of such prepayment, within 45
days of receipt of written notice thereof unless such
Borrowing Base Deficiency occurs before April 28, 2000 at a
time when the Aggregate Commitments exceed the Threshold
Amount, in which case any such Borrowing Base Deficiency shall
be due and payable on the earlier of the 30th day following
the Borrower's receipt of written notice thereof or April 28,
2000. If such Borrowing Base Deficiency is not cured by the
30th or 45th day, as applicable, after the Borrower's receipt
of notice of such Borrowing Base Deficiency (or on April 28,
2000 with respect to a Borrowing Base Deficiency existing on
such date), then such Borrowing Base Deficiency shall
constitute an Event of Default hereunder.
(d) Following a casualty loss to all or any part of the
Oil and Gas Properties constituting the Borrowing Base, all
insurance proceeds payable to the Borrower and not used by the
Borrower to repair or replace such Properties shall be used by
the Borrower to prepay the Loans. The Borrowing Base shall be
reduced by an amount reasonably determined at the time by the
Agent to reflect the contribution to the Borrowing Base of
such Oil and Gas Properties not repaired or replaced and such
Oil and Gas Properties shall no longer be included in the
Borrowing Base.
(e) Upon the request of the Borrower, the Agent shall
release any Oil and Gas Properties from the Lien of the
Security Documents; provided that (i) at the time of such
request, no Event of Default shall have occurred and be
continuing and (ii) with respect to Oil and Gas Properties
included in the Borrowing Base, the Borrowing Base shall be
reduced by an amount reasonably determined at the time by the
Agent to reflect the contribution to the Borrowing Base of
such Oil and Gas Properties so released and any such Oil and
Gas Properties so released shall no longer be included in the
Borrowing Base.
(f) Prepayments permitted or required under this Section
2.07 shall be without notice, premium or penalty, except as
required under Section 5.05 for prepayment of Eurodollar
Loans. Any prepayments on the Loans may be reborrowed subject
to the then effective Aggregate Commitments.
Section 2.08 Borrowing Base; Threshold Amount tc \l2
"Section 2.08 Borrowing Base; Threshold Amount .
(a) During the period from and after the Closing Date
until the first scheduled redetermination of the Borrowing
Base (scheduled to be April 1, 2000) in accordance with this
Section 2.08, the amount of (i) the Borrowing Base shall be
$35,000,000; and (ii) the Threshold Amount shall be
$30,000,000. The Borrowing Base shall be redetermined in
accordance with Sections 2.08(b), 2.08(c) and 2.08(d) by the
Agent with the concurrence of the Majority Lenders. Upon any
redetermination of the Borrowing Base, such redetermination
shall remain in effect until the next successive
Redetermination Date. "Redetermination Date" shall mean the
date that the redetermined Borrowing Base becomes effective
subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled
redeterminations. On April 28, 2000, and at all times
thereafter, the Threshold Amount shall be equal to the amount
of the Borrowing Base then in effect.
(b) Upon receipt of the reports required by Section 8.07
and such other reports, data and supplemental information as
may from time to time be reasonably requested by the Agent
(the "Engineering Reports"), the Agent will redetermine the
Borrowing Base. Such redetermination will be in accordance
with its normal and customary procedures for evaluating oil
and gas reserves and other related assets as such exist at
that particular time. The Agent, in its sole discretion, may
make adjustments to the rates, volumes and prices and other
assumptions set forth therein in accordance with its normal
and customary procedures for evaluating oil and gas reserves
and other related assets as such exist at that particular
time. The Agent shall propose to the Lenders a new Borrowing
Base (i) within 14 days following receipt by the Agent and the
Lenders of the applicable Engineering Reports in a timely and
complete manner, with respect to the first scheduled
redetermination of the Borrowing Base scheduled to occur on
April 1, 2000, and (ii) within 30 days following receipt by
the Agent and the Lenders of the applicable Engineering
Reports in a timely and complete manner, with respect to each
scheduled redetermination of the Borrowing Base thereafter.
After having received notice of such proposal by the Agent,
each Lender shall have 14 days to agree or disagree with such
proposal. If at the end of the 14 days, any Lender shall have
not communicated its approval or disapproval, such silence
shall be deemed to be an approval. If within such 14 day
period the Majority Lenders have approved or been deemed to
approve the Agent's proposal, then the Agent's proposal shall
be the new Borrowing Base. If however, the Majority Lenders
have not approved or been deemed to approve the Agent's
proposal within 14 days, the Majority Lenders shall, within a
reasonable period of time, agree on a new Borrowing Base. The
first scheduled redetermination of the Borrowing Base is to
occur on April 1, 2000.
(c) The Agent may exclude any Oil and Gas Property or
portion of production therefrom or any income from any other
Property from the Borrowing Base, at any time, because title
information is not reasonably satisfactory, such Property is
not Mortgaged Property or such Property is not assignable.
(d) (i) So long as any of the Commitments are in effect
and until payment in full of all Loans hereunder, on or around
April 1, 2000, and on or around the fifteenth (15th) day of
each October and April thereafter, commencing October 15, 2000
(each being a "Scheduled Redetermination Date"), the Lenders
shall redetermine the amount of the Borrowing Base in
accordance with Section 2.08(b). (ii) In addition to the
scheduled redeterminations pursuant to clause (i) of this
Section 2.08(d), the following optional redeterminations may
occur: (x) At any time after the first Scheduled
Redetermination Date, the Majority Lenders or the Borrower may
each initiate a redetermination of the Borrowing Base as they
so elect; provided, however, only one such unscheduled
redetermination may be elected between each Scheduled
Redetermination Date. If such redetermination is initiated by
the Majority Lenders, the Agent shall specify in writing to
the Borrower the date on which the Borrower is to furnish a
Reserve Report in accordance with Section 8.07(b) and the date
on which such redetermination is to occur. (y) For the period
from and after the Closing Date to and including the earlier
of April 28, 2000, or the date on which the Aggregate
Commitments equal the Threshold Amount, the Agent, with the
concurrence of the Majority Lenders, shall have the right to
redetermine the Borrowing Base and/or the Threshold Amount
once during each calendar month to the extent and only to the
extent that the Agent reasonably determines that there has
been a material adverse change in the value of the oil and gas
reserves constituting the Borrowing Base. Each such
redetermination shall be made in accordance with
Sections 2.08(b) and (c); provided, however, the Agent shall
propose to the Lenders the redetermined Borrowing Base and/or
Threshold Amount within 14 days following receipt by the Agent
and the Lenders of the Engineering Reports in a timely and
complete manner. After having received notice of such
proposal by the Agent, the Majority Lenders shall have 14 days
to agree or disagree with such proposal. If at the end of the
14 days, the Majority Lenders have not communicated their
approval or disapproval, such silence shall be deemed to be an
approval and the Agent's proposal shall be the new Borrowing
Base. If however, the Majority Lenders notify Agent within
14 days of their disapproval, the Majority Lenders shall,
within a reasonable period of time, agree on a new Borrowing
Base.
(e) The Agent shall promptly notify in writing the
Borrower and the Lenders of the new Borrowing Base. Any
redetermination of the Borrowing Base shall not be in effect
until written notice is received by the Borrower.
(f) Upon the Borrower's receipt of written notice from
the Agent of the amount of the Borrowing Base then in effect,
the Agent and the Borrower shall mutually agree on the amount
of such Borrowing Base to be accepted by the Borrower as the
Borrowing Base. During the period from and after the Closing
Date to and including the effective date of the next
designation of the Borrowing Base in accordance with this
Section 2.08(f), the amount of the Borrowing Base shall be
$35,000,000.
(g) In addition to the scheduled and unscheduled
redeterminations of the Borrowing Base pursuant to this
Section 2.08, the Borrowing Base in effect from time to time
is subject to reductions and adjustments made in accordance
with Sections 2.07(e), 2.07(f), 8.08(c), 9.01(e), 9.03(i) or
9.13.
(h) So long as any of the Commitments are in effect or
any LC Exposure or Loans are outstanding hereunder, the Loans
and Letters of Credit shall be governed by the then effective
Borrowing Base.
(i) At no time shall the Threshold Amount exceed the
Borrowing Base.
Section 2.09 Assumption of Risks tc \l2 "Section 2.09
Assumption of Risks . The Borrower assumes all risks of the acts
or omissions of any beneficiary of any Letter of Credit or any
transferee thereof with respect to its use of such Letter of
Credit. Neither the Agent (except in the case of willful
misconduct or bad faith on the part of the Agent or any of its
employees), its correspondents nor any Lender shall be responsible
for the validity, sufficiency or genuineness of certificates or
other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions,
interruptions or delays in transmissions or delivery of any
messages by mail, telex, or otherwise, whether or not they be in
code; for errors in translation or for errors in interpretation of
technical terms; the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; the failure of any beneficiary or any
transferee of any Letter of Credit to comply fully with conditions
required in order to draw upon any Letter of Credit; or for any
other consequences arising from causes beyond the Agent's control
or the control of the Agent's correspondents. In addition, neither
the Agent nor any Lender shall be responsible for any error,
neglect, or default of any of the Agent's correspondents; and none
of the above shall affect, impair or prevent the vesting of any of
the Agent's or any Lender's rights or powers hereunder or under the
Letter of Credit Agreements, all of which rights shall be
cumulative. The Agent and its correspondents may accept
certificates or other documents that appear on their face to be in
order, without responsibility for further investigation of any
matter contained therein regardless of any notice or information to
the contrary. In furtherance and not in limitation of the
foregoing provisions, the Borrower agrees that any action, inaction
or omission taken or not taken by the Agent or by any correspondent
for the Agent in good faith in connection with any Letter of
Credit, or any related drafts, certificates, documents or
instruments, shall be binding on the Borrower and shall not put the
Agent or its correspondents under any resulting liability to the
Borrower.
Section 2.10 Obligation to Reimburse and to Prepay tc
\l2 "Section 2.10 Obligation to Reimburse and to Prepay .
(a) If a disbursement by the Agent is made under any
Letter of Credit, the Borrower shall pay to the Agent within
two (2) Business Days after notice of any such disbursement is
received by the Borrower, the amount of each such disbursement
made by the Agent under the Letter of Credit (if such payment
is not sooner effected as may be required under this Section
2.10 or under other provisions of the Letter of Credit),
together with interest on the amount disbursed from and
including the date of disbursement until payment in full of
such disbursed amount at a varying rate per annum equal to (i)
the then applicable interest rate for Base Rate Loans through
the second Business Day after notice of such disbursement is
received by the Borrower and (ii) thereafter, the Post-Default
Rate for Base Rate Loans (but in no event to exceed the
Highest Lawful Rate) for the period from and including the
third Business Day following the date of notice of such
disbursement to and including the date of repayment in full of
such disbursed amount. The obligations of the Borrower under
this Agreement with respect to each Letter of Credit shall be
absolute, unconditional and irrevocable and shall be paid or
performed strictly in accordance with the terms of this
Agreement under all circumstances whatsoever, including,
without limitation, but only to the fullest extent permitted
by applicable law, the following circumstances: (i) any lack
of validity or enforceability of this Agreement, any Letter of
Credit or any of the Security Instruments; (ii) any amendment
or waiver of (including any default), or any consent to
departure from this Agreement (except to the extent permitted
by any amendment or waiver), any Letter of Credit or any of
the Security Instruments; (iii) the existence of any claim,
set-off, defense or other rights which the Borrower may have
at any time against the beneficiary of any Letter of Credit or
any transferee of any Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be
acting), the Agent, any Lender or any other Person, whether in
connection with this Agreement, any Letter of Credit, the
Security Instruments, the transactions contemplated hereby or
any unrelated transaction; (iv) any statement, certificate,
draft, notice or any other document presented under any Letter
of Credit proves to have been forged, fraudulent, insufficient
or invalid in any respect or any statement therein proves to
have been untrue or inaccurate in any respect whatsoever; (v)
payment by the Agent under any Letter of Credit against
presentation of a draft or certificate which appears on its
face to comply, but does not comply, with the terms of such
Letter of Credit; and (vi) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary,
the Borrower will not be liable for payment or performance
that results from the gross negligence or willful misconduct
of the Agent, except (i) where the Borrower or any Subsidiary
actually recovers the proceeds for itself or the Agent of any
payment made by the Agent in connection with such gross
negligence or willful misconduct or (ii) in cases where the
Agent makes payment to the named beneficiary of a Letter of
Credit.
(b) In the event of the occurrence of any Event of
Default, a payment or prepayment pursuant to Sections 2.07(b),
(c) and (d) hereof or the maturity of the Notes, whether by
acceleration or otherwise, an amount equal to the LC Exposure
(or the excess in the case of Section 2.07(b)) shall be deemed
to be forthwith due and owing by the Borrower to the Agent and
the Lenders as of the date of any such occurrence; and the
Borrower's obligation to pay such amount shall be absolute and
unconditional, without regard to whether any beneficiary of
any such Letter of Credit has attempted to draw down all or a
portion of such amount under the terms of a Letter of Credit,
and, to the fullest extent permitted by applicable law, shall
not be subject to any defense or be affected by a right of
set-off, counterclaim or recoupment which the Borrower may now
or hereafter have against any such beneficiary, the Agent, the
Lenders or any other Person for any reason whatsoever. Such
payments shall be held by the Agent on behalf of the Lenders
as cash collateral securing the LC Exposure in an interest
bearing account or accounts at the Principal Office; and the
Borrower hereby grants to and by its deposit with the Agent
grants to the Agent a security interest in such cash
collateral. In the event of any such payment by the Borrower
of amounts contingently owing under outstanding Letters of
Credit and in the event that thereafter drafts or other
demands for payment complying with the terms of such Letters
of Credit are not made prior to the respective expiration
dates thereof, the Agent agrees, if no Event of Default has
occurred and is continuing or if no other amounts are
outstanding under this Agreement, the Notes or the Security
Instruments, to remit to the Borrower amounts for which the
contingent obligations evidenced by the Letters of Credit have
ceased.
(c) Each Lender severally and unconditionally agrees
that it shall promptly reimburse the Agent an amount equal to
such Lender's Percentage Share of any disbursement made by the
Agent under any Letter of Credit that is not reimbursed
according to this Section 2.10.
Section 2.11 Lending Offices tc \l2 "Section 2.11
Lending Offices . The Loans of each Type made by each Lender shall
be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
ARTICLE III
Payments of Principal and Interest
tc \l1 " ARTICLE III Payments of Principal and Interest
Section 3.01 Repayment of Loans tc \l2 "Section 3.01
Repayment of Loans . The Borrower will pay to the Agent, for the
account of each Lender, the principal payments required by this
Section 3.01. On the Termination Date the Borrower shall repay
the outstanding aggregate principal and accrued and unpaid interest
under the Notes.
Section 3.02 Interest tc \l2 "Section 3.02 Interest .
The Borrower will pay to the Agent, for the account of each
Lender, interest on the unpaid principal amount of each Loan made
by such Lender for the period commencing on the date such Loan is
made to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable
Margin, but in no event to exceed the Highest Lawful
Rate; and
(ii) if such a Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for
such Loan plus the Applicable Margin, but in no event to
exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent,
for the account of each Lender interest at the applicable Post-
Default Rate on any principal of any Loan made by such Lender, and
(to the fullest extent permitted by law) on any other amount
payable by the Borrower hereunder, under any Loan Document or under
any Note held by such Lender to or for account of such Lender, for
the period commencing on the date of an Event of Default until the
same is paid in full or all Events of Default are cured or waived.
Accrued interest on Base Rate Loans shall be payable on each
Quarterly Date commencing on March 31, 2000, and accrued interest
on each Eurodollar Loan shall be payable on the last day of the
Interest Period therefor and, if such Interest Period is longer
than three months at three-month intervals following the first day
of such Interest Period, except that interest payable at the Post-
Default Rate shall be payable from time to time on demand and
interest on any Eurodollar Loan that is converted into a Base Rate
Loan (pursuant to Section 5.04) shall be payable on the date of
conversion (but only to the extent so converted).
Promptly after the determination of any interest rate provided
for herein or any change therein, the Agent shall notify the
Lenders to which such interest is payable and the Borrower thereof.
Each determination by the Agent of an interest rate or fee
hereunder shall, except in cases of manifest error, be final,
conclusive and binding on the parties.
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
tc \l1 " ARTICLE IV Payments; Pro Rata Treatment;
Computations; Etc.
Section 4.01 Payments tc \l2 "Section 4.01 Payments .
Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower
under the Loan Documents shall be made in Dollars, in immediately
available funds, to the Agent at such account as the Agent shall
specify by notice to the Borrower from time to time, not later than
11:00 a.m. Houston, Texas time on the date on which such payments
shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding
Business Day). Such payments shall be made without (to the fullest
extent permitted by applicable law) defense, set-off or
counterclaim. Each payment received by the Agent under this
Agreement or any Note for account of a Lender shall be paid
promptly to such Lender in immediately available funds. Except as
provided in clause (iii) of the definition of "Interest Period", if
the due date of any payment under this Agreement or any Note would
otherwise fall on a day which is not a Business Day such date shall
be extended to the next succeeding Business Day and interest shall
be payable for any principal so extended for the period of such
extension. At the time of each payment to the Agent of any
principal of or interest on any borrowing, the Borrower shall
notify the Agent of the Loans to which such payment shall apply.
In the absence of such notice the Agent may specify the Loans to
which such payment shall apply, but to the extent possible such
payment or prepayment will be applied first to the Loans comprised
of Base Rate Loans.
Section 4.02 Pro Rata Treatment tc \l2 "Section 4.02
Pro Rata Treatment . Except to the extent otherwise provided
herein each Lender agrees that: (i) each borrowing from the
Lenders under Section 2.01 and each continuation and conversion
under Section 2.02 shall be made from the Lenders pro rata in
accordance with their Percentage Share, each payment of commitment
fee or other fees under Sections 2.04(a), (b) and (c) shall be made
for account of the Lenders pro rata in accordance with their
Percentage Share, and each termination or reduction of the amount
of the Aggregate Maximum Credit Amounts under Section 2.03(b) shall
be applied to the Commitment of each Lender, pro rata according to
the amounts of its respective Commitment; (ii) each payment of
principal of Loans by the Borrower shall be made for account of the
Lenders pro rata in accordance with the respective unpaid principal
amount of the Loans held by the Lenders; and (iii) each payment of
interest on Loans by the Borrower shall be made for account of the
Lenders pro rata in accordance with the amounts of interest due and
payable to the respective Lenders; and (iv) each reimbursement by
the Borrower of disbursements under Letters of Credit shall be made
for account of the Agent or, if funded by the Lenders, pro rata for
the account of the Lenders, in accordance with the amounts of
reimbursement obligations due and payable to each respective
Lender.
Section 4.03 Computations tc \l2 "Section 4.03
Computations . Interest on Eurodollar Loans shall be computed on
the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period
for which such interest is payable, unless such calculation would
exceed the Highest Lawful Rate, in which case interest shall be
calculated on the per annum basis of a year of 365 or 366 days, as
the case may be. Interest on Base Rate Loans and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may
be, and actual days elapsed (including the first day but excluding
the last day) occurring in the period for which such interest is
payable.
Section 4.04 Non-receipt of Funds by the Agent tc \l2
"Section 4.04 Non-receipt of Funds by the Agent . Unless the
Agent shall have been notified by a Lender or the Borrower prior to
the date on which such notifying party is scheduled to make payment
to the Agent (in the case of a Lender) of the proceeds of a Loan or
a payment under a Letter of Credit to be made by it hereunder or
(in the case of the Borrower) a payment to the Agent for account of
one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective
upon receipt, that it does not intend to make the Required Payment
to the Agent, the Agent may assume that the Required Payment has
been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended
recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the
Agent, the recipient(s) of such payment shall, on demand, repay to
the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the
date such amount was so made available by the Agent until but
excluding the date the Agent recovers such amount at a rate per
annum which, for any Lender as recipient, will be equal to the
Federal Funds Rate, and for the Borrower as recipient, will be
equal to the Base Rate plus the Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc. tc \l2
"Section 4.05 Set-off, Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien or
counterclaim a Lender may otherwise have, each Lender shall
have the right and be entitled (after consultation with the
Agent), at its option, to offset balances held by it or by any
of its Affiliates for account of the Borrower or any
Restricted Subsidiary at any of its offices, in Dollars or in
any other currency, against any principal of or interest on
any of such Lender's Loans, or any other amount payable to
such Lender hereunder, which is not paid when due (regardless
of whether such balances are then due to the Borrower), in
which case it shall promptly notify the Borrower and the Agent
thereof, provided that such Lender's failure to give such
notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal
of or interest on any Loan made by it to the Borrower under
this Agreement (or reimbursement as to any Letter of Credit)
through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result
of such payment, such Lender shall have received a greater
percentage of the principal or interest (or reimbursement)
then due hereunder by the Borrower to such Lender than the
percentage received by any other Lenders, it shall promptly
(i) notify the Agent and each other Lender thereof and (ii)
purchase from such other Lenders participations in (or, if and
to the extent specified by such Lender, direct interests in)
the Loans (or participations in Letters of Credit) made by
such other Lenders (or in interest due thereon, as the case
may be) in such amounts, and make such other adjustments from
time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of
any expenses which may be incurred by such Lender in obtaining
or preserving such excess payment) pro rata in accordance with
the unpaid principal and/or interest on the Loans held by each
of the Lenders (or reimbursements of Letters of Credit). To
such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be
restored. The Borrower agrees that any Lender so purchasing
a participation (or direct interest) in the Loans made by
other Lenders (or in interest due thereon, as the case may be)
may exercise all rights of set-off, banker's lien, counter-
claim or similar rights with respect to such participation as
fully as if such Lender were a direct holder of Loans (or
Letters of Credit) in the amount of such participation.
Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness or obligation of
the Borrower. If under any applicable bankruptcy, insolvency
or other similar law, any Lender receives a secured claim in
lieu of a set-off to which this Section 4.05 applies, such
Lender shall, to the extent practicable, exercise its rights
in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.05 to
share the benefits of any recovery on such secured claim.
Section 4.06 Taxes tc \l2 "Section 4.06 Taxes .
(a) Payments Free and Clear. Any and all payments by
the Borrower hereunder shall be made, in accordance with
Section 4.01, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent,
taxes imposed on its income, and franchise or similar taxes
imposed on it, by (i) any jurisdiction (or political
subdivision thereof) of which the Agent or such Lender, as the
case may be, is a citizen or resident or in which such Lender
has an Applicable Lending Office, (ii) the jurisdiction (or
any political subdivision thereof) in which the Agent or such
Lender is organized, or (iii) any jurisdiction (or political
subdivision thereof) in which such Lender or the Agent is
presently doing business in which taxes are imposed solely as
a result of doing business in such jurisdiction (all such non-
excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder to
the Lenders or the Agent (i) the sum payable shall be
increased by the amount necessary so that after making all
required deductions (including deductions applicable to
additional sums payable under this Section 4.06) such Lender
or the Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent
permitted by applicable law, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies that arise
from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
this Agreement, any Assignment or any Security Instrument
(hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BUT SUBJECT TO SECTION 4.06(d)(ii), THE
BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT FOR THE FULL
AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED
TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL
AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY
SUCH LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY
LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH
RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE
CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES
WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S
PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT
TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS
AFTER THE DATE ANY LENDER OR THE AGENT, AS THE CASE MAY BE,
MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE AGENT
RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER
TAXES FOR WHICH SUCH LENDER OR THE AGENT HAS RECEIVED PAYMENT
FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF
SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED
AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A
REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE
BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT
PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT
TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO
REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE
REQUEST OF SUCH LENDER OR THE AGENT, AGREES TO RETURN SUCH
REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES)
TO SUCH LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE
AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (1) a
corporation or banking association organized under the
laws of the United States of America or any state thereof
or (2) it is entitled to complete exemption from United
States withholding tax imposed on or with respect to any
payments, including fees, to be made to it pursuant to
this Agreement (A) under an applicable provision of a tax
convention to which the United States of America is a
party or (B) because it is acting through a branch,
agency or office in the United States of America and any
payment to be received by it hereunder is effectively
connected with a trade or business in the United States
of America. Each Lender that is not a corporation or
banking association organized under the laws of the
United States of America or any state thereof agrees to
provide to the Borrower and the Agent on the Closing
Date, or on the date of its delivery of the Assignment
pursuant to which it becomes a Lender, and at such other
times as required by United States law or as the Borrower
or the Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal
Revenue Service Form 4224 (or successor form) certifying
that all payments to be made to it hereunder will be
effectively connected to a United States trade or
business (the "Form 4224 Certification") or (B) Internal
Revenue Service Form 1001 (or successor form) certifying
that it is entitled to the benefit of a provision of a
tax convention to which the United States of America is
a party which completely exempts from United States
withholding tax all payments to be made to it hereunder
(the "Form 1001 Certification"). In addition, each
Lender agrees that if it previously filed a Form 4224
Certification, it will deliver to the Borrower and the
Agent a new Form 4224 Certification prior to the first
payment date occurring in each of its subsequent taxable
years; and if it previously filed a Form 1001
Certification, it will deliver to the Borrower and the
Agent a new certification prior to the first payment date
falling in the third year following the previous filing
of such certification. Each Lender also agrees to
deliver to the Borrower and the Agent such other or
supplemental forms as may at any time be required as a
result of changes in applicable law or regulation in
order to confirm or maintain in effect its entitlement to
exemption from United States withholding tax on any
payments hereunder, provided that the circumstances of
such Lender at the relevant time and applicable laws
permit it to do so. If a Lender determines, as a result
of any change in either (i) a Governmental Requirement or
(ii) its circumstances, that it is unable to submit any
form or certificate that it is obligated to submit
pursuant to this Section 4.06, or that it is required to
withdraw or cancel any such form or certificate
previously submitted, it shall promptly notify the
Borrower and the Agent of such fact. If a Lender is
organized under the laws of a jurisdiction outside the
United States of America, unless the Borrower and the
Agent have received a Form 1001 Certification or
Form 4224 Certification satisfactory to them indicating
that all payments to be made to such Lender hereunder are
not subject to United States withholding tax, the
Borrower shall withhold taxes from such payments at the
applicable statutory rate. Each Lender agrees to
indemnify and hold harmless the Borrower or Agent, as
applicable, from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or
payable by (i) the Agent as a result of such Lender's
failure to submit any form or certificate that it is
required to provide pursuant to this Section 4.06 or
(ii) the Borrower or the Agent as a result of their
reliance on any such form or certificate which such
Lender has provided to them pursuant to this Section
4.06.
(ii) For any period with respect to which a Lender
has failed to provide the Borrower with the form required
pursuant to this Section 4.06, if any, (other than if
such failure is due to a change in a Governmental
Requirement occurring subsequent to the date on which a
form originally was required to be provided), such Lender
shall not be entitled to indemnification under Section
4.06 with respect to taxes imposed by the United States
which taxes would not have been imposed but for such
failure to provide such forms; provided, however, that
should a Lender, which is otherwise exempt from or
subject to a reduced rate of withholding tax becomes
subject to taxes because of its failure to deliver a form
required hereunder, the Borrower shall take such steps as
such Lender shall reasonably request to assist such
Lender to recover such taxes.
(iii) Any Lender claiming any additional
amounts payable pursuant to this Section 4.06 shall use
reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document
requested by the Borrower or the Agent or to change the
jurisdiction of its Applicable Lending Office or to
contest any tax imposed if the making of such a filing or
change or contesting such tax would avoid the need for or
reduce the amount of any such additional amounts that may
thereafter accrue and would not, in the sole
determination of such Lender, be otherwise
disadvantageous to such Lender.
Section 4.07 Disposition of Proceeds tc \l2 "Section
4.07 Disposition of Proceeds . The Security Instruments contain
an assignment by the Borrower unto and in favor of the Agent for
the benefit of the Lenders of all production and all proceeds
attributable thereto which may be produced from or allocated to the
Mortgaged Property, and the Security Instruments further provide in
general for the application of such proceeds to the satisfaction of
the Indebtedness and other obligations described therein and
secured thereby. Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default,
the Lenders agree that they will neither notify the purchaser or
purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Lenders, but the Lenders will
instead permit such proceeds to be paid to the Borrower.
ARTICLE V
Capital Adequacy
tc \l1 " ARTICLE V Capital Adequacy
Section 5.01 Additional Costs tc \l2 "Section 5.01
Additional Costs .
(a) Eurodollar Regulations, etc. The Borrower shall pay
directly to each Lender from time to time such amounts as such
Lender may determine to be necessary to compensate such Lender
for any costs which it determines are attributable to its
making or maintaining of any Eurodollar Loans or issuing or
participating in Letters of Credit hereunder or its obligation
to make any Eurodollar Loans or issue or participate in any
Letters of Credit hereunder, or any reduction in any amount
receivable by such Lender hereunder in respect of any of such
Eurodollar Loans, Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of
any amounts payable to such Lender under this Agreement or any
Note in respect of any of such Eurodollar Loans or Letters of
Credit (other than taxes imposed on the overall net income of
such Lender or of its Applicable Lending Office for any of
such Eurodollar Loans by the jurisdiction in which such Lender
has its principal office or Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirements relating to any
extensions of credit or other assets of, or any deposits with
or other liabilities of such Lender, or the Commitment or
Loans of such Lender or the Eurodollar interbank market; or
(iii) imposes any other condition affecting this Agreement or
any Note (or any of such extensions of credit or liabilities)
or such Lender's Commitment or Loans. Each Lender will notify
the Agent and the Borrower of any event occurring after the
Closing Date which will entitle such Lender to compensation
pursuant to this Section 5.01(a) as promptly as practicable
after it obtains knowledge thereof and determines to request
such compensation, and will designate a different Applicable
Lending Office for the Loans of such Lender affected by such
event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender,
provided that such Lender shall have no obligation to so
designate an Applicable Lending Office located in the United
States. If any Lender requests compensation from the Borrower
under this Section 5.01(a), the Borrower may, by notice to
such Lender, suspend the obligation of such Lender to make
additional Loans of the Type with respect to which such
compensation is requested until the Regulatory Change giving
rise to such request ceases to be in effect (in which case the
provisions of Section 5.04 shall be applicable).
(b) Regulatory Change. Without limiting the effect of
the provisions of Section 5.01(a), in the event that, by
reason of any Regulatory Change or any other circumstances
arising after the Closing Date affecting such Lender, the
Eurodollar interbank market or such Lender's position in such
market, any Lender either (i) incurs Additional Costs based on
or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such
Lender which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in
this Agreement or a category of extensions of credit or other
assets of such Lender which includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if
such Lender so elects by notice to the Borrower, the
obligation of such Lender to make additional Eurodollar Loans
shall be suspended until such Regulatory Change or other
circumstances ceases to be in effect (in which case the
provisions of Section 5.04 shall be applicable).
(c) Capital Adequacy. Without limiting the effect of
the foregoing provisions of this Section 5.01 (but without
duplication), the Borrower shall pay directly to any Lender
from time to time on request such amounts as such Lender may
reasonably determine to be necessary to compensate such Lender
or its parent or holding company for any costs which it
determines are attributable to the maintenance by such Lender
or its parent or holding company (or any Applicable Lending
Office), pursuant to any Governmental Requirement following
any Regulatory Change, of capital in respect of its
Commitment, its Notes, its Loans or any interest held by it in
any Letter of Credit, such compensation to include, without
limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Lender or its parent or
holding company (or any Applicable Lending Office) to a level
below that which such Lender or its parent or holding company
(or any Applicable Lending Office) could have achieved but for
such Governmental Requirement. Such Lender will notify the
Borrower that it is entitled to compensation pursuant to this
Section 5.01(c) as promptly as practicable after it determines
to request such compensation.
(d) Compensation Procedure. Any Lender notifying the
Borrower of the incurrence of additional costs under this
Section 5.01 shall deliver such notice to the Borrower as soon
as practicable and in any event within ninety (90) days after
the change or other event giving rise to the incurrence of
such additional costs and shall in such notice to the Borrower
and the Agent set forth in reasonable detail the basis and
amount of its request for compensation. Determinations and
allocations by each Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to Section
5.01(a) or (b), or of the effect of capital maintained
pursuant to Section 5.01(c), on its costs or rate of return of
maintaining Loans or its obligation to make Loans or issue
Letters of Credit, or on amounts receivable by it in respect
of Loans or Letters of Credit, and of the amounts required to
compensate such Lender under this Section 5.01, shall be
conclusive and binding for all purposes, provided that such
determinations and allocations are made on a reasonable basis.
Any request for additional compensation under this Section
5.01 shall be paid by the Borrower within thirty (30) days of
the receipt by the Borrower of the notice described in this
Section 5.01(d).
Section 5.02 Limitation on Eurodollar Loans tc \l2
"Section 5.02 Limitation on Eurodollar Loans . Anything herein to
the contrary notwithstanding, if, on or prior to the determination
of any Eurodollar Rate for any Interest Period:
(i) the Agent determines (which determination
shall be conclusive, absent manifest error) that
quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in
Section 1.02 are not being provided in the relevant
amounts or for the relevant maturities for purposes of
determining rates of interest for Eurodollar Loans as
provided herein; or
(ii) the Agent determines (which determination
shall be conclusive, absent manifest error) that the
relevant rates of interest referred to in the definition
of "Eurodollar Rate" in Section 1.02 upon the basis of
which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not sufficient to
adequately cover the cost to the Lenders of making or
maintaining Eurodollar Loans;
then the Agent shall give the Borrower prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be
under no obligation to make additional Eurodollar Loans.
Section 5.03 Illegality tc \l2 "Section 5.03
Illegality . Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or
its Applicable Lending Office to honor its obligation to make or
maintain Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation
to make Eurodollar Loans shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01,
5.02 and 5.03 tc \l2 "Section 5.04 Base Rate Loans Pursuant to
Sections 5.01, 5.02 and 5.03 . If the obligation of any Lender to
make Eurodollar Loans shall be suspended pursuant to Sections 5.01,
5.02 or 5.03 ("Affected Loans"), all Affected Loans which would
otherwise be made by such Lender shall be made instead as Base Rate
Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice to
the Borrower, all Affected Loans of such Lender then outstanding
shall be automatically converted into Base Rate Loans on the date
specified by such Lender in such notice) and, to the extent that
Affected Loans are so made as (or converted into) Base Rate Loans,
all payments of principal which would otherwise be applied to such
Lender's Affected Loans shall be applied instead to its Base Rate
Loans.
Section 5.05 Compensation tc \l2 "Section 5.05
Compensation . The Borrower shall pay to each Lender within thirty
(30) days of receipt of written request of such Lender (which
request shall set forth, in reasonable detail, the basis for
requesting such amounts and which shall be conclusive and binding
for all purposes provided that such determinations are made on a
reasonable basis), such amount or amounts as shall compensate it
for any loss, cost, expense or liability which such Lender
determines are attributable to:
(i) any payment, prepayment or conversion of a
Eurodollar Loan properly made by such Lender or the
Borrower for any reason (including, without limitation,
the acceleration of the Loans pursuant to Section 10.02)
on a date other than the last day of the Interest Period
for such Loan;
(ii) any failure by the Borrower for any reason
(including but not limited to, the failure of any of the
conditions precedent specified in Article VI to be
satisfied) to borrow, continue or convert a Eurodollar
Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant
notice given pursuant to Section 2.02(c); or
(iii) the revocation by the Borrower of (a) a
revocable notice of borrowing delivered pursuant to
Section 2.02(c) or (b) a revocable request for the
issuance of a Letter of Credit delivered pursuant to
Section 2.02(g) or (c) a revocable notice of reduction or
termination delivered pursuant to Section 2.03(c) or (d)
a revocable notice of prepayment delivered pursuant to
Section 2.07(a).
Without limiting the effect of the preceding sentence, such
compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not borrowed for
the period from the date of such payment, prepayment or conversion
or failure to borrow to the last day of the Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan which would have commenced on the date
specified for such borrowing) at the applicable rate of interest
for such Loan provided for herein over (ii) the interest component
of the amount such Lender would have bid in the London interbank
market for Dollar deposits of leading banks in amounts comparable
to such principal amount and with maturities comparable to such
period (as reasonably determined by such Lender).
Section 5.06 Replacement Lenders. tc \l2 "Section 5.06
Replacement Lenders.
(a) If any Lender has notified the Borrower and the
Agent of its incurring additional costs under Section 5.01
hereof or has required the Borrower to make payments for Taxes
under Section 4.06 hereof, then the Borrower may, unless such
Lender has notified the Borrower and the Agent that the
circumstances giving rise to such notice no longer apply,
terminate, in whole but not in part, the Commitment of any
Lender (other than the Agent) (the "Terminated Lender") at any
time upon five (5) Business Days' prior written notice to the
Terminated Lender and the Agent (such notice referred to
herein as a "Notice of Termination").
(b) In order to effect the termination of the Commitment
of the Terminated Lender, the Borrower shall: (i) obtain an
agreement with one or more Lenders to increase their
Commitment or Commitments and/or (ii) request any one or more
other banking institutions to become parties to this Agreement
in place and instead of such Terminated Lender and agree to
accept a Commitment or Commitments; provided, however, that
such one or more other banking institutions are reasonably
acceptable to the Agent and become parties by executing an
Assignment (the Lenders or other banking institutions that
agree to accept in whole or in part the Commitment of the
Terminated Lender being referred to herein as the "Replacement
Lenders"), such that the aggregate increased and/or accepted
Commitments of the Replacement Lenders under clauses (i) and
(ii) above equal the Commitment of the Terminated Lender.
(c) The Notice of Termination shall include the name of
the Terminated Lender, the date the termination will occur
(the "Termination Date"), and the Replacement Lender or
Replacement Lenders to which the Terminated Lender will assign
its Commitment and, if there will be more than one Replacement
Lender, the portion of the Terminated Lender's Commitment to
be assigned to each Replacement Lender.
(d) On the Termination Date, (i) the Terminated Lender
shall by execution and delivery of an Assignment assign its
Commitment to the Replacement Lender or Replacement Lenders
(pro rata, if there is more than one Replacement Lender, in
proportion to the portion of the Terminated Lender's Commit-
ment to be assigned to each Replacement Lender) indicated in
the Notice of Termination and shall assign to the Replacement
Lender or Replacement Lenders each of its Loans (if any) then
outstanding and participation interests in Letters of Credit
(if any) then outstanding (pro rata as aforesaid), (ii) the
Terminated Lender shall endorse its Notes, payable without
recourse, representation or warranty to the order of the
Replacement Lender or Replacement Lenders (pro rata as
aforesaid), (iii) the Replacement Lender or Replacement
Lenders shall purchase the Notes held by the Terminated Lender
(pro rata as aforesaid) at a price equal to the unpaid
principal amount thereof plus interest and facility and other
fees accrued and unpaid to the Termination Date, and (iv) the
Replacement Lender or Replacement Lenders will thereupon (pro
rata as aforesaid) succeed to and be substituted in all
respects for the Terminated Lender with like effect as if
becoming a Lender pursuant to the terms of Section 12.06(b),
and the Terminated Lender will have the rights and benefits of
an assignor under Section 12.06(b). To the extent not in
conflict, the terms of Section 12.06(b) shall supplement the
provisions of this Section 5.06(d). For each assignment made
under this Section 5.06, the Replacement Lender shall pay to
the Agent the processing fee provided for in Section 12.06(b).
The Borrower will be responsible for the payment of any
breakage costs associated with termination of the Terminated
Lender, as set forth in Section 5.05.
ARTICLE VI
Conditions Precedent
tc \l1 " ARTICLE VI Conditions Precedent
Section 6.01 Initial Funding tc \l2 "Section 6.01
Initial Funding .
The obligation of the Lenders to make the Initial Funding
is subject to the receipt by the Agent and the Lenders of all fees
payable pursuant to Section 2.04 on or before the Closing Date and
the receipt by the Agent of the following documents and
satisfaction of the other conditions provided in this Section 6.01,
each of which shall be satisfactory to the Agent in form and
substance:
(a) A certificate of the Secretary of MMR setting forth
(i) resolutions of the board of directors of MMR, as the sole
member of the Borrower, with respect to the authorization of
the Borrower to execute and deliver the Loan Documents to
which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of MMR and
the Borrower (y) who are authorized to sign the Loan Documents
to which Borrower is a party and (z) who will, until replaced
by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in
connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the
authorized officers, (iv) the limited liability company
agreement of the Borrower, and (v) the certificate of
formation filed with the Delaware Secretary of State, as
amended, all certified as being true and complete. The Agent
and the Lenders may conclusively rely on such certificate
until the Agent receives notice in writing from MMR or the
Borrower to the contrary.
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of
the Borrower.
(c) A compliance certificate which shall be
substantially in the form of Exhibit C, duly and properly
executed by a Responsible Officer and dated as of the date of
the Initial Funding.
(d) The Notes, duly completed and executed.
(e) An opinion of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. counsel to the Borrower,
substantially in the form of Exhibit D hereto.
(f) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in
accordance with Section 7.19 hereof.
(g) Receipt by the Agent of the fees due and payable
after the Closing Date as provided for in the Fee Letter.
(h) Receipt by the Agent of each of the Security
Instruments, including those described on Exhibit E, duly
completed and executed in sufficient number of counterparts
for recording, if necessary, and otherwise in recordable form
and substance satisfactory to the Agent.
(i) Receipt by the Agent of such title information as
the Agent may require from attorneys satisfactory to the Agent
setting forth the status of title to at least 100% of the
value of the Hydrocarbon Interests included in the Borrowing
Base.
(j) The Agent shall have been furnished with appropriate
UCC search certificates reflecting no prior liens or security
interests.
(k) Receipt by the Agent of documentation in form and
substance satisfactory to the Agent, evidencing that the
acquisition of the Properties listed in Subpart B of Schedule
7.22 has been completed.
(l) Receipt by the Agent of such other documents as the
Agent or any Lender or special counsel to the Agent may
reasonably request.
Section 6.02 Initial and Subsequent Loans and Letters of
Credit tc \l2 "Section 6.02 Initial and Subsequent Loans and
Letters of Credit . The obligation of the Lenders to make Loans to
the Borrower upon the occasion of each borrowing hereunder and to
issue, renew, extend or reissue Letters of Credit for the account
of the Borrower (including the Initial Funding) and to increase the
Borrowing Base in accordance with Section 6.02 is subject to the
further conditions precedent that, as of the date of such Loans or
Letters of Credit or increase, as the case may be, and after giving
effect thereto: (i) no Default shall have occurred and be
continuing; (ii) no Material Adverse Effect shall have occurred;
(iii) the representations and warranties made by the Borrower in
Article VII and in the Security Instruments shall be true on and as
of the date of the making of such Loans or issuance, renewal,
extension or reissuance of a Letter of Credit or increase of the
Borrowing Base, as the case may be, with the same force and effect
as if made on and as of such date and following such new borrowing,
issuance or increase, except to the extent such representations and
warranties are expressly limited to an earlier date or the Majority
Lenders may expressly consent in writing to the contrary; and
(iv) the aggregate outstanding amount of investments, loans and
advances permitted by Section 9.03(i) and net dividends,
distributions and redemptions permitted by Section 9.04, shall not
exceed $7,200,000. Each request for a borrowing or issuance,
renewal, extension or reissuance of a Letter of Credit by the
Borrower hereunder shall constitute a certification by the Borrower
to the effect set forth in the preceding sentence (both as of the
date of such notice and, unless the Borrower otherwise notifies the
Agent prior to the date of and immediately following such borrowing
or issuance, renewal, extension or reissuance of a Letter of
Credit, as of the date thereof).
Section 6.03 Conditions Relating to Letters of Credit tc
\l2 "Section 6.03 Conditions Relating to Letters of Credit . In
addition to the satisfaction of all other conditions precedent set
forth in this Article VI, the issuance, renewal, extension or
reissuance of the Letters of Credit referred to in Section 2.01(b)
hereof is subject to the following conditions precedent:
(a) At least three (3) Business Days prior to the date
of the issuance and at least thirty (30) Business Days prior
to the date of the renewal, extension or reissuance of each
Letter of Credit, the Agent shall have received a written
request for a Letter of Credit, in accordance with Section
2.02(g) hereof.
(b) Each of the Letters of Credit shall (i) be issued by
the Agent, (ii) contain such terms and provisions as are
reasonably required by the Agent, (iii) be for the account of
the Borrower and (iv) expire not later than the earlier of one
(1) year from the date of issuance, renewal, extension or
reissuance or two (2) days before the Termination Date;
provided, however, Borrower may request that any one-year
Letter of Credit be renewed annually up to two (2) days prior
to the Termination Date.
(c) The Borrower shall have duly and validly executed
and delivered to the Agent a Letter of Credit Agreement
pertaining to the Letter of Credit.
ARTICLE VII
Representations and Warranties
tc \l1 " ARTICLE VII Representations and Warranties
The Borrower represents and warrants to the Agent and the
Lenders that (each representation and warranty herein is given as
of the Closing Date and shall be deemed repeated and reaffirmed on
the dates of each borrowing and issuance, renewal, extension or
reissuance of a Letter of Credit as provided in Section 6.03):
Section 7.01 Existence tc \l2 "Section 7.01 Existence .
Each of the Borrower and each Restricted Subsidiary: (i) is a
corporation or limited liability company duly organized, legally
existing and in good standing under the laws of the jurisdiction of
its incorporation or formation; (ii) has all requisite power, and
has all material governmental licenses, authorizations, consents
and approvals necessary to own its assets and carry on its business
as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and
where failure so to qualify would have a Material Adverse Effect.
Section 7.02 Financial Condition tc \l2 "Section 7.02
Financial Condition . The audited consolidated financial
statements of MMR and its Consolidated Subsidiaries as at December
31, 1998, and the balance sheet of the Borrower and its
Consolidated Subsidiaries as at December 31, 1998 and the related
statement of income, member's capital and cash flow of the Borrower
and its Consolidated Subsidiaries for the fiscal year ended on said
date, in each case as included in the consolidating statements of
MMR and its Consolidated Subsidiaries as of said date with the
opinion thereon of Arthur Andersen LLP heretofore furnished to each
of the Lenders and the unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at September 30, 1999
and the related consolidated statements of income, members capital
and cash flow of the Borrower and its Consolidated Subsidiaries for
the nine-month and three-month periods ended on such date
heretofore furnished to the Agent, are complete and correct and
fairly present the consolidated financial condition of the Borrower
and its Consolidated Subsidiaries as at said dates and the results
of its operations for the fiscal year and the nine-month and three-
month periods ended on said dates, all in accordance with GAAP, as
applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments). Neither the
Borrower nor any Subsidiary has on the Closing Date any material
Debt, contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments, in each case, that would
be required to be reserved for in the Financial Statements in
accordance with GAAP, except as referred to or reflected or
provided for in the Financial Statements or in Schedule 7.02.
Except as set forth on Schedule 7.10, since September 30, 1999,
there has been no change or event having a Material Adverse Effect.
Except as set forth on Schedule 7.10, since the date of the
Financial Statements, neither the business nor the Properties of
the Borrower or any Subsidiary have been materially and adversely
affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority,
riot, activities of armed forces or acts of God or of any public
enemy.
Section 7.03 Litigation tc \l2 "Section 7.03
Litigation . Except as disclosed to the Lenders in Schedule 7.03
hereto, at the Closing Date there is no litigation, legal,
administrative or arbitral proceeding, investigation or other
action of any nature pending or, to the knowledge of the Borrower
threatened against or affecting the Borrower or any Restricted
Subsidiary as to which there is a reasonable possibility of an
adverse determination and which, if adversely determined, could,
individually or in the aggregate, materially impair the ability of
the Borrower to conduct its business substantially as now
conducted, or materially and adversely affect the businesses,
assets, operations, prospects or condition, financial or otherwise,
of the Borrower, or impair the validity or enforceability of, or
the ability of the Borrower to perform its obligations under, this
Agreement or any of the other Loan Documents to which it is a
party, in each case, taking into account any applicable insurance.
Section 7.04 No Breach tc \l2 "Section 7.04 No Breach .
Neither the execution and delivery of the Loan Documents, nor
compliance with the terms and provisions hereof will conflict with
or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter or
by-laws of the Borrower or any Restricted Subsidiary, or any
Governmental Requirement or any agreement or instrument to which
the Borrower or any Restricted Subsidiary is a party or by which it
is bound or to which it or its Properties are subject, or
constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the
revenues or assets of the Borrower or any Restricted Subsidiary
pursuant to the terms of any such agreement or instrument other
than the Liens created by the Loan Documents and those permitted
under Section 9.02.
Section 7.05 Authority tc \l2 "Section 7.05 Authority .
The Borrower and each Restricted Subsidiary have all necessary
power and authority to execute, deliver and perform its obligations
under the Loan Documents to which it is a party; and the execution,
delivery and performance by the Borrower and each Restricted
Subsidiary of the Loan Documents to which it is a party, have been
duly authorized by all necessary corporate action on its part; and
the Loan Documents constitute the legal, valid and binding
obligations of the Borrower and each Restricted Subsidiary,
enforceable in accordance with their terms.
Section 7.06 Approvals tc \l2 "Section 7.06 Approvals .
No authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority are necessary for
the execution, delivery or performance by the Borrower or any
Restricted Subsidiary of the Loan Documents or for the validity or
enforceability thereof, except for the recording and filing of the
Security Instruments as required by this Agreement.
Section 7.07 Use of Loans tc \l2 "Section 7.07 Use of
Loans . The proceeds of the Loans shall be used to (a) renew,
extend, modify and rearrange the outstanding principal balance of
the Prior Notes, (b) develop the Borrower's proven reserves from
its Oil and Gas Properties, (c) provide funding for acquisitions of
Oil and Gas Properties and (d) for general corporate purposes. The
Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying
margin stock (within the meaning of Regulation G, U or X of the
Board of Governors of the Federal Reserve System) and no part of
the proceeds of any Loan hereunder will be used to buy or carry any
margin stock.
Section 7.08 ERISA tc \l2 "Section 7.08 ERISA .
(a) The Borrower and each Restricted Subsidiary have
complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(b) Each Plan of the Borrower and of each Restricted
Subsidiary is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) To the knowledge of the Borrower, no act, omission
or transaction has occurred which could result in imposition
on the Borrower or on any Restricted Subsidiary (whether
directly or indirectly) of (i) either a civil penalty assessed
pursuant to section 502(c), (i) or (l) of ERISA or a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code or
(ii) breach of fiduciary duty liability damages under section
409 of ERISA.
(d) No Plan (other than a defined contribution plan) or
any trust created under any such Plan has been terminated
since September 2, 1974. No liability to the PBGC (other than
for the payment of current premiums which are not past due) by
the Borrower, any Subsidiary or any ERISA Affiliate has been
or is expected by the Borrower, any Subsidiary or any ERISA
Affiliate to be incurred with respect to any Plan. No ERISA
Event with respect to any Plan has occurred.
(e) Full payment when due has been made of all amounts
which the Borrower, any Subsidiary or any ERISA Affiliate is
required under the terms of each Plan or applicable law to
have paid as contributions to such Plan, and no accumulated
funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with
respect to any Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of
ERISA does not, as of the end of the Borrower's most recently
ended fiscal year, exceed the current value of the assets
(computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit
liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041
of ERISA.
(g) Neither the Borrower nor any Restricted Subsidiary
sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be
terminated by the Borrower or a Restricted Subsidiary or any
ERISA Affiliate in its sole discretion at any time without any
material liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any
time in the preceding six calendar years, sponsored,
maintained or contributed to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section
401(a)(29) of the Code due to a Plan amendment that results in
an increase in current liability for the Plan.
Section 7.09 Taxes tc \l2 "Section 7.09 Taxes . Except
as set out in Schedule 7.09, each of the Borrower and the
Restricted Subsidiaries has filed all United States Federal income
tax returns and all other tax returns which are required to be
filed by them and have paid all material taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or
any Restricted Subsidiary, other than any taxes the validity of
which the Borrower or the relevant Restricted Subsidiary is
contesting in good faith by appropriate proceedings, and with
respect to which the Borrower or such Restricted Subsidiary shall,
to the extent required by GAAP, have set aside on its books
adequate reserves. The charges, accruals and reserves on the books
of the Borrower and the Restricted Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower,
adequate. No tax lien has been filed and, to the knowledge of the
Borrower, no claim is being asserted with respect to any such tax,
fee or other charge.
Section 7.10 Titles, etc. tc \l2 "Section 7.10 Titles,
etc.
(a) Except as set out in the title reports delivered to
the Agent prior to the Closing Date, each of the Borrower and
the Restricted Subsidiaries has good and defensible title to
its material (individually or in the aggregate) Properties,
free and clear of all Liens except Liens permitted by Section
9.02. Except as set forth in Schedule 7.10, after giving full
effect to the Excepted Liens, the Borrower owns the net
interests in production attributable to the Hydrocarbon
Interests reflected in the most recently delivered Reserve
Report and the ownership of such Properties shall not in any
material respect obligate the Borrower to bear the costs and
expenses relating to the maintenance, development and opera-
tions of each such Property in an amount in excess of the
working interest of each Property set forth in the most
recently delivered Reserve Report. All factual information
contained in the most recently delivered Reserve Report is
true and correct in all material respects as of the date
thereof.
(b) All leases and agreements necessary for the conduct
of the business of the Borrower and the Restricted
Subsidiaries are valid and subsisting, in full force and
effect and there exists no default or event or circumstance
which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or leases,
which would affect in any material respect the conduct of the
business of the Borrower and the Restricted Subsidiaries.
(c) The rights, Properties and other assets presently
owned, leased or licensed by the Borrower and the Restricted
Subsidiaries including, without limitation, all easements and
rights of way, include all rights, Properties and other assets
necessary to permit the Borrower and the Restricted
Subsidiaries to conduct their business in all material
respects in the same manner as its business has been conducted
prior to the Closing Date.
(d) Except as set forth on Schedule 7.10, all of the
assets and Properties of the Borrower and the Restricted
Subsidiaries which are reasonably necessary for the operation
of its business are in good working condition and are
maintained in accordance with prudent business standards.
Section 7.11 No Material Misstatements tc \l2 "Section
7.11 No Material Misstatements . No written information,
statement, exhibit, certificate, document or report furnished to
the Agent and the Lenders (or any of them) by the Borrower or any
Subsidiary in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained
therein not materially misleading in the light of the circumstances
in which made and with respect to the Borrower and the Subsidiaries
taken as a whole. There is no fact peculiar to the Borrower or any
Subsidiary which has a Material Adverse Effect or in the future is
reasonably likely to have (so far as the Borrower can now foresee)
a Material Adverse Effect and which has not been set forth in this
Agreement or the other documents, certificates and statements
furnished to the Agent by or on behalf of the Borrower or any
Subsidiary prior to, or on, the Closing Date in connection with the
transactions contemplated hereby.
Section 7.12 Investment Company Act tc \l2 "Section 7.12
Investment Company Act . Neither the Borrower nor any Subsidiary
is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company
Act of 1940, as amended.
Section 7.13 Public Utility Holding Company Act tc \l2
"Section 7.13 Public Utility Holding Company Act . Neither the
Borrower nor any Subsidiary is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries tc \l2 "Section 7.14
Subsidiaries . Except as set forth on Schedule 7.14 which
indicates all Restricted Subsidiaries and all Unrestricted
Subsidiaries, the Borrower has no Subsidiaries other than those
formed pursuant to Section 9.16 prior to the quarterly report
required by Section 8.01(i).
Section 7.15 Location of Business and Offices tc \l2
"Section 7.15 Location of Business and Offices . The Borrower's
principal place of business and chief executive offices are located
at the address stated on the signature page of this Agreement. The
principal place of business and chief executive office of each
Subsidiary are located at the addresses stated on Schedule 7.14.
Section 7.16 Defaults tc \l2 "Section 7.16 Defaults .
Neither the Borrower nor any Subsidiary is in default nor has any
event or circumstance occurred which, but for the expiration of any
applicable grace period or the giving of notice, or both, would
constitute a default under any material agreement or instrument to
which the Borrower or any Subsidiary is a party or by which the
Borrower or any Subsidiary is bound which default would have a
Material Adverse Effect. No Default hereunder has occurred and is
continuing.
Section 7.17 Environmental Matters tc \l2 "Section 7.17
Environmental Matters . Except (i) as provided in Schedule 7.17
or (ii) as would not have a Material Adverse Effect (or with
respect to (c), (d) and (e) below, where the failure to take such
actions would not have a Material Adverse Effect):
(a) Neither any Property of the Borrower or any
Subsidiary nor the operations conducted thereon violate any
order or requirement of any court or Governmental Authority or
any Environmental Laws;
(b) Without limitation of clause (a) above, no Property
of the Borrower or any Subsidiary nor the operations currently
conducted thereon or, to the best knowledge of the Borrower,
by any prior owner or operator of such Property or operation,
are in violation of or subject to any existing, pending or
threatened action, suit, investigation, inquiry or proceeding
by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in
connection with the operation or use of any and all Property
of the Borrower and each Subsidiary, including without
limitation past or present treatment, storage, disposal or
release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and the
Borrower and each Subsidiary are in compliance with the terms
and conditions of all such notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and
gas exploration and production wastes, if any, generated at
any and all Property of the Borrower or any Subsidiary have in
the past been transported, treated and disposed of in
accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or
welfare or the environment, and, to the best knowledge of the
Borrower, all such transport carriers and treatment and
disposal facilities have been and are operating in compliance
with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the
environment, and are not the subject of any existing, pending
or threatened action, investigation or inquiry by any
Governmental Authority in connection with any Environmental
Laws;
(e) The Borrower has taken all steps reasonably
necessary to determine and has determined that no hazardous
substances, solid waste, or oil and gas exploration and
production wastes, have been disposed of or otherwise released
and there has been no threatened release of any hazardous
substances on or to any Property of the Borrower or any
Subsidiary except in compliance with Environmental Laws and so
as not to pose an imminent and substantial endangerment to
public health or welfare or the environment;
(f) To the extent applicable, all Property of the
Borrower and each Subsidiary currently satisfies all design,
operation, and equipment requirements imposed by the OPA or
scheduled as of the Closing Date to be imposed by OPA during
the term of this Agreement, and the Borrower does not have any
reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA
requirements during the term of this Agreement; and
(g) Neither the Borrower nor any Subsidiary has any
known contingent liability in connection with any release or
threatened release of any oil, hazardous substance or solid
waste into the environment.
Section 7.18 Compliance with the Law tc \l2 "Section
7.18 Compliance with the Law . Neither the Borrower nor any
Subsidiary has violated any Governmental Requirement or failed to
obtain any license, permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties
or the conduct of its business, which violation or failure would
have (in the event such violation or failure were asserted by any
Person through appropriate action) a Material Adverse Effect.
Except for such acts or failures to act as would not have a
Material Adverse Effect, the Oil and Gas Properties (and properties
unitized therewith) have been maintained, operated and developed in
a good and workmanlike manner and in conformity with all applicable
laws and all rules, regulations and orders of all duly constituted
authorities having jurisdiction and in conformity with the
provisions of all leases, subleases or other contracts comprising
a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties;
specifically in this connection, (i) after the Closing Date, no Oil
and Gas Property is subject to having allowable production reduced
below the full and regular allowable (including the maximum
permissible tolerance) because of any overproduction (whether or
not the same was permissible at the time) prior to the Closing Date
and (ii) none of the wells comprising a part of the Oil and Gas
Properties (or properties unitized therewith) are deviated from the
vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such wells are, in fact,
bottomed under and are producing from, and the producing intervals
are wholly within the Oil and Gas Properties (or in the case of
wells located on properties unitized therewith, such unitized
properties).
Section 7.19 Insurance tc \l2 "Section 7.19 Insurance .
Schedule 7.19 attached hereto contains an accurate and complete
description of all material policies of fire, liability, workmen's
compensation and other forms of insurance maintained by or on
behalf of the Borrower and each Restricted Subsidiary. All such
policies are in full force and effect, all premium payments with
respect thereto covering all periods up to and including the date
of the closing are current, and no notice of cancellation or
termination has been received with respect to any such policy.
Such policies are sufficient for compliance with all requirements
of law and of all agreements to which the Borrower or any
Restricted Subsidiary is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage in at
least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in
the same general area by companies engaged in the same or a similar
business for the assets and operations of the Borrower and each
Restricted Subsidiary; will remain in full force and effect through
the respective dates set forth in Schedule 7.19 without the payment
of additional premiums (except for adjustments); and will not in
any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Schedule 7.19
identifies all material risks, if any, which the Borrower and the
Restricted Subsidiaries and their respective board of directors or
officers have designated as being self-insured. Neither the
Borrower nor any Restricted Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its
coverage been limited below usual and customary policy limits, by
an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.
Section 7.20 Hedging Agreements tc \l2 "Section 7.20
Hedging Agreements . Schedule 7.20 sets forth, as of the Closing
Date, a true and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery
of oil, gas or other commodities) of the Borrower and each
Restricted Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit
support agreements relating thereto (including any margin required
or supplied), and the counterparty to each such agreement.
Section 7.21 Restriction on Liens tc \l2 "Section 7.21
Restriction on Liens . Except as set forth on Schedule 7.21,
neither the Borrower nor any of the Restricted Subsidiaries is a
party to any agreement or arrangement (other than this Agreement
and the Security Instruments), or subject to any order, judgment,
writ or decree, which either restricts or purports to restrict its
ability to grant Liens to other Persons on or in respect of their
respective assets or Properties.
Section 7.22 Material Agreements tc \l2 "Section 7.22
Material Agreements . Set forth on Schedule 7.22 hereto (as same
may be amended quarterly and delivered together with the reports
required in Sections 8.01(a) and 8.01(b) hereof for leases,
agreements, and other documents, entered into after the Closing
Date) is a complete and correct list of all material agreements,
leases, indentures, purchase agreements, obligations in respect of
letters of credit, guarantees, joint venture agreements, and other
instruments in effect or to be in effect as of the Closing Date
(other than Hedging Agreements) providing for, evidencing, securing
or otherwise relating to any Debt of the Borrower or any of the
Restricted Subsidiaries, and all obligations of the Borrower or any
of the Restricted Subsidiaries to issuers of surety or appeal bonds
issued for account of the Borrower or any such Restricted
Subsidiary, and such list correctly sets forth the names of the
debtor or lessee and creditor or lessor with respect to the Debt or
lease obligations outstanding or to be outstanding and the property
subject to any Lien securing such Debt or lease obligation. Also
set forth on Schedule 7.22 hereto is a complete and correct list of
all material agreements and other instruments of the Borrower and
the Restricted Subsidiaries relating to the purchase,
transportation by pipeline, gas processing, marketing, sale and
supply of natural gas and other Hydrocarbons, but in any event, any
such agreement or other instrument that will account for more than
20% of the sales of the Borrower and the Restricted Subsidiaries
during the Borrower's current fiscal year.
Section 7.23 Gas Imbalances tc \l2 "Section 7.23 Gas
Imbalances . As of the Closing Date, except as set forth on
Schedule 7.23 or on the most recent certificate delivered pursuant
to Section 8.07(c), on a net basis there are no gas imbalances,
take or pay or other prepayments with respect to the Borrower's Oil
and Gas Properties which would require the Borrower to deliver
Hydrocarbons produced from the Oil and Gas Properties at some
future time without then or thereafter receiving full payment
therefor exceeding one billion cubic feet of gas in the aggregate.
Section 7.24 Year 2000 tc \l2 "Section 7.24 Year 2000 .
Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the Borrower's and its
Subsidiaries' computer systems and (ii) equipment containing
embedded microchips (including systems and equipment supplied by
others or with which the Borrower's and its Subsidiaries' systems
interface) and the testing of all such systems and equipment, as so
reprogrammed, has been completed. The cost to the Borrower and its
Subsidiaries of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Borrower
and its Subsidiaries (including reprogramming errors and the
failure of others' systems or equipment) will not result in any
Event of Default or a Material Adverse Effect.
ARTICLE VIII
Affirmative Covenants
tc \l1 " ARTICLE VIII Affirmative Covenants
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all
Indebtedness hereunder, all interest thereon and all other amounts
payable by the Borrower hereunder:
Section 8.01 Financial Statements tc \l2 "Section 8.01
Financial Statements . The Borrower shall deliver, or shall cause
to be delivered, to the Agent with sufficient copies for each for
the Lenders:
(a) As soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, the
statements of income, member's capital, and cash flow of the
Borrower and its Consolidated Subsidiaries for such fiscal
year, and the related balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of such fiscal year,
as contained in the audited consolidated and consolidating
financial statements of MMR and its Consolidated Subsidiaries
as at the end of such fiscal year, and setting forth in each
case in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by the related opinion
of independent public accountants of recognized national
standing acceptable to the Agent which opinion shall state
that said financial statements fairly present the consolidated
financial condition and results of operations of the Borrower
and its Consolidated Subsidiaries as at the end of, and for,
such fiscal year and that such financial statements have been
prepared in accordance with GAAP except for such changes in
such principles with which the independent public accountants
shall have concurred and such opinion shall not contain a
"going concern" or like qualification or exception, and a
certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default.
(b) As soon as available and in any event within 60 days
after the end of each of the first three fiscal quarterly
periods of each fiscal year of the Borrower, consolidated
statements of income, member's capital, and cash flow of the
Borrower and its Consolidated Subsidiaries for such period and
for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated
balance sheets as at the end of such period, and setting forth
in each case in comparative form the corresponding figures for
the corresponding period in the preceding fiscal year,
accompanied by the certificate of a Responsible Officer, which
certificate shall state that said financial statements fairly
present the consolidated financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries
in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default
or any Material Adverse Effect has occurred, a notice of such
Default or Material Adverse Effect, describing the same in
reasonable detail and the action the Borrower proposes to take
with respect thereto.
(d) Promptly upon receipt thereof, a copy of each other
report or letter submitted to MMR, the Borrower or any
Restricted Subsidiary by independent accountants in connection
with any annual, interim or special audit made by them of the
books of MMR, the Borrower and the Restricted Subsidiaries,
and a copy of any response by MMR, the Borrower or any
Restricted Subsidiary, or the board of directors of MMR, the
Borrower or any Restricted Subsidiary, to such letter or
report.
(e) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by MMR to
stockholders generally and each regular or periodic report and
any registration statement, prospectus or written
communication (other than transmittal letters) in respect
thereof filed by MMR with or received by MMR in connection
therewith from any securities exchange or the SEC or any
successor agency.
(f) Promptly after the furnishing thereof, copies of any
material statement, report or notice furnished by the Borrower
to any Person pursuant to the terms of any material (i.e.,
over $1,500,000, if permitted) indenture, loan or credit or
other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to
any other provision of this Section 8.01.
(g) From time to time such other information regarding
the business, affairs or financial condition of the Borrower
or any Restricted Subsidiary (including, without limitation,
any Plan or Multiemployer Plan and any reports or other
information required to be filed under ERISA) as any Lender or
the Agent may reasonably request.
(h) Simultaneously with the delivery of the Financial
Statements referred to in clauses (a) and (b) above, a report,
in form and substance satisfactory to the Agent, setting forth
as of the last Business Day of such calendar quarter a true
and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements or
contracts of sale which provide for prepayment for deferred
shipment or delivery of oil, gas or other commodities) of the
Borrower and each Restricted Subsidiary, the material terms
thereof (including the type, term, effective date, termination
date and notional amounts or volumes), the net mark to market
value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or
supplied under any credit support document, and the
counterparty to each such agreement.
(i) Simultaneously with the delivery of the Financial
Statements referred to in clause (b) above, an update to
Schedule 7.14 setting forth all Subsidiaries of the Borrower
as of the last Business Day of such calendar quarter.
The Borrower will furnish to the Agent, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b)
above, a certificate substantially in the form of Exhibit C hereto
executed by a Responsible Officer (i) certifying as to the matters
set forth therein and stating that no Default has occurred and is
continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail), and (ii) setting forth
in reasonable detail the computations necessary to determine
whether the Borrower is in compliance with Sections 9.11 and 9.12
as of the end of the respective fiscal quarter or fiscal year.
Section 8.02 Litigation tc \l2 "Section 8.02
Litigation . The Borrower shall promptly give to the Agent notice
of all legal or arbitral proceedings, and of all proceedings before
any Governmental Authority affecting the Borrower or any Restricted
Subsidiary, except proceedings which, if adversely determined,
would not have a Material Adverse Effect. The Borrower will, and
will cause each of the Restricted Subsidiaries to, promptly notify
the Agent and each of the Lenders of any claim, judgment, Lien or
other encumbrance affecting any Property of the Borrower or any
Restricted Subsidiary if the value of the claim, judgment, Lien, or
other encumbrance affecting such Property shall exceed $1,000,000.
Section 8.03 Maintenance, Etc. tc \l2 "Section 8.03
Maintenance, Etc.
(a) The Borrower shall and shall cause each Restricted
Subsidiary to: preserve and maintain its corporate existence
and all of its material rights, privileges and franchises;
keep books of record and account in which full, true and
correct entries will be made of all dealings or transactions
in relation to its business and activities; comply with all
Governmental Requirements if failure to comply with such
requirements will have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or
levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are
being maintained; upon reasonable notice, permit
representatives of the Agent or any Lender, during normal
business hours, to examine, copy and make extracts from its
books and records, to inspect its Properties, and to discuss
its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Agent (as the case
may be); and keep, or cause to be kept, insured by financially
sound and reputable insurers all Property of a character
usually insured by Persons engaged in the same or similar
business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such
Persons and carry such other insurance as is usually carried
by such Persons including, without limitation, pollution
insurance to the extent reasonably available.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for
each year, the Borrower will furnish or cause to be furnished
to the Agent and the Lenders a certificate of insurance
coverage from the insurer in form and substance satisfactory
to the Agent and, if requested, will furnish the Agent and the
Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Restricted
Subsidiary to operate its Properties or cause such Properties
to be operated in a good and workmanlike manner in accordance
with the standard practices of the industry and in compliance
with all applicable contracts and agreements and in compliance
in all material respects with all Governmental Requirements.
(d) The Borrower will and will cause each Restricted
Subsidiary to, at its own expense, do or cause to be done all
things reasonably necessary to preserve and keep in good
repair, working order and efficiency all of its Oil and Gas
Properties subject to a Lien in favor of the Agent and other
material Properties including, without limitation, all
equipment, machinery and facilities, and from time to time
will make all the reasonably necessary repairs, renewals and
replacements so that at all times the state and condition of
its Oil and Gas Properties subject to a Lien in favor of the
Agent and other material Properties will be fully preserved
and maintained, except (1) for ordinary wear and tear, (2) for
equipment, machinery and facilities no longer used or useful
in the Borrower's or such Restricted Subsidiary's business,
(3) for casualty losses being handled in accordance with
Section 2.07(e) and (4) to the extent a portion of such
Properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts. The Borrower will and will
cause each Restricted Subsidiary to promptly: (i) pay and
discharge, or make reasonable and customary efforts to cause
to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas
Properties subject to a Lien in favor of the Agent, to the
extent that any failure to so pay or discharge would have a
Material Adverse Effect, (ii) perform or make reasonable and
customary efforts to cause to be performed, in accordance with
industry standards, the material obligations required by each
and all of the assignments, deeds, leases, subleases,
contracts and agreements affecting its interests in its Oil
and Gas Properties subject to a Lien in favor of the Agent and
other material Properties, (iii) do all other things necessary
to keep unimpaired, except for Liens described in Section
9.02, its rights with respect to its Oil and Gas Properties
subject to a Lien in favor of the Agent and other material
Properties and prevent any forfeiture thereof or a default
thereunder, except to the extent a portion of such Properties
is no longer capable of producing Hydrocarbons in economically
reasonable amounts. The Borrower will and will cause each
Restricted Subsidiary to operate its Oil and Gas Properties
subject to a Lien in favor of the Agent and other material
Properties or cause or make reasonable and customary efforts
to cause such Oil and Gas Properties and other material
Properties to be operated in a good and workmanlike manner in
accordance with the standard practices of the industry and in
compliance with all applicable contracts and agreements and in
compliance in all material respects with all Governmental
Requirements.
Section 8.04 Environmental Matters tc \l2 "Section 8.04
Environmental Matters .
(a) The Borrower will and will cause each Subsidiary, to
the extent not already in place, to establish and implement
such procedures as may be reasonably necessary to continuously
determine and assure that any failure of the following does
not have a Material Adverse Effect: (i) all Property of the
Borrower and the Subsidiaries and the operations conducted
thereon and other activities of the Borrower and the
Subsidiaries are in compliance with and do not violate the
requirements of any Environmental Laws, (ii) no oil, hazardous
substances or solid wastes are disposed of or otherwise
released on or to any Property owned by any such party except
in compliance with Environmental Laws, (iii) no hazardous
substance will be released on or to any such Property in a
quantity equal to or exceeding that quantity which requires
reporting pursuant to Section 103 of CERCLA, and (iv) no oil,
oil and gas exploration and production wastes or hazardous
substance is released on or to any such Property so as to pose
an imminent and substantial endangerment to public health or
welfare or the environment.
(b) The Borrower will promptly notify the Agent and the
Lenders in writing of any material threatened action,
investigation or inquiry by any Governmental Authority of
which the Borrower has knowledge in connection with any
Environmental Laws, excluding routine testing and corrective
action.
(c) The Borrower will and will cause each Subsidiary to
provide environmental audits and tests in accordance with
American Society for Testing and Materials standards as
reasonably requested by the Agent and the Lenders (or as
otherwise required to be obtained by the Agent or the Lenders
by any Governmental Authority) in connection with any future
acquisitions of Oil and Gas Properties or other material
Properties.
Section 8.05 Further Assurances tc \l2 "Section 8.05
Further Assurances . The Borrower will and will cause each
Restricted Subsidiary to cure promptly any defects in the creation
and issuance of the Notes and the execution and delivery of the
Security Instruments and this Agreement. The Borrower at its
expense will and will cause each Restricted Subsidiary to promptly
execute and deliver to the Agent upon request all such other
documents, agreements and instruments to comply with or accomplish
the covenants and agreements of the Borrower or any Restricted
Subsidiary, as the case may be, in the Security Instruments and
this Agreement, or to further evidence and more fully describe the
collateral intended as security for the Notes, or to correct any
omissions in the Security Instruments, or to state more fully the
security obligations set out herein or in any of the Security
Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any
recordings, to file any notices or obtain any consents, all as may
be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations tc \l2 "Section
8.06 Performance of Obligations . The Borrower will pay the Notes
according to the reading, tenor and effect thereof; and the
Borrower will and will cause each Restricted Subsidiary to do and
perform every act and discharge all of the obligations to be
performed and discharged by them under the Security Instruments and
this Agreement, at the time or times and in the manner specified.
Section 8.07 Engineering Reports tc \l2 "Section 8.07
Engineering Reports .
(a) Not less than (i) 30 days prior to the first
Scheduled Redetermination Date to occur on April 1, 2000, and
(ii) 45 days prior to each Scheduled Redetermination Date
thereafter, the Borrower shall furnish to the Agent and the
Lenders a Reserve Report. The Reserve Report to be delivered
by March 1 of each year shall be prepared by certified
independent petroleum engineers or other independent petroleum
consultant(s) acceptable to the Agent and the Reserve Report
to be delivered by September 1 of each year shall be prepared
by or under the supervision of the chief engineer of the
Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the
procedures used in the immediately preceding March 1 Reserve
Report.
(b) In the event of an unscheduled redetermination, the
Borrower shall furnish to the Agent and the Lenders a Reserve
Report prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report
to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately
preceding Reserve Report. For any unscheduled redetermination
requested by the Majority Lenders or the Borrower pursuant to
Section 2.08(d), the Borrower shall provide such Reserve
Report with an "as of" date as required by the Majority
Lenders as soon as possible, but in any event no later than 30
days following the receipt of the request by the Agent on
behalf of the Majority Lenders.
(c) With the delivery of each Reserve Report, the
Borrower shall provide to the Agent and the Lenders, a
certificate from a Responsible Officer certifying that, to the
best of his knowledge and in all material respects: (i) the
information contained in the Reserve Report and any other
information delivered in connection therewith is true and
correct, (ii) the Borrower owns good and defensible title to
the Oil and Gas Properties evaluated in such Reserve Report
and such Properties are free of all Liens except for Liens
permitted by Section 9.02, (iii) except as set forth on an
exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to
its Oil and Gas Properties evaluated in such Reserve Report
which would require the Borrower to deliver Hydrocarbons
produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor,
(iv) none of its Oil and Gas Properties have been sold since
the date of the last Borrowing Base determination except as
set forth on an exhibit to the certificate, which certificate
shall list all of its Oil and Gas Properties sold and in such
detail as reasonably required by the Majority Lenders, (v)
attached to the certificate is a list of its Oil and Gas
Properties added to and deleted from the immediately prior
Reserve Report and a list showing any change in working
interest or net revenue interest in its Oil and Gas Properties
occurring and the reason for such change, (vi) attached to the
certificate is a list of all Persons disbursing proceeds to
the Borrower from its Oil and Gas Properties and (vii)
Schedule B attached to such Reserve Report is a listing of the
Oil and Gas Properties to be considered in the determination
of the Borrowing Base.
(d) As soon as available and in any event within 60 days
after the end of each calendar quarter, the Borrower shall
provide production reports and lease operating summaries by
lease for its Oil and Gas Properties subject to a Lien in
favor of the Agent, which reports shall include quantities or
volume of production, revenue, realized product prices,
operating expenses, taxes, capital expenditures and lease
operating costs which have accrued to the Borrower's accounts
in such period, and such other information with respect
thereto as the Agent may reasonably require; provided,
however, for the period from and after January 1, 2000, up to
and including April 28, 2000, so long as the Aggregate
Commitments exceed the Threshold Amount, the Borrower shall
provide all reports, summaries and other information required
by this Section 8.07(d) within 30 days after the end of each
calendar month.
Section 8.08 Title Information tc \l2 "Section 8.08
Title Information .
(a) On or before the delivery to the Agent and the
Lenders of each Reserve Report required by Section 8.07(a),
the Borrower will deliver title information in form and
substance acceptable to the Agent covering enough of the
Hydrocarbon Interests included in the Borrowing Base that were
not included in the immediately preceding Reserve Report, so
that the Agent shall have received together with title
information previously delivered to the Agent, satisfactory
title information on 100% of the value of the Hydrocarbon
Interests included in the Borrowing Base.
(b) The Borrower shall cure any title defects or
exceptions which are not Excepted Liens raised by such
information, or substitute acceptable Mortgaged Properties
with no title defects or exceptions except for Excepted Liens
covering Mortgaged Properties of an equivalent value, within
30 days after a request by the Agent or the Lenders to cure
such defects or exceptions.
(c) If the Borrower is unable to cure any title defect
requested by the Agent or the Lenders to be cured within the
30-day period or the Borrower does not comply with the
requirements to provide acceptable title information covering
100% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a
Default or an Event of Default, but instead the Agent and the
Lenders shall have the right to exercise the following remedy
in their sole discretion from time to time, and any failure to
so exercise this remedy at any time shall not be a waiver as
to future exercise of the remedy by the Agent or the Lenders.
To the extent that the Agent or the Lenders are not satisfied
with title to any Mortgaged Property after the time period in
Section 8.08(b) has elapsed, such unacceptable Mortgaged
Property shall not count towards the 100% requirement, and the
Agent may send a notice to the Borrower and the Lenders that
the then outstanding Borrowing Base shall be reduced by an
amount as determined by the Majority Lenders to cause the
Borrower to be in compliance with the requirement to provide
acceptable title information on 100% of the value of the
Hydrocarbon Interests included in the Borrowing Base. This
new Borrowing Base shall become effective immediately after
receipt of such notice.
Section 8.09 Collateral tc \l2 "Section 8.09
Collateral .
(a) Acquisitions. Should the Borrower acquire any
additional Oil and Gas Properties which will be part of the
Oil and Gas Properties included in the Borrowing Base, the
Borrower will grant to the Agent as security for the
Indebtedness a first-priority Lien interest (subject only to
Liens permitted under Section 9.02) on the Borrower's interest
in any such Oil and Gas Properties included in the Borrowing
Base not already subject to a Lien of the Security
Instruments, which Lien will be created and perfected by and
in accordance with the provisions of mortgages, deeds of
trust, security agreements and financing statements, or other
Security Instruments, all in form and substance satisfactory
to the Agent in its sole discretion and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts
for recording purposes.
(b) Concurrently with the granting of the Lien or other
action referred to in Section 8.09(a) above, the Borrower will
provide to the Agent title information in form and substance
satisfactory to the Agent in its reasonable discretion with
respect to the Borrower's interests in such Oil and Gas
Properties.
(c) Also, promptly after the filing in any state of each
new Security Instrument delivered pursuant to Section 8.09(a),
upon the reasonable request of the Agent, the Borrower will
provide to the Agent an opinion addressed to the Agent for the
benefit of the Lenders in form and substance satisfactory to
the Agent in its sole discretion from counsel acceptable to
the Agent, stating that such Security Instrument is valid,
binding and enforceable in accordance with its terms and in
legally sufficient form for recordation in such jurisdiction.
Section 8.10 ERISA Information and Compliance tc \l2
"Section 8.10 ERISA Information and Compliance . When requested
by the Agent, the Borrower will promptly furnish and will cause the
Subsidiaries and any ERISA Affiliate to promptly furnish to the
Agent with sufficient copies to the Lenders copies of each annual
and other report with respect to each Plan or any trust created
thereunder filed with the United States Secretary of Labor, the
Internal Revenue Service or the PBGC. The Borrower will promptly
notify the Agent immediately upon becoming aware of the occurrence
of any ERISA Event or, with respect to any Restricted Subsidiary or
Plan thereof, of any "prohibited transaction," as described in
section 406 of ERISA or in section 4975 of the Code, in connection
with any Plan or any trust created thereunder, to the extent that
such ERISA Event or "prohibited transaction" results in a Material
Adverse Effect, in a written notice signed by a Responsible Officer
specifying the nature thereof, what action the Borrower, the
Subsidiary or the ERISA Affiliate is taking or proposes to take
with respect thereto, and, when known, any action taken or proposed
by the Internal Revenue Service, the Department of Labor or the
PBGC with respect thereto. Immediately upon receipt thereof, the
Borrower will promptly send to the Agent, with sufficient copies to
the Lenders, copies of any notice of the PBGC's intention to
terminate or to have a trustee appointed to administer any Plan.
With respect to each Plan (other than a Multiemployer Plan), the
Borrower will, and will cause each Subsidiary and ERISA Affiliate
to, (i) satisfy in full, without giving rise to any lien, all of
the contribution and funding requirements of section 412 of the
Code (determined without regard to subsections (d), (e), (f) and
(k) thereof) and of section 302 of ERISA (determined without regard
to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to
be paid, to the PBGC all premiums required pursuant to sections
4006 and 4007 of ERISA.
ARTICLE IX
Negative Covenants
tc \l1 " ARTICLE IX Negative Covenants
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans
hereunder, all interest thereon and all other amounts payable by
the Borrower hereunder, without the prior written consent of the
Majority Lenders:
Section 9.01 Debt tc \l2 "Section 9.01 Debt . Neither
the Borrower nor any Restricted Subsidiary will incur, create,
assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness arising under the
Loan Documents or any guaranty of or suretyship arrangement
for the Notes or other Indebtedness arising under the Loan
Documents;
(b) Debt existing on the Closing Date which is reflected
in the Financial Statements or is disclosed in Schedule 9.01,
and any renewals, extensions or refinancings (but not
increases) thereof;
(c) Debt (unrelated to Unrestricted Subsidiaries and
other than for borrowed money) incurred in the ordinary course
of business in connection with Hydrocarbon transportation,
Hydrocarbon purchasing or other similar arrangements, provided
that such arrangements are disclosed to the Agent and the
costs of the financing related to such arrangements are
incorporated into the Engineering Reports provided to the
Agent;
(d) Debt under Hedging Agreements with a Lender or
another counterparty rated BBB+ by Standard & Poor's Ratings
Services or better (or the equivalent rating by another
nationally recognized rating service), the notional amounts of
which, with respect to commodity Hedging Agreements, do not
exceed 80% of Borrower's anticipated oil and/or gas
production from producing wells to be produced during the term
of such Hedging Agreements, entered into as a part of its
normal business operations as a risk management strategy
and/or hedge against changes resulting from market conditions
related to the Borrower's and its Subsidiaries' operations;
(e) So long as the Threshold Amount equals the Aggregate
Commitments and no Borrowing Base Deficiency has occurred
which is continuing, additional Debt (including, without
limitation, guarantees of Debt of Unrestricted Subsidiaries)
with an outstanding aggregate principal amount not at any time
in excess of $5,000,000; provided, however, that the Borrowing
Base shall be reduced by the amount of all such Debt
outstanding at any time which is in excess of $1,500,000.
(f) Debt secured by the Liens permitted by clause (x) of
the definition of "Excepted Liens"; provided that such Debt is
discharged within 180 days of the relevant acquisition or
merger;
(g) Debt consisting of a pledge of investments in
Unrestricted Subsidiaries permitted by clause (xii) of the
definition of "Excepted Liens"; provided that such Debt is
recourse solely to the investment so pledged;
(h) loans and advances between the Restricted
Subsidiaries, to any Restricted Subsidiary from the Borrower
and to the Borrower from any Restricted Subsidiary;
(i) Debt approved by the Majority Lenders which is
subordinated on terms satisfactory to the Majority Lenders to
the payment of the Indebtedness (with the Borrowing Base in
effect from time to time being reduced by an amount equal to
any effect upon the Borrowing Base occasioned by such
subordinated Debt in the judgment of the Majority Lenders).
Section 9.02 Liens tc \l2 "Section 9.02 Liens .
Neither the Borrower nor any Restricted Subsidiary will create,
incur, assume or permit to exist any Lien on any of its Properties
included in the Borrowing Base (now owned or hereafter acquired),
except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing capital leases allowed under Section
9.01(e) but only on the Property under lease;
(d) Liens disclosed on Schedule 9.02; and
(e) Liens on cash or securities of the Borrower securing
the Debt described in Sections 9.01(c) and (d);
provided, however, the exceptions permitted under this Section 9.02
shall not permit any contractual Liens upon the Oil and Gas
Properties which are included in the Borrowing Base superior to any
Liens in favor of the Agent as security for the Indebtedness.
Section 9.03 Investments, Loans and Advances tc \l2
"Section 9.03 Investments, Loans and Advances . Neither the
Borrower nor any Restricted Subsidiary will make or permit to
remain outstanding any loans or advances to or investments in any
Person which is not the Borrower or a Restricted Subsidiary, but
which does include Unrestricted Subsidiaries (each such Person
being a "Third Party") (which shall include any payments on behalf
of any Unrestricted Subsidiary and shall include the Borrower's
investments in and any loans and advances to any Restricted
Subsidiaries that become Unrestricted Subsidiaries in accordance
with Section 9.16 and the definition of "Unrestricted Subsidiary"),
except that the foregoing restriction shall not apply to:
(a) investments, loans or advances reflected in the
Financial Statements or which are disclosed to the Lenders in
Schedule 9.03;
(b) accounts receivable arising in the ordinary course
of business;
(c) direct obligations of the United States or any
agency thereof, or obligations guaranteed by the United States
or any agency thereof, in each case maturing within one year
from the date of creation thereof;
(d) commercial paper maturing within one year from the
date of creation thereof rated in the highest grade by
Standard & Poors Ratings Services or Moody's Investors
Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit
issued by, any Lender or any office located in the United
States of any other bank or trust company which is organized
under the laws of the United States or any state thereof, has
capital, surplus and undivided profits aggregating at least
$100,000,000.00 (as of the date of such Lender's or bank or
trust company's most recent financial reports) and has a short
term deposit rating of no lower than A2 or P2, as such rating
is set forth from time to time, by Standard & Poors Ratings
Services or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively
in investments described in Section 9.03(c), 9.03(d) or
9.03(e);
(g) investments in direct ownership interests in
additional Oil and Gas Properties and gas gathering systems
related thereto;
(h) investments in Unrestricted Subsidiaries in the form
of Oil and Gas Properties which are included in the Borrowing
Base with adjustments to be made to the Borrowing Base with
respect to the elimination of such properties from the
Borrowing Base; provided, however, the approval of the
Majority Lenders shall be required for such removal of a
property from the Borrowing Base; and
(i) investments, loans and advances of cash and any
other Property not included in the Borrowing Base in an
aggregate outstanding amount not at any time in excess of
(when aggregated with net dividends, distributions and
redemptions permitted under Section 9.04) $7,200,000;
provided, however, that with respect to investments of
Property, only the amount of the excess (if any) of the book
value of such Property over the consideration received by the
transferor in connection with the investment of such Property
shall count against such $7,200,000 limit; and provided
further, however, that if the Borrowing Base is more than 50%
utilized, or if the making of any such investment, loan or
advance using the proceeds of a Loan would result in the
Borrowing Base being more than 50% utilized, then no such
investment, loan or advance otherwise permitted by this
Section 9.03 may be made using the proceeds of a Loan
hereunder.
Section 9.04 Dividends, Distributions and Redemptions tc
\l2 "Section 9.04 Dividends, Distributions and Redemptions . The
Borrower will not declare or pay any dividend, purchase, redeem or
otherwise acquire for value any of its stock now or hereafter
outstanding, return any capital to its stockholders or make any
distribution of its assets to its stockholders, except that:
(a) The Borrower may make dividends, distributions and
redemptions to its parent not to exceed $2,800,000 on a one
time basis following the Closing Date; provided, however, that
such dividends, distributions and redemptions shall not be
permitted hereunder if an Event of Default has occurred and is
continuing or would result therefrom; and
(b) The Borrower may make dividends, distributions and
redemptions to its parent in addition to the amounts set forth in
subparagraph (a) of this Section 9.04 so long as the aggregate
amount of net dividends, distributions and redemptions (excluding
the dividends, distributions and redemptions described in
subparagraph (a) of this Section 9.04), when aggregated with
investments, loans and advances permitted under Section 9.03(i), do
not exceed $7,200,000; provided, however, that such dividends,
distributions and redemptions shall not be permitted hereunder if
an Event of Default has occurred and is continuing or would result
therefrom; and provided further, however, that for any dividend,
distribution or redemption made by the Borrower to the parent after
January 31, 2000, if the Borrowing Base is more than 50% utilized,
or if the making of any such dividend, distribution or redemption
using the proceeds of a Loan would result in the Borrowing Base
being more than 50% utilized, then no such dividend, distribution
or redemption otherwise permitted by this Section 9.04 may be made
using the proceeds of a Loan hereunder.
Section 9.05 Sales and Leasebacks tc \l2 "Section 9.05
Sales and Leasebacks . Neither the Borrower nor any Restricted
Subsidiary will enter into any arrangement, directly or indirectly,
with any Person whereby the Borrower or any Restricted Subsidiary
shall sell or transfer any of its Property included in the
Borrowing Base, whether now owned or hereafter acquired, and
whereby the Borrower or any Restricted Subsidiary shall then or
thereafter rent or lease as lessee such Property or any part
thereof or other Property which the Borrower or any Restricted
Subsidiary intends to use for substantially the same purpose or
purposes as the Property sold or transferred.
Section 9.06 Nature of Business tc \l2 "Section 9.06
Nature of Business . Neither the Borrower nor any Restricted
Subsidiary will allow any material change to be made in the
character of its business as an independent oil and gas exploration
and production company.
Section 9.07 Mergers, Etc. tc \l2 "Section 9.07
Mergers, Etc. Neither the Borrower nor any Restricted Subsidiary
will merge into or with or consolidate with any other Person, or
sell, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its
Property or assets to any other Person, except that:
(a) the Borrower or any Restricted Subsidiary may merge
or liquidate any other Person into itself, so long as the
surviving entity will be in compliance with all of the terms
of this Agreement immediately following the merger or
liquidation;
(b) any Restricted Subsidiary may merge or liquidate
into the Borrower or another Restricted Subsidiary; and
(c) any Restricted Subsidiary may be merged into any
other Person; provided that such other Person, immediately
following such merger, shall be deemed a Restricted Subsidiary
and shall comply with the provisions of Section 9.16 hereof;
provided, however, that in the case of a merger permitted by
clauses (a) and (b) above, immediately thereafter and giving
effect thereto, the Borrower or, as the case may be, a
Restricted Subsidiary would be the surviving Person and, in
the case of a merger permitted by clause (a), (b), (c), or (d)
above, no Default or Event of Default would, immediately
thereafter and giving effect thereto, have occurred and be
continuing.
Section 9.08 Proceeds of Notes tc \l2 "Section 9.08
Proceeds of Notes . The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by
Section 7.07. Neither the Borrower nor any Person acting on
behalf of the Borrower has taken or will take any action which
might cause any of the Loan Documents to violate Regulation G, U or
X or any other regulation of the Board of Governors of the Federal
Reserve System or to violate Section 7 of the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as
now in effect or as the same may hereinafter be in effect.
Section 9.09 ERISA Compliance tc \l2 "Section 9.09
ERISA Compliance . The Borrower will not at any time engage in or
permit any of the following if a Material Adverse Effect would
result:
(a) Engage in, or permit any Restricted Subsidiary or
ERISA Affiliate to engage in, any transaction in connection
with which the Borrower, any Restricted Subsidiary or any
ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any
other action with respect to any Plan, which could result in
any liability of the Borrower, any Subsidiary or any ERISA
Affiliate to the PBGC;
(c) Fail to make, or permit any Restricted Subsidiary to
fail to make, full payment of all amounts which, under the
provisions of any Plan, agreement relating thereto or
applicable law, the Borrower or a Restricted Subsidiary is
required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA
Affiliate to permit to exist, any accumulated funding
deficiency within the meaning of Section 302 of ERISA or
Section 412 of the Code, whether or not waived, with respect
to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate
to permit, the actuarial present value of the benefit liabil-
ities under any Plan maintained by the Borrower, any
Subsidiary or any ERISA Affiliate which is regulated under
Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit
liabilities to the extent that such liability can not be paid
in the ordinary course. The term "actuarial present value of
the benefit liabilities" shall have the meaning specified in
section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute
to, or permit any Subsidiary or ERISA Affiliate to contribute
to or assume an obligation to contribute to, any Multiemployer
Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate
to acquire, an interest in any Person that causes such Person
to become an ERISA Affiliate with respect to the Borrower, any
Subsidiary or any ERISA Affiliate if such Person sponsors,
maintains or contributes to, or at any time in the six-year
period preceding such acquisition has sponsored, maintained,
or contributed to, (1) any Multiemployer Plan, or (2) any
other Plan that is subject to Title IV of ERISA under which
the actuarial present value of the benefit liabilities under
such Plan exceeds the current value of the assets (computed on
a plan termination basis in accordance with Title IV of ERISA)
of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate
to incur, a liability to or on account of a Plan under
sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute
to, or permit any Restricted Subsidiary to contribute to or
assume an obligation to contribute to, any employee welfare
benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be
terminated by such entities in their sole discretion at any
time without any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to
amend, a Plan resulting in an increase in current liability
such that the Borrower, any Subsidiary or any ERISA Affiliate
is required to provide security to such Plan under section
401(a)(29) of the Code.
Section 9.10 Sale or Discount of Receivables tc \l2
"Section 9.10 Sale or Discount of Receivables . Neither the
Borrower nor any Restricted Subsidiary will discount or sell (with
or without recourse) any of its notes receivable or accounts
receivable except (i) in the ordinary course of business, or (ii)
in connection with a receivables asset securitization, otherwise
permitted under this Agreement.
Section 9.11 Ratio of Debt to EBITDAX tc \l2 "Section
9.11 Ratio of Debt to EBITDAX . The Borrower will not permit the
ratio of Debt to EBITDAX as of the end of any fiscal quarter of
the Borrower (calculated on a rolling four quarter basis) to be
greater than 2.50 to 1.00 for any fiscal quarter. As used in this
Agreement, "rolling four quarter basis" shall mean, as to any
fiscal quarter, such quarter and the three preceding fiscal
quarters; provided, however, so long as the Aggregate Commitments
exceed the Threshold Amount, the ratio of Debt to EBITDAX will be
determined as of the end of each calendar month.
Section 9.12 Interest Coverage Ratio tc \l2 "Section
9.12 Interest Coverage Ratio . The Borrower will not permit its
Interest Coverage Ratio as of the end of any fiscal quarter of the
Borrower (calculated on a rolling four quarter basis) to be less
than 3.00 to 1.00. For the purposes of this Section 9.12,
"Interest Coverage Ratio" shall mean the ratio of (i) EBITDAX for
the four fiscal quarters ending on such date to (ii) cash interest
payments made for such four fiscal quarters of the Borrower and its
Restricted Subsidiaries, provided, however, so long as the
Aggregate Commitments exceed the Threshold Amount, the Interest
Coverage Ratio will be determined as of the end of each calendar
month.
Section 9.13 Sale of Oil and Gas Properties tc \l2
"Section 9.13 Sale of Oil and Gas Properties . The Borrower will
not, and will not permit any Restricted Subsidiary to, sell,
assign, farm-out, convey or otherwise transfer any Oil and Gas
Property subject to a Lien in favor of the Agent or any interest in
any Oil and Gas Property subject to a Lien in favor of the Agent,
unless (i) no Default shall have occurred and be continuing and
(ii) simultaneously with any such disposition of Oil and Gas
Properties included in the Borrowing Base, the Borrowing Base is
reduced by an amount reasonably determined at the time by the Agent
to reflect the contribution to the Borrowing Base of the Oil and
Gas Property so disposed of.
Section 9.14 Environmental Matters tc \l2 "Section 9.14
Environmental Matters . Neither the Borrower nor any
Subsidiary will cause or permit any of its Property to be in
violation of, or do anything or permit anything to be done which
will subject any such Property to any remedial obligations under
any Environmental Laws, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such
violations or remedial obligations would have a Material Adverse
Effect.
Section 9.15 Transactions with Affiliates tc \l2
"Section 9.15 Transactions with Affiliates . Neither the Borrower
nor any Restricted Subsidiary will enter into any transaction,
including, without limitation, any purchase, sale, lease or
exchange of Property or the rendering of any service, with any
Affiliate unless such transactions are otherwise permitted under
this Agreement, are in the ordinary course of its business and are
upon fair and reasonable terms no less favorable to it than it
would obtain in a comparable arm's length transaction with a Person
not an Affiliate.
Section 9.16 Subsidiaries tc \l2 "Section 9.16
Subsidiaries . The Borrower shall not and shall not permit any
Restricted Subsidiary to sell or to issue any stock or ownership
interest of a Restricted Subsidiary except to the Borrower or a
Restricted Subsidiary and except in compliance with Section 9.03.
The Borrower shall not create any additional Subsidiaries or
permit any Restricted Subsidiary to do so, except:
(a) the Borrower or any Restricted Subsidiary may create
(by formation or by an acquisition otherwise permitted by this
Agreement) a Restricted Subsidiary provided, that:
(i) each new Restricted Subsidiary shall forthwith
execute and deliver to the Agent for the benefit of the
Lenders a written instrument of guaranty, unconditionally
guaranteeing payment of all Indebtedness of the Borrower;
and
(ii) simultaneously with the delivery of the
aforementioned written instrument of guaranty, each new
Restricted Subsidiary shall deliver to the Agent a
certificate of the Secretary or Assistant Secretary of
such Restricted Subsidiary setting forth (A) resolutions
of its board of directors with respect to the
authorization of such Restricted Subsidiary to execute
and deliver such written instrument of guaranty and to
enter into the transactions contemplated thereby, (B) the
officers of such Restricted Subsidiary (y) who are
authorized to sign such written instrument of guaranty,
and (z) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and
giving notices and other communications in connection
with such written instrument of guaranty and the
transactions contemplated thereby, (C) specimen
signatures for such officers, and (D) the articles or
certificate of incorporation and bylaws of such
Restricted Subsidiary, certified as being true and
complete. The Agent and the Lenders may conclusively
rely on such certificate until the Agent receives notice
in writing from the Borrower or such Restricted
Subsidiary to the contrary;
(b) the Borrower or a Restricted Subsidiary may create
(by formation or by an acquisition otherwise permitted by this
Agreement) additional Subsidiaries provided, that, such
Subsidiary is designated as an Unrestricted Subsidiary by a
certificate of the Borrower signed by both of the chief
financial officer (or treasurer) and the general counsel of
the Borrower, which certificate shall be delivered to the
Agent.
Section 9.17 Negative Pledge Agreements tc \l2 "Section
9.17 Negative Pledge Agreements . Neither the Borrower nor
any Restricted Subsidiary will create, incur, assume or suffer to
exist any contract, agreement or understanding (other than this
Agreement and the Security Instruments) which in any way prohibits
or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property included in the Borrowing Base or
restricts any Restricted Subsidiary from paying dividends to the
Borrower, or which requires the consent of or notice to other
Persons in connection therewith.
Section 9.18 Gas Imbalances, Take-or-Pay or Other
Prepayments tc \l2 "Section 9.18 Gas Imbalances, Take-or-Pay or
Other Prepayments . The Borrower will not allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas
Properties of the Borrower which would require the Borrower to
deliver Hydrocarbons produced on Oil and Gas Properties at some
future time without then or thereafter receiving full payment
therefor to exceed one billion cubic feet of gas in the aggregate
on a net basis for the Borrower.
ARTICLE X
Events of Default; Remedies
tc \l1 " ARTICLE X Events of Default; Remedies
Section 10.01 Events of Default tc \l2 "Section 10.01
Events of Default . One or more of the following events shall
constitute an "Event of Default":
(a) the Borrower shall default in the payment or
prepayment (including, without limitation, prepayments
resulting from a Borrowing Base Deficiency, but excluding
prepayment to be made pursuant to revocable notices delivered
pursuant to Section 2.07(a) hereof) when due of any principal
of or interest on any Loan, or any reimbursement obligation
for a disbursement made under any Letter of Credit, or any
fees or other amount payable by it hereunder or under any
Security Instrument and such default, other than a default of
a payment or prepayment of principal (which shall have no cure
period) shall continue unremedied for a period of 3 Business
Days; or
(b) the Borrower or any Restricted Subsidiary shall
default in the payment when due of any principal of or
interest on any of its other Debt aggregating $500,000 or
more, or any event specified in any note, agreement, indenture
or other document evidencing or relating to any such Debt
shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Debt (or a trustee or
agent on behalf of such holder or holders) to cause, such Debt
to become due prior to its stated maturity; or
(c) any representation, warranty or certification made
or deemed made herein or in any Security Instrument by the
Borrower or any Restricted Subsidiary, or any certificate
furnished to any Lender or the Agent pursuant to the
provisions hereof or any Security Instrument, shall prove to
have been false or misleading as of the time made or furnished
in any material respect; or
(d) the Borrower shall default in the performance of any
of its obligations under Article IX or any other Article of
this Agreement other than under Article VIII; or the Borrower
shall default in the performance of any of its obligations
under Article VIII or any Security Instrument (other than the
payment of amounts due which shall be governed by Section
10.01(a)) and such default shall continue unremedied for a
period of thirty (30) days after the earlier to occur of (i)
notice thereof to the Borrower by the Agent or any Lender
(through the Agent), or (ii) the Borrower otherwise becoming
aware of such default; or
(e) the Borrower shall admit in writing its inability
to, or be generally unable to, pay its debts as such debts
become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Federal
Bankruptcy Code, or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of
competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the
Borrower of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower under any law
relating to bankruptcy, insolvency, reorganization, winding-
up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of
60 days; or (iv) an order for relief against the Borrower
shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in
excess of $500,000 in the aggregate shall be rendered by a
court against the Borrower or any Restricted Subsidiary and
the same shall not be discharged (or arrangements satisfactory
to the Agent shall not be made for such discharge), or a stay
of execution thereof shall not be procured, within thirty (30)
days from the date of entry thereof and the Borrower or such
Restricted Subsidiary shall not, within said period of 30
days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof
shall for any reason, except to the extent permitted by the
terms thereof, cease to be in full force and effect and valid,
binding and enforceable in accordance with their terms, or
cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be
covered thereby, except to the extent permitted by the terms
of this Agreement, or the Borrower shall so state in writing;
or
(j) any Letter of Credit becomes the subject matter of
any order, judgment, injunction or any other such
determination, or if the Borrower or any other Person shall
petition or apply for or obtain any order restricting payment
by the Agent under any Letter of Credit or extending the
Lenders' liability under any Letter of Credit beyond the
expiration date stated therein or otherwise agreed to by the
Agent; or
(k) the Borrower discontinues its usual business or
suffers to exist any material change in its ownership, control
or management; or
(l) any Restricted Subsidiary takes, suffers or permits
to exist any of the events or conditions referred to in
paragraphs (e), (f), (g) or (h) hereof; or
(m) a Borrowing Base Deficiency shall remain after the
applicable time period provided for in Section 2.07(c).
Section 10.02 Remedies tc \l2 "Section 10.02 Remedies .
(a) In the case of an Event of Default other than one
referred to in clauses (e), (f) or (g) of Section 10.01 or in
clause (l) to the extent it relates to clauses (e), (f) or
(g), the Agent, upon request of the Majority Lenders, shall,
by notice to the Borrower, cancel the Commitments and/or
declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable
by the Borrower hereunder and under the Notes (including
without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b) hereof) to be
forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in
clause (l) to the extent it relates to clauses (e), (f) or
(g), the Commitments shall be automatically cancelled and the
principal amount then outstanding of, and the accrued interest
on, the Loans and all other amounts payable by the Borrower
hereunder and under the Notes (including without limitation
the payment of cash collateral to secure the LC Exposure as
provided in Section 2.10(b) hereof) shall become automatically
immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
(c) All proceeds received after maturity of the Notes,
whether by acceleration or otherwise shall be applied first to
reimbursement of expenses and indemnities provided for in this
Agreement and the Security Instruments; second to accrued
interest on the Notes; third to fees; fourth pro rata to
principal outstanding on the Notes and other Indebtedness;
fifth to serve as cash collateral to be held by the Agent to
secure the LC Exposure; and any excess shall be paid to the
Borrower or as otherwise required by any Governmental
Requirement.
ARTICLE XI
The Agent
tc \l1 " ARTICLE XI The Agent
Section 11.01 Appointment, Powers and Immunities tc \l2
"Section 11.01 Appointment, Powers and Immunities . Each Lender
hereby irrevocably appoints and authorizes the Agent to act as its
agent hereunder and under the Security Instruments with such
powers as are specifically delegated to the Agent by the terms of
this Agreement and the Security Instruments, together with such
other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the
first sentence of Section 11.06 shall include reference to its
Affiliates and its and its Affiliates' officers, directors,
employees, attorneys, accountants, experts and agents): (i) shall
have no duties or responsibilities except those expressly set forth
in the Loan Documents, and shall not by reason of the Loan
Documents be a trustee or fiduciary for any Lender; (ii) makes no
representation or warranty to any Lender and shall not be
responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in
any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement, or for the value,
validity, effectiveness, genuineness, execution, legality,
enforceability or sufficiency of this Agreement, any Note or any
other document referred to or provided for herein or for any
failure by the Borrower or any other Person (other than the Agent)
to perform any of its obligations hereunder or thereunder or for
the existence, value, perfection or priority of any collateral
security or the financial or other condition of the Borrower, the
Subsidiaries or any other obligor or guarantor; (iii) except
pursuant to Section 11.07 shall not be required to initiate or
conduct any litigation or collection proceedings hereunder; and
(iv) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other document or instrument
referred to or provided for herein or in connection herewith
including its own ordinary negligence, except for its own gross
negligence or willful misconduct. The Agent may employ agents,
accountants, attorneys and experts and shall not be responsible for
the negligence or misconduct of any such agents, accountants,
attorneys or experts selected by it in good faith or any action
taken or omitted to be taken in good faith by it in accordance with
the advice of such agents, accountants, attorneys or experts. The
Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice
of the assignment or transfer thereof permitted hereunder shall
have been filed with the Agent. The Agent is authorized to release
any collateral that is permitted to be sold or released pursuant to
the terms of the Loan Documents.
Section 11.02 Reliance by Agent tc \l2 "Section 11.02
Reliance by Agent . The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof
by telephone, telex, telecopier, telegram or cable) believed by it
to be genuine and correct and to have been signed or sent by or on
behalf of the proper Person or Persons, and upon advice and
statements of legal counsel, independent accountants and other
experts selected by the Agent.
Section 11.03 Defaults tc \l2 "Section 11.03 Defaults .
The Agent shall not be deemed to have knowledge of the occurrence
of a Default (other than the non-payment of principal of or
interest on Loans or of fees or failure to reimburse for Letter of
Credit drawings) unless the Agent has received notice from a Lender
or the Borrower specifying such Default and stating that such
notice is a "Notice of Default." In the event that the Agent
receives such a notice of the occurrence of a Default, the Agent
shall give prompt notice thereof to the Lenders. In the event of
a payment Default, the Agent shall give each Lender prompt notice
of each such payment Default.
Section 11.04 Rights as a Lender tc \l2 "Section 11.04
Rights as a Lender . With respect to its Commitments and the
Loans made by it and its participation in the issuance of Letters
of Credit, Chase (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as
though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. Chase (and any successor
acting as Agent) and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust or other business
with the Borrower (and any of its Affiliates) as if it were not
acting as the Agent, and Chase and its Affiliates may accept fees
and other consideration from the Borrower for services in
connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 INDEMNIFICATION TC \L2 "Section 11.05
INDEMNIFICATION . THE LENDERS AGREE TO INDEMNIFY THE AGENT RATABLY
IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY
MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED
OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT
LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03
AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE SECURITY
INSTRUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO
HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING,
UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF
ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE
TERMS OF THIS AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH
OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN
THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF
THE AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE AGENT.
Section 11.06 Non-Reliance on Agent and other Lenders tc
\l2 "Section 11.06 Non-Reliance on Agent and other Lenders . Each
Lender acknowledges and agrees that it has, independently and
without reliance on the Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and its decision to enter
into this Agreement, and that it will, independently and without
reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not
taking action under this Agreement. The Agent shall not be
required to keep itself informed as to the performance or
observance by the Borrower of this Agreement, the Notes, the
Security Instruments or any other document referred to or provided
for herein or to inspect the properties or books of the Borrower.
Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning
the affairs, financial condition or business of the Borrower (or
any of its Affiliates) which may come into the possession of the
Agent or any of its Affiliates. In this regard, each Lender
acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Agent only, except to the
extent otherwise expressly stated in any legal opinion or any Loan
Document. Each Lender will consult with its own legal counsel to
the extent that it deems necessary in connection with the Loan
Documents and the matters contemplated therein.
Section 11.07 Action by Agent tc \l2 "Section 11.07
Action by Agent . Except for action or other matters expressly
required of the Agent hereunder, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it
shall (i) receive written instructions from the Majority Lenders
(or all of the Lenders as expressly required by Section 12.04)
specifying the action to be taken, and (ii) be indemnified to its
satisfaction by the Lenders against any and all liability and
expenses which may be incurred by it by reason of taking or
continuing to take any such action. The instructions of the
Majority Lenders (or all of the Lenders as expressly required by
Section 12.04) and any action taken or failure to act pursuant
thereto by the Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, the Agent shall take such
action with respect to such Default as shall be directed by the
Majority Lenders (or all of the Lenders as required by Section
12.04) in the written instructions (with indemnities) described in
this Section 11.07, provided that, unless and until the Agent shall
have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action,
with respect to such Default as it shall deem advisable in the best
interests of the Lenders. In no event, however, shall the Agent be
required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement and the Security
Instruments or applicable law.
Section 11.08 Resignation or Removal of Agent tc \l2
"Section 11.08 Resignation or Removal of Agent . Subject to the
appointment and acceptance of a successor Agent as provided below,
the Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower, and the Agent may be removed at any time
with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Majority Lenders and shall have accepted
such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation or the Majority Lenders' removal of
the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent. Upon the acceptance of such
appointment hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Article XI and Section
12.03 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as
the Agent.
ARTICLE XII
Miscellaneous
tc \l1 " ARTICLE XII Miscellaneous
Section 12.01 Waiver tc \l2 "Section 12.01 Waiver . No
failure on the part of the Agent or any Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any
right, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 12.02 Notices tc \l2 "Section 12.02 Notices .
All notices and other communications provided for herein and in
the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or
the other Loan Documents) shall be given or made by telecopy,
personal delivery, nationally recognized overnight courier or U.S.
Mail in writing and telecopied, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on
the signature pages hereof or in the Loan Documents or, as to any
party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in
this Agreement or in the other Loan Documents, all such communica-
tions shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day
(otherwise on the next succeeding Business Day) by telecopier to
the extent that confirmation of receipt is obtained, or personally
delivered or, in the case of a mailed notice, three (3) Business
Days after the date deposited in the mails, postage prepaid, or, in
the case of a nationally recognized overnight courier, one (1) day
after the date delivered to such courier with guaranteed next day
delivery, in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc tc
\l2 "Section 12.03 Payment of Expenses, Indemnities, etc . The
Borrower agrees:
(a) whether or not the transactions hereby contemplated
are consummated, to pay all reasonable expenses of the Agent
in the administration (both before and after the execution
hereof and including advice of counsel as to the rights and
duties of the Agent and the Lenders with respect thereto) of,
and in connection with the negotiation, syndication,
investigation, preparation, execution and delivery of,
recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or
restructuring of, the Loan Documents and any amendment, waiver
or consent relating thereto (including, without limitation,
travel, photocopy, mailing, courier, telephone and other
similar expenses of the Agent, the cost of environmental
audits, surveys and appraisals at reasonable intervals, the
reasonable fees and disbursements of counsel and other outside
consultants for the Agent and, in the case of enforcement, the
reasonable fees and disbursements of counsel for the Agent and
any of the Lenders); and promptly reimburse the Agent for all
amounts expended, advanced or incurred by the Agent or the
Lenders to satisfy any obligation of the Borrower under this
Agreement or any Security Instrument, including without
limitation, all costs and expenses of foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF
THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS,
EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND
EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM
HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE
EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED
BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT
ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF,
ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE
LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE
BUSINESS OF THE BORROWER AND THE SUBSIDIARIES, (IV) THE
FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY SECURITY INSTRUMENT OR THIS AGREEMENT, OR WITH
ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY
REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER
SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE,
EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO
PAY UNDER ANY LETTER OF CREDIT, OR (VII) THE PAYMENT OF A
DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-
COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE
MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII) ANY
ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE
PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX)
ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH
ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY
MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY
INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING
SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER
AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT OR
LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY OR ITS
AFFILIATE; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES,
CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR
PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON
MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE
TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF
HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A
RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE
BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST
ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND
FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT
OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE
PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY
SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED,
HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION
12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING
FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER DURING
THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS
SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY
FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-
POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be
indemnified without the consent of the indemnitor, such
consent not to be unreasonably withheld; provided, that the
indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the
indemnitor does not have the financial ability to pay all its
obligations outstanding and asserted against the indemnitor at
that time, including the maximum potential claims against the
Indemnified Party to be indemnified pursuant to this Section
12.03.
(e) In the case of any indemnification hereunder, the
Agent or Lender, as appropriate shall give notice to the
Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the
non-exclusive right to join in the defense against any such
claim or demand provided that if the Borrower provides a
defense, the Indemnified Party shall bear its own cost of
defense unless there is a conflict between the Borrower and
such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE
INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER (OTHER THAN
GROSS NEGLIGENCE), WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION,
ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR
BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE
OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN
INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION
OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE
PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON
OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 12.03
shall survive any termination of this Agreement and the
payment of the Notes and shall continue thereafter in full
force and effect.
(h) The Borrower shall pay any amounts due under this
Section 12.03 within thirty (30) days of the receipt by the
Borrower of notice of the amount due.
Section 12.04 Amendments, Etc. tc \l2 "Section 12.04
Amendments, Etc. Any provision of this Agreement or any Security
Instrument may be amended, modified or waived with the Borrower's
and the Majority Lenders' prior written consent; provided that (i)
no amendment, modification or waiver which extends the final
maturity of the Loans, increases the Aggregate Maximum Credit
Amounts, forgives the principal amount of any Indebtedness
outstanding under this Agreement, releases any guarantor of the
Indebtedness or releases any of the collateral, reduces the
interest rate applicable to the Loans or the fees payable to the
Lenders generally, affects Sections 2.03(a) or (b), this Section
12.04 or Section 12.06(a) or modifies the definition of "Majority
Lenders" shall be effective without consent of all Lenders; (ii) no
amendment, modification or waiver which increases the Maximum
Credit Amount of any Lender shall be effective without the consent
of such Lender; and (iii) no amendment, modification or waiver
which modifies the rights, duties or obligations of the Agent shall
be effective without the consent of the Agent.
Section 12.05 Successors and Assigns tc \l2 "Section
12.05 Successors and Assigns . This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 12.06 Assignments and Participations tc \l2
"Section 12.06 Assignments and Participations .
(a) The Borrower may not assign its rights or
obligations hereunder or under the Notes or any Letters of
Credit without the prior consent of all of the Lenders and the
Agent.
(b) Any Lender may assign to one or more of its
Affiliates or, upon the written consent of the Agent and the
Borrower (which consent will not be unreasonably withheld),
assign to one or more assignees who are not Affiliates of such
Lender, all or a portion of its rights and obligations under
this Agreement pursuant to an Assignment Agreement
substantially in the form of Exhibit F (an "Assignment")
provided, however, that (i) any such assignment shall be in
the amount of at least $10,000,000 or such lesser amount to
which the Borrower has consented and (ii) the assignee or
assignor shall pay to the Agent a processing and recordation
fee of $2,500 for each assignment. Any such assignment will
become effective upon the execution and delivery to the Agent
of the Assignment and the consent of the Agent. Promptly
after receipt of an executed Assignment, the Agent shall send
to the Borrower a copy of such executed Assignment. Upon
receipt of such executed Assignment, the Borrower, will, at
its own expense, execute and deliver new Notes to the assignor
and/or assignee, as appropriate, in accordance with their
respective interests as they appear. Upon the effectiveness
of any assignment pursuant to this Section 12.06(b), the
assignee will become a "Lender," if not already a "Lender,"
for all purposes of this Agreement and the Security
Instruments. The assignor shall be relieved of its
obligations hereunder to the extent of such assignment (and if
the assigning Lender no longer holds any rights or obligations
under this Agreement, such assigning Lender shall cease to be
a "Lender" hereunder except that its rights under Sections
4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent
will prepare on the last Business Day of each month during
which an assignment has become effective pursuant to this
Section 12.06(b), a new Annex I giving effect to all such
assignments effected during such month, and will promptly
provide the same to the Borrower and each of the Lenders.
(c) Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests
hereunder pursuant to this Section 12.06(c) to any Person,
provided that: (i) such Lender shall remain a "Lender" for all
purposes of this Agreement and the transferee of such
participation shall not constitute a "Lender" hereunder; and
(ii) no participant under any such participation shall have
rights to approve any amendment to or waiver of any of the
Loan Documents except to the extent such amendment or waiver
would (x) forgive any principal owing on any Indebtedness or
extend the final maturity of the Loans, (y) reduce the
interest rate (other than as a result of waiving the
applicability of any post-default increases in interest rates)
or fees applicable to any of the Commitments or Loans or
Letters of Credit in which such participant is participating,
or postpone the payment of any thereof, or (z) release any
guarantor of the Indebtedness or release all or substantially
all of the collateral (except as provided in the Loan
Documents) supporting any of the Commitments or Loans or
Letters of Credit in which such participant is participating.
In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the
Security Instruments (the participant's rights against the
granting Lender in respect of such participation to be those
set forth in the agreement with such Lender creating such
participation), and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold
such participation, provided that such participant shall be
entitled to receive additional amounts under Article V on the
same basis as if it were a Lender and be indemnified under
Section 12.03 as if it were a Lender. In addition, each
agreement creating any participation must include an agreement
by the participant to be bound by the provisions of Section
12.15.
(d) The Lenders may furnish any information concerning
the Borrower in the possession of the Lenders from time to
time to assignees and participants (including prospective
assignees and participants); provided that, such Persons agree
to be bound by the provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to
the contrary, any Lender may assign and pledge all or any of
its Notes to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve System
and/or such Federal Reserve Bank. No such assignment and/or
pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or
obligations of any Lender or any grant of participations
therein shall be permitted if such transfer, assignment or
grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue
Sky" laws of any state.
Section 12.07 Invalidity tc \l2 "Section 12.07
Invalidity . In the event that any one or more of the provisions
contained in any of the Loan Documents or the Letters of Credit,
the Letter of Credit Agreements 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 the Notes, this Agreement or any Security Instrument.
Section 12.08 Counterparts tc \l2 "Section 12.08
Counterparts . This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 12.09 References tc \l2 "Section 12.09
References . The words "herein," "hereof," "hereunder" and other
words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or
subsection. Any reference herein to a Section shall be deemed to
refer to the applicable Section of this Agreement unless otherwise
stated herein. Any reference herein to an exhibit or schedule
shall be deemed to refer to the applicable exhibit or schedule
attached hereto unless otherwise stated herein.
Section 12.10 Survival tc \l2 "Section 12.10 Survival .
The obligations of the parties under Section 4.06, Article V, and
Sections 11.05 and 12.03 shall survive the repayment of the Loans
and the termination of the Commitments. To the extent that any
payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the
Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Agent's and the
Lenders' Liens, security interests, rights, powers and remedies
under this Agreement and each Security Instrument shall continue in
full force and effect. In such event, each Security Instrument
shall be automatically reinstated and the Borrower shall take such
action as may be reasonably requested by the Agent and the Lenders
to effect such reinstatement.
Section 12.11 Captions tc \l2 "Section 12.11 Captions .
Captions and section headings appearing herein are included solely
for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS tc \l2 "Section 12.12
NO ORAL AGREEMENTS . THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS
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.
Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION TC \L2 "Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION .
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW
PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY
THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. TEX. REV.
CIV. STAT. ANN. ART. 5069, CH. 15 (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF
TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE THE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION
OVER THE BORROWER IN ANY COURT OTHERWISE HAVING JURISDICTION.
(c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES C.T.
CORPORATION LOCATED IN HOUSTON, TEXAS, AS THE DESIGNEE,
APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON
BEHALF OF THE BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY
OVERNIGHT COURIER TO THE BORROWER AT ITS ADDRESS SET FORTH
UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF THE BORROWER TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF
SUCH PROCESS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF
BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE
THIRTY (30) DAYS AFTER SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT
OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION.
(e) EACH OF THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY
INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY
WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III)
CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT
OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE SECURITY INSTRUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
12.13.
Section 12.14 Interest tc \l2 "Section 12.14 Interest .
It is the intention of the parties hereto that each Lender shall
conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the
United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such
Lender notwithstanding the other provisions of this Agreement),
then, in that event, notwithstanding anything to the contrary in
any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as
follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to any Lender that is contracted for,
taken, reserved, charged or received by such Lender under any of
the Loan Documents or agreements or otherwise in connection with
the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled
automatically and if theretofore paid shall be credited by such
Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have
been or would thereby be paid in full, refunded by such Lender to
the Borrower); and (ii) in the event that the maturity of the Notes
is accelerated by reason of an election of the holder thereof
resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest under law
applicable to any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled auto-
matically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such
Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have
been or would thereby be paid in full, refunded by such Lender to
the Borrower). All sums paid or agreed to be paid to any Lender
for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be
amortized, prorated, allocated and spread throughout the full term
of the Loans evidenced by the Notes until payment in full so that
the rate or amount of interest on account of any Loans hereunder
does not exceed the maximum amount allowed by such applicable law.
If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest
Lawful Rate applicable to such Lender pursuant to this
Section 12.14 and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to such
Lender would be less than the amount of interest payable to such
Lender computed at the Highest Lawful Rate applicable to such
Lender, then the amount of interest payable to such Lender in
respect of such subsequent interest computation period shall
continue to be computed at the Highest Lawful Rate applicable to
such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had
been computed without giving effect to this Section 12.14. To the
extent that Article 5069-1.04 of the Texas Revised Civil Statutes
is relevant for the purpose of determining the Highest Lawful Rate,
such Lender elects to determine the applicable rate ceiling under
such Article by the indicated weekly rate ceiling from time to time
in effect.
Section 12.15 Confidentiality tc \l2 "Section 12.15
Confidentiality . In the event that the Borrower provides to the
Agent or the Lenders written confidential information belonging to
the Borrower, if the Borrower shall denominate such information in
writing as "confidential", the Agent and the Lenders shall
thereafter maintain such information in confidence in accordance
with the standards of care and diligence that each utilizes in
maintaining its own confidential information. This obligation of
confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of
the public domain without the Agent or the Lenders breaching their
obligation of confidence to the Borrower, (iii) are previously
known by the Agent or the Lenders from some source other than the
Borrower, (iv) are hereafter developed by the Agent or the Lenders
without using the Borrower's information, (v) are hereafter
obtained by or available to the Agent or the Lenders from a third
party who owes no obligation of confidence to the Borrower with
respect to such information or through any other means other than
through disclosure by the Borrower, (vi) are disclosed with the
Borrower's consent, (vii) must be disclosed either pursuant to any
Governmental Requirement or to Persons regulating the activities of
the Agent or the Lenders, or (viii) as may be required by law or
regulation or order of any Governmental Authority in any judicial,
arbitration or governmental proceeding. Further, the Agent or a
Lender may disclose any such information to any other Lender, any
Affiliate of any Lender, any independent petroleum engineers or
consultants, any independent certified public accountants, any
legal counsel employed by such Person in connection with this
Agreement or any Security Instrument, including without limitation,
the enforcement or exercise of all rights and remedies thereunder,
or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent or
the Lenders shall receive a confidentiality agreement from the
Person to whom such information is disclosed such that said Person
shall have the same obligation to maintain the confidentiality of
such information as is imposed upon the Agent or the Lenders
hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years
from the date the information was furnished, unless the Borrower
requests in writing at least thirty (30) days prior to the
expiration of such three year period, to maintain the
confidentiality of such information for an additional three year
period. The Borrower waives any and all other rights it may have
to confidentiality as against the Agent and the Lenders arising by
contract, agreement, statute or law except as expressly stated in
this Section 12.15.
Section 12.16 Effectiveness tc \l2 "Section 12.16
Effectiveness . This Agreement shall be effective on the Closing
Date (the "Effective Date").
Section 12.17 EXCULPATION PROVISIONS tc \l2 "Section
12.17 EXCULPATION PROVISIONS . EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND
THE SECURITY INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE
AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY
INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS
PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN
ENTERING INTO THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE
SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY
INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR
ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE
OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: McMoRan OIL & GAS LLC
By:____________________________
_
Name: Robert R. Boyce
Title: Treasurer
A
ddress for Notices:
1615 Poydras Street
New Orleans, Louisiana 70112
Telecopier: (504) 582-4511
Telephone: (504) 582-4144
Attention: Treasurer
with copy to:
Jones, Walker, Waechter,
Poitevent,
Carrere & Denegre, L.L.P.
201 St. Charles Avenue
50th Floor
New Orleans, Louisiana 70170
Telephone: (504) 582-8000
Facsimile: (504) 582-8583
Attention: Relationship Partner
LENDER AND AGENT: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, Individually and
as Agent
By:____________________________
________
Name: Russell A. Johnson
Title: Vice President
Lending Office for Base Rate
Loans
and Eurodollar Loans and
Address for
Notice:
Chase Bank of Texas, National
Association
One Chase Manhattan Plaza
New York, New York 10081
Telecopier No. 212/552-2261
Telephone No. 212/552-7307
Attn: Paul Anemone
with copies to:
Chase Bank of Texas, National
Association
600 Travis, 20th Floor
Houston, Texas 77002
Telecopier No. 713/216-4117
Telephone No. 713/216-8869
Attn: Peter Licalzi
Chase Bank of Texas, National
Association
One Chase Manhattan Plaza, 8th
Floor
New York, New York 10081
Telecopier No. 212/552-7490
Telephone No. 212/552-7943
Attn: Muniram Appanna
BANK OF MONTREAL
By:
___________________________________
Name:
_________________________________
Title:
__________________________________
Lending Office for Base Rate
Loans and
Eurodollar Loans and Address
for Notice:
Bank of Montreal
115 S. LaSalle, 11th Floor
Chicago, Illinois 60603
Telecopier No.: 312/750-6061
Telephone No.: 312/750-5947
Attention: Keiko Kuze
with copies to:
Bank of Montreal
700 Louisiana Street, Suite
4400
Houston, Texas 77002
Attention: James Whitmore
CITICORP USA
By:
___________________________________
Name:
_________________________________
Title:
__________________________________
Lending Office for Base Rate
Loans and
Eurodollar Loans and Address
for Notice:
Citicorp USA
2 Penn's Way, Suite 200
New Castle, Delaware 19720
Telecopier No.: 302/894-6120
Telephone No.: 302/894-6018
Attention: Tammy deCourcelle
with copies to:
Salomon Smith Barney
633 West Fifth Street, 63rd
Floor
Los Angeles, California 90071
Telecopier No.: 213/833-2381
Telephone No.: 213/833-2376
Attention: Shamsara Ahmed
and
Salomon Smith Barney
633 West Fifth Street, 63rd
Floor
Los Angeles, California 90071
Telecopier No.: 213/833-2381
Telephone No.: 213/833-2375
Attention: Michael Leyland
ANNEX 1
LIST OF MAXIMUM CREDIT AMOUNTS
Name of Lender Percentage Share Maximum Credit Amount
Chase Bank of Texas, National 42.8571428%
$14,999,999.98
Association
Bank of Montreal 28.5714286%
$10,000,000.01
Citicorp USA 28.5714286%
$10,000,000.01
EXHIBIT A
FORM OF NOTE
$_____________________________ ___________________, 199__
FOR VALUE RECEIVED, McMoRan OIL & GAS LLC, a Delaware limited
liability company (the "Borrower") hereby promises to pay to the
order of ______________________________ (the "Lender"), at the
Principal Office of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (the
"Agent"), at Chase Bank of Texas, National Association, as Agent,
712 Main Street, Houston, Texas 77002, the principal sum of
_____________ Dollars ($____________) (or such lesser amount as
shall equal the aggregate unpaid principal amount of the Loans made
by the Lender to the Borrower under the Credit Agreement, as
hereinafter defined), in lawful money of the United States of
America and in immediately available funds, on the dates and in the
principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Loan, at such
office, in like money and funds, for the period commencing on the
date of such Loan until such Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate, Interest Period and
maturity of each Loan made by the Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded
by the Lender on its books and, prior to any transfer of this Note,
may be endorsed by the Lender on the schedules attached hereto or
any continuation thereof or on any separate record maintained by
the Lender.
This Note is one of the Notes referred to in the Amended and
Restated Credit Agreement dated as of January ___, 2000 among the
Borrower, the Lenders which are or become parties thereto
(including the Lender) and the Agent, and evidences Loans made by
the Lender thereunder (such Credit Agreement as the same may be
amended or supplemented from time to time, the "Credit Agreement").
Capitalized terms used in this Note have the respective meanings
assigned to them in the Credit Agreement.
This Note is issued pursuant to the Credit Agreement and is
entitled to the benefits provided for in the Credit Agreement and
the Security Instruments. The Credit Agreement provides for the
acceleration of the maturity of this Note upon the occurrence of
certain events, for prepayments of Loans upon the terms and
conditions specified therein and other provisions relevant to this
Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS.
McMoRan OIL & GAS LLC
By:
Name:
Title:
EXHIBIT B
[FORM OF LOAN REQUEST NOTICE]
[Date]
Chase Bank of Texas, National Association, as Agent
under the Credit Agreement
referred to below
Ladies and Gentlemen:
The undersigned refers to the Amended and Restated Credit
Agreement dated as of January ___, 2000 (as the same may be
amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among McMoRan Oil & Gas LLC, a
Delaware limited liability company (the "Borrower"), the Lenders
party thereto, and Chase Bank of Texas, National Association, as
Agent. Capitalized terms used but not defined herein have the
meaning assigned to such terms in the Credit Agreement. The
Borrower hereby confirms, pursuant to Section 2.02 of the Credit
Agreement, the following Loan as detailed below:
1. Amount: ________________________________
2. Type of Loan: [Eurodollar Rate or Base Rate]
3. Borrowing Date: ________________________________
4. Interest Period for
Eurodollar Rate Loans: [one, two, three, six months]
We would appreciate your acknowledging receipt of this letter
and your agreement with the details of this borrowing by signing
and returning the attached copy of this letter.
Very truly yours,
McMoRan OIL & GAS LLC
By:
Name:
Title:
Receipt Acknowledged:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Agent
By:_____________________________
Name:
Title:
Date:___________________________
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the
________________ of McMoRan OIL & GAS LLC, a Delaware limited
liability company (the "Borrower") and that as such he is
authorized to execute this certificate on behalf of the Borrower.
With reference to the Amended and Restated Credit Agreement dated
as of January ___, 2000 (together with all amendments or
supplements thereto being the "Agreement") among the Borrower,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent for the lenders
(the "Lenders") which are or become a party thereto, and such
Lenders, the undersigned represents and warrants as follows (each
capitalized term used herein having the same meaning given to it in
the Agreement unless otherwise specified):
(a) The representations and warranties of the
Borrower contained in Article VII of the Agreement and in
the Security Instruments and otherwise made in writing by
or on behalf of the Borrower pursuant to the Agreement
and the Security Instruments were true and correct when
made, and are repeated at and as of the time of delivery
hereof and are true and correct at and as of the time of
delivery hereof, except to the extent such
representations and warranties are expressly limited to
an earlier date or the Majority Lenders have expressly
consented in writing to the contrary.
(b) The Borrower has performed and complied with
all agreements and conditions contained in the Agreement
and in the Security Instruments required to be performed
or complied with by it prior to or at the time of
delivery hereof.
(c) Since __________________, no change has
occurred, either in any case or in the aggregate, in the
condition, financial or otherwise, of the Borrower or any
Subsidiary which would have a Material Adverse Effect.
(d) There exists, and, after giving effect to the
loan or loans with respect to which this certificate is
being delivered, will exist, no Default under the
Agreement or any event or circumstance which constitutes,
or with notice or lapse of time (or both) would
constitute, an event of default under any loan or credit
agreement, indenture, deed of trust, security agreement
or other agreement or instrument evidencing or pertaining
to any Debt of the Borrower or any Restricted Subsidiary,
or under any material agreement or instrument to which
the Borrower or any Restricted Subsidiary is a party or
by which the Borrower or any Restricted Subsidiary is
bound.
(e) Attached hereto are the detailed computations
necessary to determine whether the Borrower is in
compliance with Sections 9.11, and 9.12 as of the end of
the [calendar month] [fiscal quarter][fiscal year] ending
.
EXECUTED AND DELIVERED this ____ day of ______________.
McMoRan OIL & GAS LLC
By:
Name:
Title:
EXHIBIT E
LIST OF SECURITY INSTRUMENTS
1. Act of Mortgage, Assignment of Production, Security Agreement
and Financing Statement executed by the Borrower covering its
Oil and Gas Properties located offshore Louisiana.
2. Financing Statement executed by the Borrower in connection
with item 1 above.
3. Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement executed by the Borrower
covering its Oil and Gas Properties located offshore Texas.
4. Financing Statements executed by Borrower in connection with
item 3 above.
EXHIBIT F
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT ("Agreement") dated as of
________________, 199___ is between:
_________________________________ (the "Assignor") and
__________________________ (the "Assignee").
RECITALS
A. The Assignor is a party to the Amended and Restated
Credit Agreement dated as of January ___, 2000(as amended and
supplemented and in effect from time to time, the "Credit
Agreement") among McMoRan OIL & GAS LLC, a Delaware limited
liability company (the "Borrower"), each of the lenders that is or
becomes a party thereto as provided in Section 12.06 of the Credit
Agreement (individually, together with its successors and assigns,
a "Lender", and collectively, together with their successors and
assigns, the "Lenders"), and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, in its individual capacity, "Chase") and as agent for
the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").
B. The Assignor proposes to sell, assign and transfer to the
Assignee, and the Assignee proposes to purchase and assume from the
Assignor, [all][a portion] of the Assignor's Maximum Credit Amount,
outstanding Loans and its Percentage Share of the outstanding LC
Exposure, all on the terms and conditions of this Agreement.
C. In consideration of the foregoing and the mutual
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions.
Section 1.01 Definitions. All capitalized terms used but not
defined herein have the respective meanings given to such terms in
the Credit Agreement.
Section 1.02 Other Definitions. As used herein, the following
terms have the following respective meanings:
"Assigned Interest" shall mean all of Assignor's (in its
capacity as a "Lender") rights and obligations (i) under the
Credit Agreement and the other Security Instruments in respect
of the Maximum Credit Amount of the Assignor in the principal
amount equal to $____________________, including, without
limitation, any obligation to participate pro rata in any LC
Exposure, and (ii) to make Loans under the Maximum Credit
Amount and any right to receive payments for the Loans
outstanding under the Maximum Credit Amount and assigned
hereby of the following amounts:
Loans Amount
Facility $__________________
(the "Loan Balance"), plus the interest and fees which will
accrue from and after the Assignment Date.
"Assignment Date" shall mean _____________________,
199___.
ARTICLE II
Sale and Assignment.
Section 2.01 Sale and Assignment. On the terms and conditions
set forth herein, effective on and as of the Assignment Date, the
Assignor hereby sells, assigns and transfers to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, all of
the right, title and interest of the Assignor in and to, and all of
the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse
and, except as expressly provided in this Agreement, without
representation or warranty.
Section 2.02 Assumption of Obligations. The Assignee agrees
with the Assignor (for the express benefit of the Assignor and the
Borrower) that the Assignee will, from and after the Assignment
Date, perform all of the obligations of the Assignor in respect of
the Assigned Interest. From and after the Assignment Date: (a) the
Assignor shall be released from the Assignor's obligations in
respect of the Assigned Interest, and (b) the Assignee shall be
entitled to all of the Assignor's rights, powers and privileges
under the Credit Agreement and the other Security Instruments in
respect of the Assigned Interest.
Section 2.03 Consent by Agent. By executing this Agreement as
provided below, in accordance with Section 12.06(b) of the Credit
Agreement, the Agent hereby acknowledges notice of the transactions
contemplated by this Agreement and consents to such transactions.
ARTICLE III
Payments.
Section 3.01 Payments. As consideration for the sale,
assignment and transfer contemplated by Section 2.01 hereof, the
Assignee shall, on the Assignment Date, assume Assignor's
obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the Loan Balance, if any. An amount
equal to all accrued and unpaid interest and fees shall be paid to
the Assignor as provided in Section 3.02 (iii) below. Except as
otherwise provided in this Agreement, all payments hereunder shall
be made in Dollars and in immediately available funds, without
setoff, deduction or counterclaim.
Section 3.02 Allocation of Payments. The Assignor and the
Assignee agree that (i) the Assignor shall be entitled to any
payments of principal with respect to the Assigned Interest made
prior to the Assignment Date, together with any interest and fees
with respect to the Assigned Interest accrued prior to the
Assignment Date, (ii) the Assignee shall be entitled to any
payments of principal with respect to the Assigned Interest made
from and after the Assignment Date, together with any and all
interest and fees with respect to the Assigned Interest accruing
from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for
account of the Assignor and the Assignee as provided in the
foregoing clauses. Each party hereto agrees that it will hold any
interest, fees or other amounts that it may receive to which the
other party hereto shall be entitled pursuant to the preceding
sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party
promptly upon receipt.
Section 3.03 Delivery of Notes. Promptly following the
receipt by the Assignor of the consideration required to be paid
under Section 3.01 hereof, the Assignor shall, in the manner
contemplated by Section 12.06(b) of the Credit Agreement,
(i) deliver to the Agent (or its counsel) the Notes held by the
Assignor and (ii) notify the Agent to request that the Borrower
execute and deliver new Notes to the Assignor, if Assignor
continues to be a Lender, and the Assignee, dated the date of this
Agreement in respective principal amounts equal to the respective
Maximum Facility A Credit Amount and Maximum Facility B Credit
Amount of the Assignor (if appropriate) and the Assignee after
giving effect to the sale, assignment and transfer contemplated
hereby.
Section 3.04 Further Assurances. The Assignor and the
Assignee hereby agree to execute and deliver such other
instruments, and take such other actions, as either party may
reasonably request in connection with the transactions contemplated
by this Agreement.
ARTICLE IV
Conditions Precedent.
Section 4.01 Conditions Precedent. The effectiveness of the
sale, assignment and transfer contemplated hereby is subject to the
satisfaction of each of the following conditions precedent:
(a) the execution and delivery of this Agreement by
the Assignor and the Assignee;
(b) the receipt by the Assignor of the payment
required to be made by the Assignee under Section 3.01 hereof;
and
(c) the acknowledgment and consent by the Agent
contemplated by Section 2.03 hereof.
ARTICLE V
Representations and Warranties.
Section 5.01 Representations and Warranties of the Assignor.
The Assignor represents and warrants to the Assignee as follows:
(a) it has all requisite power and authority, and has
taken all action necessary to execute and deliver this
Agreement and to fulfill its obligations under, and consummate
the transactions contemplated by, this Agreement;
(b) the execution, delivery and compliance with the
terms hereof by Assignor and the delivery of all instruments
required to be delivered by it hereunder do not and will not
violate any Governmental Requirement applicable to it;
(c) this Agreement has been duly executed and
delivered by it and constitutes the legal, valid and binding
obligation of the Assignor, enforceable against it in
accordance with its terms;
(d) all approvals and authorizations of, all filings
with and all actions by any Governmental Authority necessary
for the validity or enforceability of its obligations under
this Agreement have been obtained;
(e) the Assignor has good title to, and is the sole
legal and beneficial owner of, the Assigned Interest, free and
clear of all Liens, claims, participations or other charges of
any nature whatsoever; and
(f) the transactions contemplated by this Agreement
are commercial banking transactions entered into in the
ordinary course of the banking business of the Assignor.
Section 5.02 Disclaimer. Except as expressly provided in
Section 5.01 hereof, the Assignor does not make any representation
or warranty, nor shall it have any responsibility to the Assignee,
with respect to the accuracy of any recitals, statements,
representations or warranties contained in the Credit Agreement or
in any certificate or other document referred to or provided for
in, or received by any Lender under, the Credit Agreement, or for
the value, validity, effectiveness, genuineness, execution,
effectiveness, legality, enforceability or sufficiency of the
Credit Agreement, the Notes or any other document referred to or
provided for therein or for any failure by the Borrower or any
other Person (other than Assignor) to perform any of its
obligations thereunder or for the existence, value, perfection or
priority of any collateral security or the financial or other
condition of the Borrower or the Subsidiaries [or any other obligor
or guarantor], or any other matter relating to the Credit Agreement
or any other Security Instrument or any extension of credit
thereunder.
Section 5.03 Representations and Warranties of the Assignee.
The Assignee represents and warrants to the Assignor as follows:
(a) it has all requisite power and authority, and has
taken all action necessary to execute and deliver this
Agreement and to fulfill its obligations under, and consummate
the transactions contemplated by, this Agreement;
(b) the execution, delivery and compliance with the
terms hereof by Assignee and the delivery of all instruments
required to be delivered by it hereunder do not and will not
violate any Governmental Requirement applicable to it;
(c) this Agreement has been duly executed and
delivered by it and constitutes the legal, valid and binding
obligation of the Assignee, enforceable against it in
accordance with its terms;
(d) all approvals and authorizations of, all filings
with and all actions by any Governmental Authority necessary
for the validity or enforceability of its obligations under
this Agreement have been obtained;
(e) the Assignee has fully reviewed the terms of the
Credit Agreement and the other Security Instruments and has
independently and without reliance upon the Assignor, and
based on such information as the Assignee has deemed
appropriate, made its own credit analysis and decision to
enter into this Agreement;
(f) the Assignee hereby affirms that the
representations contained in Section 4.06(d)(i)(1) of the
Credit Agreement are true and accurate as to Assignee. If
Section 4.06(d)(i)(2) is applicable to the Assignee, Assignee
shall promptly deliver to the Agent and the Borrower such
certifications as are required thereby to avoid the
withholding taxes referred to in Section 4.06; and
(g) the transactions contemplated by this Agreement
are commercial banking transactions entered into in the
ordinary course of the banking business of the Assignee.
ARTICLE VI
Miscellaneous.
Section 6.01 Notices. All notices and other communications
provided for herein (including, without limitation, any
modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including, without
limitation, by telex or telecopy) to the intended recipient at its
"Address for Notices" specified below its name on the signature
pages hereof or, as to either party, at such other address as shall
be designated by such party in a notice to the other party.
Section 6.02 Amendment, Modification or Waiver. No provision
of this Agreement may be amended, modified or waived except by an
instrument in writing signed by the Assignor and the Assignee, and
consented to by the Agent.
Section 6.03 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. The
representations and warranties made herein by the Assignee are also
made for the benefit of the Agent and the Borrower, and the
Assignee agrees that the Agent and the Borrower are entitled to
rely upon such representations and warranties.
Section 6.04 Assignments. Neither party hereto may assign any
of its rights or obligations hereunder except in accordance with
the terms of the Credit Agreement.
Section 6.05 Captions. The captions and section headings
appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any provision
of this Agreement.
Section 6.06 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be identical and
all of which, taken together, shall constitute one and the same
instrument, and each of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 6.07 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the law of the State of
________________.
Section 6.08 Expenses. To the extent not paid by the Borrower
pursuant to the terms of the Credit Agreement, each party hereto
shall bear its own expenses in connection with the execution,
delivery and performance of this Agreement.
Section 6.09 Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed and delivered as of the date
first above written.
ASSIGNOR
By:
Name:
Title:
Address for Notices:
Telecopier No.:
Telephone No.:
Attention:
ASSIGNEE
By:
Name:
Title:
Address for Notices:
Telecopier No.:
Telephone No.:
Attention:
ACKNOWLEDGED AND CONSENTED TO:
______________________________________,
as Agent
By:
Name:
Title:
McMoRan Oil & Gas LLC
By: _________________________________
Name: ______________________________
Title: _______________________________
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F-8
Exhibit 10.33
ASSET PURCHASE AGREEMENT
Between
SOI FINANCE INC. ("SOIFI") AND
SHELL OFFSHORE INC. ("SOI")
("SELLER")
and
McMoRan OIL & GAS LLC
("PURCHASER")
Dated Effective
December 1, 1999
TABLE OF CONTENTS
ASSET PURCHASE AGREEMENT 1
SECTION 1 - DEFINITIONS / EXHIBITS 1
1.1 Agreement: 1
1.2 Affiliate: 2
1.3 Contract Rights: 2
1.4 Effective Time: 2
1.5 Exhibits: 3
1.6 Closing: 3
1.7 Known/Knowledge: 3
1.8 Lease: 4
1.9 MMS: 4
1.10 Net Revenue Interest: 4
1.11 Oil & Gas Interests: 4
1.12 Operator: 4
1.13 Party: 5
1.14 Schedules: 5
1.15 Seller's Retained Override: 5
1.16 Wells: 5
1.17 Working Interest: 5
SECTION 2 - PURCHASE AND SALE 5
2.1 Purchase and Sale of Assets: 5
2.1.1 Lease(s): 6
2.1.2 Associated Interests: 6
2.1.3 Wells: 6
2.1.4 Easements: 6
2.1.5 Contract Rights: 6
2.1.6 Proprietary Data: 7
2.1.7 Business Records: 7
2.2 Excluded Assets: 7
2.2.1 All Seismic Surveys and Other Licensed Data: 7
2.2.2 Trade Accounts and Causes of Action: 7
2.2.3 Third Party Equipment: 8
2.2.4 Other Excluded Assets: 8
2.3 Assets Subject to Existing Agreements: 8
2.3.1 Exclusions: 9
2.4 Purchase Price: 9
2.5 Additional Consideration: 9
2.5.1 10
2.5.2 10
2.5.3 Exclusions: 11
2.6 Title and Risk of Loss: 12
2.7 Specific Performance: 12
2.8 Insurance: 12
SECTION 3 - TITLE AND ENVIRONMENTAL 12
3.1 Title Matters: 12
3.2 Physical Condition of the Assets: 13
3.3 NORM: 13
3.4 Availability of Data: 13
3.5 Preferential Rights and Consents: 14
SECTION 4 - CLOSING 15
4.1 Time: 15
4.2 Closing: 16
4.3 Post Closing Obligations: 17
4.3.1 Recording & Filing: 17
4.3.2 Change of Operator: 17
4.3.3 Notices to Third Parties: 18
4.3.4 Property Records: 18
4.3.5 Use of Name: 19
4.4 Governmental Approvals: 19
SECTION 5.0 - GENERAL REPRESENTATIONS AND WARRANTIES 19
5.1 Reciprocal Representations and Warranties: 19
5.2 SELLER's Representations & Warranties: 20
5.3 PURCHASER's Representations & Warranties: 25
5.4 SELLER's Reliance: 26
5.5 Survival of Representations & Warranties: 26
SECTION 6 - PURCHASER'S OBLIGATION 26
6.1 PURCHASER's Assumed Obligations: 26
6.2 Plugging and Abandonment of Wells, Removal of Facilities: 27
SECTION 7 - DISCLAIMER OF WARRANTY / INDEMNIFICATION 28
7.1 Sale "As Is" "Where Is": 28
7.2 DISCLAIMER REGARDING OIL & GAS INTERESTS: 29
7.3 DISCLAIMER REGARDING INFORMATION: 30
7.4 Indemnification: 31
SECTION 8 - ADMINISTRATIVE PROVISIONS 35
8.1 Expenses of Sale: 35
8.2 Third Party Rights: 35
8.3 Further Actions: 35
8.4 Assignment: 35
8.5 Notices: 36
8.6 Public Announcements: 37
8.7 Time Limits: 37
8.8 Compliance with Laws & Regulations: 37
8.9 Applicable Law: 38
8.10 Arbitration: 38
8.11 Severance of Invalid Provisions: 40
8.12 Construction & Interpretation: 40
8.12.1 Headings for Convenience: 40
8.12.2 Gender & Number: 40
8.12.3 Independent Representation: 40
8.13 Integrated Agreement: 41
8.14 Binding Effect: 41
8.15 Multiple Counterparts: 41
8.16 Fair Notice Disclosure Statement: 42
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is dated January 14th,
2000, (but is for all purposes effective as of the Effective Time) by and
between SHELL OFFSHORE INC. ("SOI"), a Delaware corporation, having a post
office address of P.O. Box 61933, New Orleans, Louisiana 70161, and SOI
FINANCE INC. ("SOIFI"), a Delaware corporation having a post office address of
P.O. Box 2463, Houston, Texas 77252-2463, herein collectively referred to as
"SELLER", and McMoRan OIL & GAS LLC, a Delaware limited liability company,
("PURCHASER"), the address for which is 1615 Poydras Street, New Orleans,
Louisiana 70112. SELLER and PURCHASER are sometimes separately referred to
as a "Party" and are sometimes collectively referred to as "Parties".
WHEREAS, subject to the terms and conditions set forth in this Agreement,
PURCHASER desires to purchase from SELLER, and SELLER desires to sell to
PURCHASER, all of SELLER's interests, subject to SELLER's retention of an
overriding royalty interest, in certain oil and gas properties located in
the Outer Continental Shelf of the Gulf of Mexico and in the State of Louisiana.
NOW THEREFORE, in consideration of the mutual promises contained herein, the
benefits to be derived by each Party hereunder, and other good and valuable
consideration, PURCHASER and SELLER agree as follows:
SECTION 1 - DEFINITIONS / EXHIBITS
The following terms as used in this Agreement shall have the definitions set
forth below:
1.1 Agreement:
Shall mean this "Asset Purchase Agreement" together with its attached Exhibits
and Schedules, all of which are incorporated into this Agreement for all
purposes and as fully as if set forth in the text of this Agreement.
1.2 Affiliate:
Shall mean
(a) any corporation, limited liability company or partnership (including a
limited partnership), or other entity owned or controlled by a Party to this
Agreement. Ownership or control by a Party is deemed to exist if a Party to
this Agreement directly or indirectly owns or controls fifty percent (50%) or
more of the outstanding stock of the corporation having the right to vote for
directors of the corporation (or fifty percent (50%) or more of the interests
in the partnership or other entity). The stock (or interests in a partnership
or other entity) owned or controlled by a Party shall include all stock (or
other interests) directly or indirectly owned or controlled by any other
corporation, partnership or other entity owned or controlled by a Party to
this Agreement; and
(b) any "parent" corporation, limited liability company, partnership or other
entity that directly or indirectly owns or controls fifty percent (50%) or
more of the outstanding stock (or other interests) having the right to vote
for directors of a Party to this Agreement (or fifty percent (50%) or more of
the interests in the Party), and
(c) any "sister" corporation, partnership or other entity in which the parent
corporation directly or indirectly owns or controls fifty percent (50%) of the
voting stock (or other interests) in such sister corporation.
1.3 Contract Rights:
Shall have the meaning set forth in Section 2.1.5.
1.4 Effective Time:
Shall mean 7:00 a.m. local time where the Oil & Gas Interests are located on
December 1, 1999.
1.5 Exhibits:
Attached hereto and forming an integral part of this Agreement are Exhibits "1"
through "6" which are individually described as follows:
Exhibit "1" Description of Property
Exhibit "2a" Form of Assignment of Record Title (OCS)
Exhibit "2b" Form of Assignment Record Title (State of Louisiana)
Exhibit "2c" Form of Assignment of Operating Rights
Exhibit "2d" Form of Assignment of Overriding Royalty Interest
Exhibit "3" Excluded Property
Exhibit "4" Escrow Agreement and Allocation Values
Exhibit "5" List of Unexpired Preferential Rights and Unobtained Consents
Exhibit "6" Non-Foreign Affidavits
1.6 Closing:
Shall mean, subject to Section 3.5, (i) the execution and delivery of the
operative conveyances and other closing documents evidencing this transaction,
and (ii) the payment of the Purchase Price to SELLER, and any other amounts to
be paid at Closing pursuant to the terms of this Agreement.
1.7 Known/Knowledge:
Whenever a statement regarding the existence (or absence) of any fact in this
Agreement is qualified by a phrase such as "to such Party's Knowledge" or
"Known to such Party," the Parties intend that the only information to be
attributed to such Party is information actually known to (a) the person in
the case of an individual or (b) in the case of a corporation (or other
business entity), a current officer or employee. Unless otherwise
specifically provided in this Agreement, no Party is represented or obligated
to have undertaken a separate investigation in connection with the transaction
contemplated in this Agreement to determine the existence (or absence) of any
statement or representation qualified by a phrase such as "to such Party's
Knowledge" or "Known to such Party."
1.8 Lease:
Shall mean the oil and gas lease(s) (or portion(s) thereof) identified in
Exhibit "1" attached hereto and the lands affected by each such Lease.
1.9 MMS:
Shall mean the U.S. Department of the Interior, Minerals Management Service, or
any successor agency, and the records maintained at the New Orleans, La.
Regional Office of that agency, or any successor agency.
1.10 Net Revenue Interest:
Shall mean the aggregate fractional or percentage ownership of SELLER,
immediately prior to the Effective Time, of the right to receive hydrocarbon
production (either in-kind or the share of proceeds from sales of hydrocarbon
production) from the applicable Leases (excluding non-consent operations), after
the deduction of all burdens upon a Lease such as lessor's royalty and any
overriding royalties not being assigned to PURCHASER hereunder.
1.11 Oil & Gas Interests:
Shall mean all of SELLER's interest in the Leases and other oil and gas
leasehold estates or interests, as set forth in Exhibit "1", together with
SELLER's ownership or other interest in the well(s) located on the Lease(s)
and other rights and interests described in Section 2.1 below.
1.12 Operator:
Shall mean the person, designated or approved as Operator of the Oil & Gas
Interests under the terms of the applicable joint operating agreement, if any,
or by the appropriate government agency.
1.13 Party:
Shall mean any of the named SELLER and PURCHASER.
1.14 Schedules:
Attached hereto and forming an integral part of this Agreement are:
Schedule 5.2(c) Preferential Purchase Rights and Consents to Assignments
Schedule 5.2(f) Well List
Schedule 5.2(k) Lease Burdens
1.15 Seller's Retained Override:
SELLER's Retained Override shall have the meaning set forth in Section 2.5.1.
1.16 Wells:
Shall have the meaning set forth in Section 2.1.3.
1.17 Working Interest:
Shall mean the aggregate fractional or percentage record title interest and
operating rights of SELLER in and to each Lease immediately prior to the
Effective Time by virtue of which SELLER has the right to conduct the
operations contemplated by a Lease and this Agreement.
SECTION 2 - PURCHASE AND SALE
2.1 Purchase and Sale of Assets:
SELLER agrees to sell and PURCHASER agrees to purchase, for the consideration
recited and upon the terms and conditions contained in this Agreement, the Oil
& Gas Interests . Except for the excluded assets listed in Section 2.2 below,
and subject to Section 3.5, upon Closing, SELLER shall sell, assign and
deliver to PURCHASER all of SELLER's right, title and interest in, to and
under all of the Oil & Gas Interests, including the following assets:
2.1.1 Lease(s):
All of SELLER's record title interest (or operating rights) comprising the
Working Interest and Net Revenue Interest in each Lease, or portion thereof,
and other interests in oil and gas described in Exhibit "1" and all rights,
privileges and obligations appurtenant to each Lease; and
2.1.2 Associated Interests:
All of SELLER's rights in any unit in which a Lease is included, to the extent
that these rights arise from and are associated with a Lease, including without
limitation, all rights derived from any pooling order, operating agreement,
communitization or other agreement or from any declaration or order of any
governmental body; and
2.1.3 Wells:
All of SELLER's right, title and interest in all oil, gas or condensate wells
and wellbore(s) (whether producing, not producing or permanently or temporarily
abandoned), water source, water injection and other injection and disposal
wells and systems located on a Lease (or lands pooled with a Lease); and
2.1.4 Easements:
All of SELLER's right, title and interest in all easements, rights of way,
licenses, permits, servitudes, surface leases and similar interests applicable
or used in operating a Lease, to the extent assignable or transferable; and
2.1.5 Contract Rights:
All of SELLER's right, title and interest in the contracts and contractual
rights, obligations and interests (to the extent assignable or transferable)
insofar as relating to any of the Leases identified on Exhibit 1 hereto; and
2.1.6 Proprietary Data:
To the extent assignable or transferable, all of SELLER's right, title and
interest in all geological data (including, but not limited to interpretive
maps, electric logs and shallow hazard surveys) existing as of the Effective
Time owned by SELLER as of Closing relating to a Lease, but excluding any
seismic surveys and any geological data which might serve to reveal or disclose
proprietary interpretive or processing methods or techniques; and
2.1.7 Business Records:
Originals of all lease files, land files, division order files, abstracts, title
opinions and contract files, and photocopies of all well files and production
records, insofar as they directly relate to the assets described in Sections
2.1.1 through 2.1.6 above (but excluding any internal valuations, price
forecasts or interpretive data or documentation excluded under Section 2.1.6).
2.2 Excluded Assets:
The assets to be assigned and conveyed under this Agreement do not include
(collectively, the "Excluded Assets"):
2.2.1 All Seismic Surveys and Other Licensed Data:
All seismic surveys and other seismic, geophysical, or geological data owned by
or licensed from third parties or subject to a confidentiality obligation in
favor of a third party or any of SELLER's intellectual property, proprietary
seismic data (other than shallow hazards surveys), software, patents,
trademarks, logos or service marks used in developing or operating a Lease; and
2.2.2 Trade Accounts and Causes of Action:
Accounts and receivables or refunds, income or revenue, deposits, insurance or
condemnation proceeds or awards, rights with respect to operations or claims
and causes of action in favor of SELLER which are attributable to SELLER's
ownership of the Oil and Gas Interests prior to the Effective Time, particularly
such claims regarding the accounting for any SELLER or Affiliate overriding
royalty interest(s); and
2.2.3 Third Party Equipment:
Any leased equipment for which PURCHASER does not specifically assume the
lease or third party equipment and property that may be located on a Lease,
pipelines, fixtures, and equipment which belong to third parties such as
lessors, purchasers and transporters of hydrocarbons, and pipelines or other
assets belonging to Affiliates of Seller; and
2.2.4 Other Excluded Assets:
Those assets owned by SELLER listed on Exhibit 4 hereof, entitled "Excluded
Property".
2.3 Assets Subject to Existing Agreements:
PURCHASER and SELLER agree that the sale of the Oil & Gas Interests will be made
subject to (and PURCHASER upon Closing accepts the Oil and Gas Interests subject
to) any and all reservations, exceptions, limitations, contracts, assignments,
subleases, farmout agreements, joint operating agreements, letter agreements,
pooling or unitization agreements, easements, rights-of-way and all other
agreements or instruments (i) which are of record with the MMS, or (ii) which
have been made available in the data room to PURCHASER for its review prior to
Closing, or (iii) which are listed on Exhibit 1. In addition, as a part of the
consideration hereunder, upon Closing PURCHASER shall assume, pay for, and
perform SELLER's duties, liabilities and obligations as lessee of each Lease
and all duties imposed by governmental laws and regulations respecting each
Lease. PURCHASER further agrees to expressly assume SELLER's obligations and
liabilities under the contracts identified on Exhibit 1 insofar as such
obligations or liabilities relate to the Oil & Gas Interests after the
Effective Time, and to execute any documents necessary to effectuate such
assumption by PURCHASER.
2.3.1 Exclusions:
PURCHASER shall not assume or be responsible for (i) contractual
performance by SELLER due and owing prior to the Effective Time, including
any accounting or payments due to third parties for the performance of services,
sale of equipment or rentals of tools or equipment on the Leases, (ii)
underpayments or failure to pay rentals, royalties, overriding royalties, and
other lease burdens due by SELLER on or under the Leases prior to the Effective
Time, (iii) property damage sustained by third parties, or personal injury or
death occurring prior to the Closing, (iv) any regulatory fines or penalties
attributable to ownership or operations prior to the Closing; or (v) any
accounting or payments due to third parties for hydrocarbon production (or the
proceeds from the sale thereof) or processing attributable to the period of time
prior to the Effective Time, all of which shall remain the responsibility of the
SELLER.
2.4 Purchase Price:
PURCHASER agrees that the total purchase price for the Oil & Gas Interests shall
be Thirty-seven Million Seven hundred Twenty-seven Thousand Five hundred thirty-
three and no/hundredths ($37,727,533.00) Dollars (the "Purchase Price") payable
at Closing. The payment of the Purchase Price shall be made by electronic
transfer of immediately available funds (EFT) (i) in the amount described in
Section 3.5(d) to the credit of the escrow agent in the manner described in
the Exhibit 4 Escrow Agreement, and (ii) in the remaining amount of the
Purchase Price to the credit of SOI, for itself and as agent for SOIFI, at
the following bank account: Account #322018773, Chase Manhattan Bank,
New York, New York, ABA #021000021.
2.5 Additional Consideration:
2.5.1
As additional consideration and upon Closing:
(i) PURCHASER shall assume all of Seller's responsibility and liability for
the proper plugging and abandonment of all Wells; and
(ii) Other than with respect to Prospect Chameleon (East Cameron 187, 194)
and Prospect Killer Bee (Vermilion 260), SELLER shall retain an
overriding royalty interest on each Lease equal to 8.33333% of 8/8ths of
all oil, gas, and other minerals produced and saved attributable to
SELLER's Working Interest in such Lease as such Working Interest is
listed on Exhibit 1, proportionately reduced in the event SELLER owns
less than a 100% Working Interest in such Lease, calculated and paid in
the same manner as royalty is paid to the Lessor of each such Lease
("SELLER's Retained Override"); such overriding royalty shall run with
the land but shall not be payable out of production from wells in which
PURCHASER has no interest by reason of withdrawal, non-consent, or
non-participation under a joint operating agreement. SELLER shall have
the right to take its production in kind. PURCHASER shall be entitled to
pay SOI, for the benefit of both SOI and SOIFI, as their interests appear,
with respect to said Retained Override.
2.5.2
In addition and upon Closing, except as provided in Section 2.5.3,
PURCHASER assumes responsibility and liability for claims arising out of the
following occurrences, events and activities on or related to the Oil & Gas
Interests ("Environmental Obligations"), regardless of whether resulting from
any acts or omissions of SELLER prior to the Effective Time or the condition of
the Oil & Gas Interests when acquired;
(a) Environmental pollution or contamination, including pollution or
contamination of the soil, sea, groundwater or air by hydrocarbons,
brine, NORM or otherwise;
(b) Underground injection activities and waste disposal onsite;
(c) Clean-up responses, and the cost of remediation, control, assessment or
compliance with respect to surface, sea floor, and subsurface pollution;
(d) Disposal on the Oil & Gas Interests of any hazardous substances, wastes,
materials, and products generated by or used in connection with the
ownership or operation of the Oil & Gas Interests.
2.5.3 Exclusions:
PURCHASER's Environmental Obligations do not include the following, all of
which remain the responsibility and liability of SELLER:
(a) Any civil or criminal fines or penalties that may be levied against
SELLER by any court or regulatory authority for any violation of any
laws, rules or regulations in connection with the ownership or operation
of the Oil & Gas Interests before the Effective Time;
(b) Transportation and disposal offsite from the Oil & Gas Interests before
the Effective Time of any hazardous substances, wastes, NORM,
materials, and products generated by or used in connection with the
ownership or operation of the Oil & Gas Interests before the Effective
Time; and
(c) Claims against PURCHASER by third parties, including governmental
agencies, resulting from the Environmental Obligations, which arose,
accrued, and are attributable to the ownership or operation of the Oil &
Gas Interests prior to the Effective Time, and are asserted within
twenty-four (24) months after the Effective Time, based upon laws
enacted as of the Effective Time. It is agreed and understood, moreover,
that this exclusion and SELLER's indemnity obligations with respect to
the same under this Agreement shall be limited only to Claims against
PURCHASER by third parties, including governmental agencies.
2.6 Title and Risk of Loss:
SELLER shall deliver possession of the Oil & Gas Interests to PURCHASER at the
Closing. Upon Closing, title to and risk of loss with respect to the Oil & Gas
Interests (and all associated property) shall pass to PURCHASER as of the
Effective Time.
2.7 Specific Performance:
Each Party shall have the right of specific performance.
2.8 Insurance:
SELLER and PURCHASER agree that, as to liabilities assumed by PURCHASER
hereunder, all property or liability insurance obtained by PURCHASER to cover
losses of property or environmental damages or for personal injury or death
shall name SELLER as additional insured, where permitted by the terms of the
applicable policies, and shall contain a waiver of subrogation against SELLER.
SECTION 3 - TITLE AND ENVIRONMENTAL
3.1 Title Matters:
SELLER WILL CONVEY THE OIL & GAS INTERESTS TO PURCHASER
WITHOUT WARRANTY OF TITLE, EXPRESS, STATUTORY OR IMPLIED,
except that SELLER will specially warrant and agree to defend title to the Oil &
Gas Interests conveyed against the lawful claims and demands of all persons
claiming title to the Oil & Gas Interests by, through and under SELLER, but
not otherwise. Notwithstanding the above, PURCHASER shall have the right of
full substitution and subrogation in and to any and all rights and actions of
warranty which SELLER may have against any and all preceding owners of the Oil
& Gas Interests.
3.2 Physical Condition of the Assets:
PURCHASER acknowledges that the Oil & Gas Interests have been used by SELLER
for oil and gas drilling and production operations and related oilfield
operations and physical changes in the Oil & Gas Interests (or adjacent lands)
may have occurred as a result of such uses. In this regard, the Oil & Gas
Interests may also contain unplugged (or improperly plugged) wells, wellbores
or buried pipelines or other equipment, whether or not of a similar nature,
the locations of which may not now be Known by SELLER or be readily apparent
by a physical inspection of the property. PURCHASER and SELLER understand
that neither SELLER nor PURCHASER has the requisite information with which
to determine the exact condition of the Oil & Gas Interests nor the effect
any such use has had on the physical condition of the Oil & Gas Interests.
3.3 NORM:
PURCHASER acknowledges that some oilfield production equipment comprising the
Oil & Gas Interests may contain naturally occurring radioactive material
("NORM"). In this regard, PURCHASER specifically acknowledges that NORM may
affix or attach itself to the inside of wellbores, materials and equipment as
scale or in other forms, and that wells, materials and equipment comprising
the Oil & Gas Interests and being located on a Lease may contain NORM and that
NORM containing materials may have been disposed of on a Lease. PURCHASER
expressly understands that special procedures may be required for the removal
and disposal of NORM from the Oil & Gas Interests if and where they may be
found, and PURCHASER assumes SELLER'S liability for or in connection with the
assessment, remediation, removal, transportation or disposal of any such
materials present on a Lease at or after the Effective Time in
accordance with all requirements of governmental agencies.
3.4 Availability of Data:
To SELLER's Knowledge, all historical file information of SELLER regarding
hydrocarbon production and produced water that may have been spilled or
disposed of on-site and the locations thereof, together with all underground
injection and solid waste disposal sites have been made available to PURCHASER
for inspection prior to the Closing except for interpretive or predictive
reservoir data or information which SELLER considers confidential or
proprietary. SELLER has not caused any environmental assessment of the Oil &
Gas Interests to be performed or (except as noted above) attempted to gather
information necessary to determine the exact nature of the environmental c
ondition of the Oil & Gas Interests for the purposes of this sale.
3.5 Preferential Rights and Consents:
(a) Prior to the date of the execution of this Agreement, SELLER has consulted
with PURCHASER on the forms of notice and request for waivers to be sent to
all holders of preferential purchase rights ("Rights") or consent rights in the
Leases. As soon as practicable after the date hereof, unless previously
transmitted, SELLER shall transmit to the respective holders of the Rights the
notices and request for waivers.
(b) To the extent that any Rights are exercised by any third party entitled to
exercise such Rights, then the Leases subject to such Rights shall not be sold
to PURCHASER and shall be excluded from the Agreement and the Purchase
Price shall be reduced by the value allocated to such Lease(s) as set forth on
Exhibit 4. Subject to the terms of the Rights, if any third party initially
elects to exercise a Right, but subsequently refuses or elects not to consummate
the purchase under such Right and such refusal continues until 90 days following
Closing, PURCHASER shall purchase such interests covered by the Right for its
allocated value as set forth in Exhibit 4, as of the Effective Time, and the
closing of such transaction shall take place on a date mutually acceptable to
PURCHASER and SELLER, but not more than 30 days following such failure
or refusal.
(c) SELLER shall not object to PURCHASER discussing with the holder of any
Right the possible exercise, waiver or expiration of such Rights, without any
liability on the part of SELLER.
(d) At Closing, (i) SELLER shall deposit into an escrow to be created pursuant
to Exhibit 4, multiple originals of documents of assignment, transfer and
conveyance (the "Right Assignments") relating to the Leases: (a) for which the
time for the exercise of the Right has not expired or been waived and/or (b) on
which all required consents have not been obtained prior to Closing and (ii)
PURCHASER shall deposit into escrow, the portion of the Purchase Price
allocated to the applicable Leases subject to the unexpired Right or unobtained
consent, as set forth in Exhibit 5. Promptly after the expiration or waiver of
any Right and/or the obtaining of the required consents as applicable, SELLER
and PURCHASER, by joint notice, shall instruct the escrow agent (i) to deliver
the applicable Rights Assignment to PURCHASER, and (ii) to release to SELLER
with interest, if any, the allocable portion of the Purchase Price attributable
to the applicable Lease as set forth in Exhibit 4.
(e) If a Right is exercised timely after Closing, or a consent is not obtained
within sixty (60) days of Closing, PURCHASER and SELLER agree as follows: (1)
the escrow agent, upon receipt of the joint instructions of PURCHASER and
SELLER, shall destroy the applicable Right Assignment; (2) SELLER shall
execute and deliver to the holder of the applicable Right an appropriate
instrument of assignment, transfer and conveyance, and (3) the escrow agent
shall release to PURCHASER, with interest, if any, the allocable portion of the
Purchase Price attributable to the applicable Lease as set forth in Exhibit 4.
SECTION 4 - CLOSING
4.1 Time:
The Closing shall be held on or before January 21, 2000, (unless otherwise
mutually delayed as provided in this Section), at the offices of SELLER at
701 Poydras Street, New Orleans, Louisiana. The time and place for Closing
may be changed to an earlier or later time and place by mutual written
agreement of the Parties, but any acceleration or delay in the Closing shall
not change the Effective Time.
4.2 Closing:
Subject to Section 3 hereof, the following shall take place at the Closing:
(a) SELLER and PURCHASER shall execute and deliver assignments on the forms
which are attached as Exhibits "2-a" through "2-d".
(b) PURCHASER shall pay to SELLER by wire transfer an amount equal to the
Purchase Price, less the portion described in item (c) below.
(c) PURCHASER shall pay into escrow by wire transfer the amount provided for in
Section 3.5(d).
(d) PURCHASER and SELLER shall execute and deliver the remaining documents
contemplated by the transaction described herein and any other agreements
relative hereto deemed necessary or appropriate by the Parties.
The parties shall execute other appropriate instruments necessary to effect or
support the transaction contemplated in this Agreement, including without
limitation, any ratification or joinder documents prepared by SELLER
consistent with the terms of this Agreement required to transfer any Contract
Rights and any lease assignment forms, and Designations of Operator or other
forms required by federal or state agencies to transfer operatorship of the
Oil & Gas Interests to PURCHASER, where applicable and contractually
permissible.
Upon PURCHASER's completion of its Closing obligations, and subject to Section
3, SELLER shall deliver to PURCHASER, exclusive possession of the Oil & Gas
Interests as of the Closing. Notwithstanding any other provision of this
Agreement, the failure of PURCHASER to deliver all of the Purchase Price, as
adjusted as contemplated above, at Closing shall entitle SELLER to withhold
all conveyancing documents until such time as it has received the full
consideration for the conveyance. This right shall be in addition to all
other rights and remedies that SELLER may have under this Agreement
or at law or in equity.
No agreement to be executed and delivered at the Closing, or action to be taken
at the Closing, shall be effective until all such agreements have been executed
and delivered or actions have been taken, and all such agreements and actions
shall be deemed to be effective concurrently.
4.3 Post Closing Obligations:
Upon condition that the Closing shall have occurred, SELLER and PURCHASER agree
to perform the following "post-Closing obligations":
4.3.1 Recording & Filing:
Within ninety (90) days of Closing, PURCHASER shall (i) file or record the
conveyancing documents in the appropriate governmental records and (ii) file
for approval with the applicable governmental agencies all state and federal
transfer and assignment documents for the Oil & Gas Interests. PURCHASER
shall provide a copy of same, including recording date, to the SELLER.
4.3.2 Change of Operator:
Where SELLER is the designated Operator of a Lease, and PURCHASER is
entitled to assume operatorship thereof, if requested by PURCHASER, SELLER
will in good faith endeavor to solicit the approval of PURCHASER as Operator
from the working interest owners of the Lease, PURCHASER shall promptly
file all appropriate forms, declarations or bonds with federal and state
governmental agencies relative to PURCHASER's assumption of operations
from SELLER. PURCHASER shall also take all actions necessary to qualify as
a successor Operator to SELLER under any applicable joint operating agreement
(subject to the terms of that operating agreement).
4.3.3 Notices to Third Parties:
PURCHASER shall notify all lessors, royalty owners, operators, non-operators,
purchasers of production and governmental agencies that PURCHASER has
purchased the Oil & Gas Interests and has assumed liability for their continued
operation from and after the Closing. PURCHASER and SELLER shall
execute any transfer orders and division orders necessary to transfer payment of
the proceeds from the sale of production from the Oil & Gas Interests as of the
Effective Time to PURCHASER.
4.3.4 Property Records:
Within thirty (30) days after Closing, SELLER shall deliver to PURCHASER
the property and business records (2.1.7), proprietary data (2.1.6) and other
property and business records specified in this Agreement (subject to the
limitations contained in this Agreement). If SELLER retains any original
records, PURCHASER shall have the right to review (and copy at
PURCHASER'S expense) such original records during SELLER's normal
business hours. PURCHASER shall retain any original records delivered, and
SELLER shall retain any such original records not delivered to PURCHASER
for a period of seven (7) years from the Effective Time. SELLER reserves the
right to access (and copy at SELLER's expense) all original records delivered
for a period of seven (7) years from the Effective Time (and PURCHASER agrees
to grant SELLER access to the records during PURCHASER's normal business
hours). In the event that SELLER or PURCHASER wishes to destroy any such
original books or records in its possession or in the possession of any of its
Affiliates prior to such date, such party shall give not less than sixty (60)
days notice to the other party and such other party shall have the right, at its
own expense, during reasonable business hours, to remove such books and records
and to keep possession of same. After the seventh anniversary of the Effective
Time, each party will retain (and may destroy) such books and records in
accordance with such party's customary record retention practices. If
PURCHASER transfers any portion of Oil & Gas Interests, PURCHASER shall
ensure that this records retention obligation shall continue as its Assignee's
obligation.
4.3.5 Use of Name:
On or before ninety (90) days after Closing, PURCHASER will remove, or
cause to be removed, from the platforms and facilities pertaining to the Oil &
Gas Interests, the name, logo and service mark of SELLER and all variations
and derivations thereof, and will not thereafter make use thereof.
4.4 Governmental Approvals:
PURCHASER and SELLER shall execute and file all forms (and PURCHASER shall
perform all acts) required by the MMS (and other appropriate governmental
agencies) to transfer operatorship of the Oil & Gas Interests from SELLER to
PURCHASER, as applicable, effective as of the Effective Time. The
conveyances (along with any change in operatorship) involved in this
transaction are subject to approval by the MMS (and possibly other governmental
agencies).
SECTION 5.0 - GENERAL REPRESENTATIONS AND
WARRANTIES
5.1 Reciprocal Representations and Warranties:
SELLER and PURCHASER each represent and warrant to the other, that as of the
date of this Agreement, as of the Effective Time and as of the Closing:
(a) Corporate Organization: The Party making the representation is a
corporation or limited liability company validly existing and in good standing
under the laws of that entity's state of formation, with the requisite power and
authority to own property and assets such as the Oil & Gas Interests and to
carry on its business as now being conducted.
(b) Requisite Approvals: The Party making the representation has the requisite
power and authority to execute and deliver this Agreement and to consummate
the transaction contemplated in this Agreement. This Agreement constitutes a
valid and binding obligation of the Party making the representation, enforceable
against it in accordance with the terms hereof, and no other act, approval or
proceeding on its part is required to authorize the execution and delivery of
this Agreement or the consummation of the transaction contemplated hereunder.
This Agreement (and all closing documents) are executed by appropriate
officials having the requisite authority to execute and deliver such documents
on behalf of the Party making the representation.
(c) Impediments to Consummation of Agreement: This Agreement, and the
execution and delivery hereof by the representing and warranting Party, do not,
and the consummation of the transaction contemplated hereunder will not,
violate any provision of, or constitute a default under, the charter, by-laws or
operating agreement of such Party or any law or regulation to which it is
subject, or any provision of any agreement, indenture, mortgage, lien, lease,
instrument, order, arbitration award, judgment, or decree to which it is a
Party or by which it or any of its assets or properties is bound.
(d) Bankruptcy: There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated or threatened against the Party making
the representation.
5.2 SELLER's Representations & Warranties:
SELLER represents and warrants to PURCHASER, that as of the date of this
Agreement, the Effective Time and the Closing:
(a) Permits: All material permits affecting the Oil & Gas Interests have been
made available for PURCHASER's review and are being transferred to PURCHASER
in this transaction, to the extent transferable.
(b) Compliance with Laws: To SELLER's knowledge, SELLER has not violated
any applicable laws or statutes, or any applicable regulations, rules or orders
promulgated by the Federal Energy Regulatory Commission, the MMS or any
other federal or state regulatory agency, or any of their predecessor agencies,
which might materially and adversely affect the value to PURCHASER of the
Oil & Gas Interests, or the production therefrom.
(c) Preferential Purchase Rights and Consents to Assignment: Other than as set
forth on Schedule 5.2(c), the Leases are not subject to any agreements
containing preferential purchase rights or consent to assignment provisions
that must be complied with prior to the assignment of the Leases to PURCHASER.
(d) Litigation: There is neither any claim, dispute, suit, action,
investigation or other proceeding pending before any court or governmental
agency nor, to SELLER's knowledge, threatened against SELLER or any Affiliate
of SELLER which might materially diminish the value or impede the operation of
any Oil & Gas Interest, or which challenges or pertains to the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
(e) Taxes: All ad valorem, property, production, excise, severance, windfall
profit and similar taxes and assessments payable with respect to the Oil & Gas
Interests and based on or measured by the ownership of property or the
production or removal of hydrocarbons or the receipt of proceeds therefrom
have been and will be timely paid in all respects.
(f) Leases and Wells: To SELLER's knowledge (i) SELLER is not in material
default under any of the material terms and provisions of any of the Leases or
under any agreement to which the same are subject; (ii) all royalties, rentals,
and other payments due thereunder by SELLER prior to Closing have been timely
and properly paid in full on or before the due dates thereof; and (iii) all of
the wells have been drilled, completed, and operated within the boundaries of
the Leases or Oil & Gas Interests or within the limits otherwise permitted by
contract, pooling, or unit agreement, and by law and in compliance with all
applicable rules, regulations, permits, judgments, orders and decrees of any
court or the federal and state regulatory authorities having jurisdiction
thereof. All Wells drilled by SELLER or its assigns on the Leases are listed on
Schedule 5.2(f).
(g) Marketing: Except as disclosed on Exhibit 1, no amounts of hydrocarbons
produced from the Oil & Gas Interests and marketed by SELLER and to
SELLER's knowledge, no amount of SELLER's hydrocarbons produced from
the Oil & Gas Interests and marketed by others are subject to a sales,
transportation or processing contract (except for contracts terminable without
penalty by SELLER on not more than 30 days notice), and, no person has any
call upon, option to purchase or similar rights under any agreement with
respect to the Oil & Gas Interests or to the production therefrom. (In this
connection, SELLER represents, warrants and undertakes that within twenty-one
(21) days of Closing it will obtain an unconditional release of the dedication
of any volumes from the Leases to Manta Ray Gas Gathering Company.) SELLER has
not in any respect collected, nor will SELLER in any respect collect, any
proceeds from the sale of hydrocarbons produced from the Oil & Gas Interests
that are subject to refund by PURCHASER. As of the Effective Time, proceeds
from the sale of oil, condensate, and gas from the Oil & Gas Interests were
being received in all respects by SELLER in a timely manner and were not
being held in suspense for any reason. SELLER has not been nor will
PURCHASER be obligated by virtue of any prepayment made under any gas
transportation, production sales contract, or any other contract containing a
"take or pay" clause, or under any gas balancing, deferred production or
similar arrangement to deliver oil, gas or other minerals produced from or
allocated to any of the Oil & Gas Interests at some future time without
receiving full payment therefor at the time of delivery.
(h) Contract Rights: To SELLER's knowledge, with respect to the Contract
Rights: (i) as to SELLER, all Contract Rights which have not previously
expired or been terminated by mutual agreement are in full force and effect
and are the valid and legally binding obligations of the parties thereto and
are enforceable in accordance with their respective terms, except to the
extent that such enforcement may be limited by applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally, and by
general equitable principles; (ii) SELLER is not in material breach or
default with respect to any of their obligations under any material Contract
Right; and (iii) neither SELLER nor any other party to any Contract Right has
given or threatened to give notice of any action to terminate, cancel, rescind,
or procure a judicial reformation of any Contract Right or any provision
thereof; and (iv) to SELLER's Knowledge, SELLER has not made or agreed to any
material changes to any Contract Right, between the Effective Date and
Closing, without PURCHASER's Knowledge.
(i) Environmental Matters: To SELLER's knowledge, and only as to those Oil &
Gas Interests where SELLER is the Operator, : (i) SELLER has obtained all
permits, licenses, and other authorizations that are required under federal,
state, and local laws with respect to pollution or protection of the
environment relating to the Oil & Gas Interests, including laws relating to
actual or threatened emissions, discharges, or releases of pollutants,
contaminants, or hazardous substances, or other toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants of hazardous
substances, or other toxic materials or wastes ("Environmental Laws"); and
(ii) SELLER and the Oil & Gas Interests are in substantial compliance in all
material respects with all Environmental Laws and all material terms and
conditions of such permits, licenses and authorizations. SELLER has not
received written notice of any past or present conditions, circumstances,
activities, practices, incidents, actions, or plans that are reasonably likely
to interfere or prevent continued compliance, or that are
reasonably likely to give rise to any material liability, or otherwise form the
basis of any material claim, action, suit, proceeding, hearing or
investigation, based on or related to the processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous substance or other toxic material or waste from or
attributable to any Oil & Gas Interest.
(j) SELLER'S Working Interest and Net Revenue Interest in each of the Leases and
each of the wells on the Leases are as shown on Exhibit 1 and for purposes of
SELLER'S by, through and under warranty, SELLER warrants that SELLER is
delivering the Working Interest and Net Revenue Interest reflected on Exhibit 1,
exclusive of SELLER's Retained Override.
(k) Except as set forth on Schedule 5.2(k), other than the Retained Override
there are no overriding royalty, production payments, net profit interests or
other revenue burdens on the Leases other than the royalty due the MMS under
each of the Leases.
(l) Operations: To SELLER's Knowledge, with respect to the joint, unit, or
other operating agreements relating to the Oil & Gas Interests: (i) there are
no outstanding calls or payments under authorities for expenditures ("AFE's");
and (ii) there are no operations under the operating agreements relating to
the Oil & Gas Interests with respect to which SELLER has become a non-consenting
party or outstanding AFE's.
5.3 PURCHASER's Representations & Warranties:
PURCHASER represents and warrants to SELLER, that as of the date of this
Agreement, the Effective Time and the Closing:
(a) Receipt of Data: PURCHASER represents that it has had the opportunity to
perform due diligence on the Oil & Gas Interests that PURCHASER wishes to
purchase, which includes physical inspection(s), environmental assessment(s),
reviewing well data and other files, and performing all necessary tasks involved
in evaluating the Oil & Gas Interests.
(b) Independent Evaluation: PURCHASER represents and acknowledges that it is
knowledgeable of the oil and gas business and of the usual and customary
practices of producers such as SELLER and that it has had access to the Oil &
Gas Interests, the officers and employees of SELLER, and the books, records
and files made available by SELLER relating to the Oil & Gas Interests. In
making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, PURCHASER has relied solely on the basis
of its own independent due diligence investigation of the Oil & Gas Interests
and upon the representations and warranties made in Section 5 of the
Agreement. ACCORDINGLY, PURCHASER ACKNOWLEDGES THAT
SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY
DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY
(OTHER THAN THOSE EXPRESS LIMITED REPRESENTATIONS AND
WARRANTIES MADE IN SECTION 5 OF THIS AGREEMENT), EXPRESS,
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE,
RELATING TO THE OIL & GAS INTERESTS.
(c) No Securities Distribution: PURCHASER represents to SELLER that
PURCHASER intends to acquire the Oil & Gas Interests for PURCHASER's
own benefit and account and that PURCHASER is not acquiring such interests
with the intent of distributing fractional undivided interests in the Oil & Gas
Interests that would be subject to regulation by federal or state securities
law, and that if, in the future, PURCHASER should sell or otherwise dispose of
the Oil & Gas Interests in any manner that would be subject to securities
regulation, PURCHASER will fully comply with all federal and state securities
laws.
5.4 SELLER's Reliance:
PURCHASER acknowledges that SELLER is entering this transaction relying upon
PURCHASER's representations and warranties, upon PURCHASER's assumption of
obligations and liabilities pertaining to the Oil & Gas Interests and upon the
agreements and undertakings of PURCHASER provided for herein. SELLER
acknowledges that PURCHASER is entering this transaction relying upon SELLER's
representations and warranties, upon SELLER's retention as set forth herein of
certain obligations and liabilities pertaining to the Oil & Gas Interests, and
upon the agreements and undertakings of SELLER provided for herein.
5.5 Survival of Representations & Warranties:
Subject to Section 7 hereof, all of the representations, warranties, indemnities
and agreements of or by the Parties to this Agreement shall survive the
Closing of this transaction as provided herein and shall not merge into the
conveyancing documents.
SECTION 6 - PURCHASER'S OBLIGATION
6.1 PURCHASER's Assumed Obligations:
After the Closing, PURCHASER shall assume and perform all of the rights, duties,
obligations and liabilities of ownership of the Oil & Gas Interests, as follows:
(a) The express and implied obligations, conditions and covenants under the
terms of each Lease or the Contract Rights to which the Oil & Gas Interests are
subject, except as provided in Section 2.3.1; and
(b) Responsibility for compliance with all applicable laws, regulations,
ordinances, rules and orders and the procurement and maintenance of all
permits and bonds required by governmental authorities relating to the Oil &
Gas Interests and which accrue after the Closing; and
(c) Responsibility for royalties, overriding royalties, net profits interests,
rentals, shut-in payments (if any) to which the Oil & Gas Interests are subject
and which are attributable to the period after the Effective Time; and
(d) All other obligations assumed by PURCHASER under the terms of this
Agreement.
6.2 Plugging and Abandonment of Wells, Removal of Facilities:
PURCHASER recognizes and specifically assumes SELLER's obligation to:
(i) properly plug and abandon (or re-plug) any and all oil, gas or condensate
Wells and wellbore(s) (whether producing, not producing or abandoned or plugged
prior to or after the Effective Time), water source, water injection and other
injection and disposal wells and systems located on each Lease (or lands pooled
with a Lease); and
(ii) restore each Lease and wellsite(s) associated with the Oil & Gas Interests
as required by such Lease;
all in accordance with the rules, regulations, and requirements of any
governmental authority having jurisdiction thereof, and in accordance with all
obligations, express or implied, in any contract assumed by PURCHASER, whether
or not any such obligations arise prior to or after the Effective Time.
PURCHASER agrees to pay all such costs and expenses associated with any such
plugging and abandoning, removal, or restoration.
SECTION 7 - DISCLAIMER OF WARRANTY /
INDEMNIFICATION
7.1 Sale "As Is" "Where Is":
PURCHASER REPRESENTS THAT IT HAS INSPECTED THE OIL & GAS
INTERESTS AND ACCEPTED THE PHYSICAL AND ENVIRONMENTAL
CONDITION OF SAME ON AN "AS IS-WHERE IS" BASIS, SUBJECT TO THE
TERMS OF THIS AGREEMENT. PURCHASER RELEASES SELLER FROM ANY
LIABILITY WITH RESPECT TO THE PHYSICAL AND ENVIRONMENTAL
CONDITION OF THE OIL & GAS INTERESTS AT THE EFFECTIVE TIME
(OTHER THAN AS MAY BE PROVIDED FOR UNDER THIS AGREEMENT)
WHETHER OR NOT CAUSED BY OR ATTRIBUTABLE TO SELLER'S
NEGLIGENCE, FAULT, OR STRICT LIABILITY, AND WHETHER OR NOT
ARISING DURING THE PERIOD OF, OR FROM, OR IN CONNECTION WITH
SELLER'S OWNERSHIP OF THE OIL & GAS INTERESTS OR USE OF THE
PROPERTY DESCRIBED IN THE LEASES BEFORE OR AT THE EFFECTIVE
TIME. WITHOUT LIMITING THE ABOVE, PURCHASER WAIVES ANY RIGHT,
EXCEPT TO THE EXTENT PROVIDED FOR IN THIS AGREEMENT, TO
RECOVER FROM SELLER AND FOREVER RELEASES AND DISCHARGES
SELLER AND SUBJECT TO, AND AS PROVIDED IN, THIS AGREEMENT,
AGREES TO RELEASE, INDEMNIFY, DEFEND AND HOLD SELLER
HARMLESS FROM ANY AND ALL DAMAGES, CLAIMS, LOSSES,
LIABILITIES, PENALTIES, FINES, LIENS, JUDGMENTS, COSTS AND
EXPENSES WHATSOEVER, (INCLUDING WITHOUT LIMITATION,
ATTORNEYS' FEES AND COSTS), WHETHER DIRECT OR INDIRECT, KNOWN
OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON
ACCOUNT OF OR IN ANY WAY BE CONNECTED WITH THE PHYSICAL
CONDITION OF THE OIL & GAS INTERESTS AT THE EFFECTIVE TIME OR
ANY LAW OR REGULATION APPLICABLE THERETO, INCLUDING WITHOUT
LIMITATION, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED (42 U.S.C. 9
9601 et. seq.), THE RESOURCE CONSERVATION AND RECOVERY ACT OF
1976 (42 U.S.C. 9 6901 et. seq.), THE CLEAN WATER ACT (33 U.S.C. 99 466 et.
seq.), THE SAFE DRINKING WATER ACT (14 U.S.C. 9 1401-1450), THE
HAZARDOUS MATERIALS TRANSPORTATION ACT (49 U.S.C. 9 7401 et. seq.)
AS AMENDED, THE CLEAN AIR ACT AMENDMENTS OF 1990, AND ANY
OTHER APPLICABLE FEDERAL, STATE OR LOCAL LAW, WHETHER OR NOT
ARISING DURING THE PERIOD OF, OR FROM, OR IN CONNECTION WITH,
SELLER's OWNERSHIP OF THE OIL & GAS INTERESTS OR USE OF THE
PROPERTY DESCRIBED IN THE LEASES AT OR PRIOR TO THE EFFECTIVE
TIME, AND WHETHER OR NOT ATTRIBUTABLE TO THE STRICT LIABILITY
OF SELLER OR TO THE SOLE, JOINT OR CONCURRENT, ACTIVE OR
PASSIVE, NEGLIGENCE OF SELLER, EVEN IF CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER PRIOR TO CLOSING.
7.2 DISCLAIMER REGARDING OIL & GAS INTERESTS:
PURCHASER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND
SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO
THE CONDITION OF ANY IMMOVABLE PROPERTY, MOVABLE PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL
PROPERTY CONSTITUTING PART OF THE OIL & GAS INTERESTS
(INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY (b) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED
OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF
THE PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (f) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM REDHIBITORY
VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR
UNKNOWN, AND (g) ANY AND ALL IMPLIED WARRANTIES EXISTING
UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, IT BEING THE
EXPRESS INTENTION OF SELLER AND PURCHASER THAT THE
IMMOVABLE PROPERTY, MOVABLE PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY, FIXTURES AND PERSONAL PROPERTY SHALL BE CONVEYED
TO PURCHASER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF
REPAIR AND PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO
THE IMMOVABLE PROPERTY, MOVABLE PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY AS
PURCHASER DEEMS APPROPRIATE AND PURCHASER WILL ACCEPT THE
IMMOVABLE PROPERTY, MOVABLE PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY, FIXTURES AND PERSONAL PROPERTY AS IS, IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.
7.3 DISCLAIMER REGARDING INFORMATION:
SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND
PURCHASER HEREBY WAIVES, AND ACKNOWLEDGES THAT SELLER HAS
NOT MADE, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, RELATING TO (a) THE ACCURACY, COMPLETENESS OR
MATERIALITY OF ANY INFORMATION (OTHER THAN SUCH INFORMATION
AS IS EXPRESSLY REPRESENTED AND WARRANTED IN SECTIONS 3.4 AND
5 HEREOF), DATA OR OTHER MATERIALS (WRITTEN OR VERBAL) NOW,
HERETOFORE, OR HEREAFTER FURNISHED TO PURCHASER BY OR ON
BEHALF OF SELLER OR (b) PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES, GEOLOGICAL OR GEOPHYSICAL DATA
OR INTERPRETATIONS, THE QUALITY, QUANTITY, RECOVERABILITY OR
COST OF RECOVERY OF ANY HYDROCARBON RESERVES, ANY PRODUCT
PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR MARKET ANY
HYDROCARBONS AFTER CLOSING.
7.4 Indemnification:
(a) Except for those matters covered by SELLER's indemnity as set forth in
Section 7.4(b), PURCHASER shall indemnify, defend and hold harmless
SELLER and its respective Affiliates, and each of their respective directors,
officers, employees, stockholders and agents, from and against any and all
claims, liabilities, losses, causes of actions, costs and expenses (including,
without limitation, those involving theories of negligence or strict liability
and including court costs and attorneys' fees) ("Losses") asserted against,
resulting from, imposed upon or incurred by SELLER as a result of, or arising
out of, (i) the breach of any of the representations, warranties, covenants or
agreements of PURCHASER contained in this Agreement, (ii) the disclaimers of
SELLER, including but not limited to, the provisions of Paragraphs 3.2, 3.3,
3.4, and those contained in this Section 7.0, and/or (iii) as a result of, or
arising out of, PURCHASER's ownership or operation of the Oil & Gas Interests,
including, but not limited to, the obligation to properly plug and abandon all
wells now or hereafter located on any of the Oil & Gas Interests, or as a result
of, or arising out of, any matter or circumstance relating to the Environmental
Obligations assumed by PURCHASER pursuant to Section 2.5.2, regardless in each
case whether known or unknown, whether attributable to periods of time before
or after the Effective Time or Closing, and regardless of the strict liability
of SELLER or whether SELLER was or was alleged to have been negligent,
including without limitation, the sole, joint or concurrent, active or passive
negligence of SELLER, even if SELLER was or was alleged to have been
grossly negligent or guilty of willful misconduct.
(b) SELLER shall indemnify, defend and hold harmless PURCHASER and its
Affiliates, and its and their respective directors, officers, members, managers,
employees, stockholders and agents, from and against all Losses asserted
against, resulting from, imposed upon or incurred by PURCHASER or such
other persons entitled to indemnification under this Section 7.4(b) as a result
of, or arising out of, (i) the breach of any of the representations, warranties,
covenants or agreements of SELLER contained in this Agreement, (ii) the
Excluded Assets, (iii) any matter or circumstance described in Sections 2.3.1 or
2.5.3, or (iv) the breach of the limited title warranty in Section 3.1.
(c) Notwithstanding anything to the contrary in this Agreement, the liability of
SELLER and PURCHASER under this Agreement and any documents delivered
in connection herewith or contemplated hereby shall be limited as follows:
(i) In no event shall any amounts be recovered from SELLER under Section
7.4(b) or otherwise for which a written notice of claim specifying in
reasonable detail the specific nature of the Losses and the estimated
amount of such Losses ("Claim Notice") is not delivered to SELLER
prior to the close of business within thirty (30) months after Closing at
5:00 p.m., local time, and the indemnity obligation of SELLER in
Section 7.4(b) with respect to such representations and warranties shall
terminate on said date.
(ii) Except as set forth above, the representations and warranties of the
Parties set forth in this Agreement shall survive the Closing for a period
of twenty-four (24) months and all representations and warranties of the
Parties under this Agreement shall terminate twenty-four (24) months
after Closing; provided, however, that any such representation or
warranty that is the subject of a Claim Notice delivered in good faith in
compliance with the requirements of Section 7.4(d) shall survive with
respect only to the specific matter described in such Claim Notice until
the earlier to occur of (A) the date on which a final nonappealable
resolution of the matter described in such Claim Notice has been reached
or (B) the date on which the matter described in such Claim Notice has
otherwise reached final resolution.
(iii) Notwithstanding anything to the contrary herein, in no event shall
(i) SELLER or PURCHASER be liable to the other for punitive,
exemplary, consequential, or special damages; (ii) SELLER indemnify
PURCHASER or any other person, or be otherwise liable in any way
whatsoever to PURCHASER or any other person, for any Losses arising
from whatever cause, including the breach of a representation or
warranty of SELLER, in excess of an amount equal to the Purchase
Price; and (iii) SELLER indemnify PURCHASER, or be otherwise liable
to PURCHASER, for any losses until PURCHASER has suffered losses
in the aggregate in excess of a deductible in an amount equal to one
percent (1%) of the Purchase Price, after which point SELLER will be
obligated only to indemnify PURCHASER from and against further
losses in excess of such deductible.
(iv) No amount shall be recovered from any Party for the breach or untruth of
any representations or warranties, of the other Party, or for any other
matter, to the extent that the Party claiming a Loss as a result thereof
had actual Knowledge of such breach, untruth or other matter at or prior
to the Closing, nor shall PURCHASER be entitled to rescission with
respect to any such matter.
(d) All claims for indemnification under this Agreement shall be asserted and
resolved pursuant to this Section 7.4(d). Any person claiming indemnification
hereunder is hereinafter referred to as the ''Indemnified Party" and any person
against whom such claims are asserted hereunder is hereinafter referred to as
the "Indemnifying Party." In the event that any Losses are asserted against or
sought to be collected from an Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness provide to the Indemnifying
Party a Claim Notice. The Indemnifying Party shall not be obligated to
indemnify the Indemnified Party with respect to any such Losses if the
Indemnified Party fails to notify the Indemnifying Party thereof in accordance
with the provisions of this Agreement in reasonably sufficient time so that the
Indemnifying Party's ability to defend against the Losses is not prejudiced. The
Indemnifying Party shall have thirty (30) days from the personal delivery or
receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) whether or not it disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such Losses and/or (ii) whether
or not it desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against such Losses; provided, however, that any
Indemnified Party is hereby authorized prior to and during the Notice Period to
file any motion, answer or other pleading that it shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party (and of
which it shall have given notice and opportunity to comment to the
Indemnifying Party). In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such Losses, the Indemnifying Party shall have the
right to defend all appropriate proceedings, and with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by them to
a final conclusion. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost and
expense. If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate with the Indemnifying Party and its counsel in contesting any Losses
that the Indemnifying Party elects to contest or, if appropriate and related to
the claim in question, in making any counterclaim against the person asserting
the third party Losses, or any cross-complaint against any person. No claim may
be settled or otherwise compromised without the prior written consent of the
Indemnifying Party and no claim may be settled or compromised by the
Indemnifying Party without the prior written consent of the Indemnified Party
unless such settlement or compromise entails a full and unconditional release of
the Indemnified Party without any admission or finding of fault or liability.
SECTION 8 - ADMINISTRATIVE PROVISIONS
8.1 Expenses of Sale:
Except as otherwise specifically provided herein, each Party to this Agreement
shall pay its own expenses (including without limitation, the fees and expenses
of their respective agents, representatives, counsel and accountants) with
respect to the negotiation, execution and the delivery of this Agreement and the
consummation of the transactions under this Agreement.
8.2 Third Party Rights:
Except as to those indemnity obligations owed to the indemnified entities or
persons listed in Section 7 hereof, notwithstanding any other provision of this
Agreement, this Agreement shall not create benefits on behalf of any person
who is not a Party to this Agreement (including without limitation, any broker
or finder, creditor or other person), and this Agreement shall be effective only
as between the Parties hereto, their successors and permitted assigns.
8.3 Further Actions:
PURCHASER and SELLER further agree that each will, from time to time and upon
reasonable request, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such instruments, and take such other action as may
be necessary, or advisable, to carry out their obligations under this Agreement.
8.4 Assignment:
Prior to the Closing, neither Party shall assign this Agreement or any of its
rights or obligations under this Agreement without obtaining the prior written
consent of the other Party, and any purported assignment by any Party without
the prior written consent of the other Party shall be void. This Agreement and
its respective covenants shall be referenced in any assignment affecting the
Oil & Gas Interests.
8.5 Notices:
Any notice provided or permitted to be given under this Agreement shall be in
writing, and may be sent by personal delivery, facsimile machine or by
depositing same in the United States Mail, addressed to the Party to be
notified, postage prepaid, and registered or certified with a return receipt
requested. Notices deposited in the mail in the manner hereinabove described
shall be deemed to have been given and received upon the date of delivery as
shown on the return receipt (or upon the date of attempted delivery where
delivery is refused). Notice served in any other manner shall be deemed to
have been given and received only if and when actually received by the
addressee (confirmation of such receipt by confirmed facsimile transmission
being deemed receipt of communications sent by telecopy or other facsimile
means), and when delivered and receipted for, if hand-delivered, sent by
express courier or delivery service. For purposes of notice, the addresses
of the Parties shall be as follows:
EXPRESS MAIL REGULAR MAIL
SOI
(and as agent for SOIFI)
Shell Offshore Inc. Shell Offshore Inc.
ATTN: Land Manager ATTN: Land Manager
701 Poydras Street P. O. Box 61933
New Orleans, LA 70139 New Orleans, LA 70161
Telephone - (504) 728-6704
Facsimile - (504) 728-0399
PURCHASER
McMoRan Oil & Gas LLC
ATTN: Senior Vice President, Land
1615 Poydras Street
New Orleans, LA 70112
Telephone - (504) 582-4610
Facsimile - (504) 582-4155
or at such other address and number as either Party shall have previously
designated by written notice given to the other Party in the manner
hereinabove set forth.
8.6 Public Announcements:
The Parties agree that prior to making any public announcement or statement with
respect to the transaction contemplated by this Agreement, the Party desiring to
make such public announcement or statement shall obtain the written approval of
the other Party to the text of such announcement or statement, which approval
may be withheld for any reason. Nothing contained in this Section shall be
construed to require either Party to obtain approval of the other Party to
disclose information with respect to the transaction contemplated by this
Agreement to any state or federal governmental authority or agency, to the
extent required by applicable law or by any applicable rules, regulations or
orders of any governmental authority or agency having jurisdiction, or
necessary to comply with disclosure requirements of applicable securities laws
or any applicable stock exchanges.
8.7 Time Limits:
Time is of the essence in this Agreement and all time limits shall be strictly
construed and enforced. The failure or delay of any Party in the enforcement
of the rights granted under this Agreement shall not constitute a waiver of
said rights nor shall it be considered as a basis for estoppel. Except as
otherwise limited by the time limits contained in this Agreement, such Party
may exercise its rights under this Agreement despite any delay or failure to
enforce the rights when the right or obligation arose.
8.8 Compliance with Laws & Regulations:
This Agreement, and all operations conducted by the Parties pursuant to this
Agreement, are expressly subject to and shall comply with all laws, orders,
rules and regulations of any federal, state or local governmental authority
having jurisdiction. No Party shall suffer a forfeiture or be liable in
damages for failure to comply with any of the provisions of this Agreement
if such compliance is prevented or if such failure results from compliance
with any applicable law, order, rule or regulation.
8.9 Applicable Law:
The provisions of this Agreement and the relationship of the Parties shall be
governed and interpreted according to the laws of the State of Louisiana
without giving effect to principles of conflicts of laws.
8.10 Arbitration:
Any controversy or claim ("Claim"), whether based on contract, tort, statute or
other legal or equitable theory arising out of or related to the breach of one
or more of the warranties and representations made in this Agreement, or as a
result of any other matters which may give rise to a liability with respect
to this Agreement, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ( the
"Rules"), and this provision. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C 1-16, to the exclusion of any provision of
state law inconsistent therewith or which would produce a different result,
and judgment upon the award rendered by the arbitrator may be entered by any
court having jurisdiction.
The arbitration shall be held in New Orleans, Louisiana.
There shall be one arbitrator mutually agreeable to the Parties. In the event
the Parties cannot agree on an arbitrator, the arbitrator shall be selected in
accordance with the Rules.
The arbitrator shall determine the Claims of the Parties and render a final
award in accordance with the substantive law of the State of Louisiana,
excluding the conflicts provisions of such law. The arbitrator shall set
forth the reasons for the award in writing. All statutes of limitations and
defenses based upon passage of time applicable to any Claim (including any
counterclaim or setoff) shall be interrupted by the filing of
the arbitration and suspended while the arbitration is pending.
The obligation to arbitrate any Claim shall extend to the successors, assigns
and third Party beneficiaries of the parties. The Parties shall use their
best efforts to cause the obligation to arbitrate any Claim to extend to any
officer, director, employee, shareholder, agent, trustee, affiliate, or
subsidiary. The terms hereof shall not limit any obligations of a Party to
defend, indemnify, or hold harmless another Party against court
proceedings or other Claims, losses, damages or expenses.
The arbitrator shall order the Parties to promptly exchange copies of all
exhibits and witness lists, and, if requested by a Party, to produce other
relevant documents, to answer interrogatories, to respond to requests for
admissions (which shall be deemed admitted if not denied) and to produce for
deposition and, if requested, at the hearing all witnesses that such Party
has listed and all other persons within such Party's control. Any additional
discovery shall only occur by agreement of the Parties or as ordered by
the arbitrator upon finding good cause.
Each Party shall bear its own costs, expenses and attorney's fees; provided that
if court proceedings to stay litigation or compel arbitration are necessary,
the Party who unsuccessfully opposes such proceedings shall pay all reasonable
associated costs, expenses, and attorney's fees in connection with such court
proceeding.
In order to prevent irreparable harm, the arbitrator shall have the power to
grant temporary or permanent injunctive or other equitable relief. Prior to
the appointment of an arbitrator a Party may, notwithstanding any other
provision of this Agreement, seek temporary injunctive relief from any court
of competent jurisdiction; provided that the Party seeking such relief shall
(if arbitration has not already been commenced) simultaneously commence
arbitration. Such court ordered relief shall not continue more than 10 days
after the appointment of the arbitrator and in no event for longer than 60 days.
The cost of the arbitrator shall be shared equally by all parties.
8.11 Severance of Invalid Provisions:
In case of a conflict between the provisions of this Agreement and the
provisions of any applicable laws or regulations, the provisions of the laws
or regulations shall govern over the provisions of this Agreement. If, for
any reason and for so long as, any clause or provision of this Agreement is
held by a court of competent jurisdiction to be illegal, invalid,
unenforceable or unconscionable under any present or future law (or
interpretation thereof), the remainder of this Agreement shall not be affected
by such illegality or invalidity. Any such invalid provision shall be deemed
severed from this Agreement as if this Agreement had been executed with the
invalid provision eliminated.
8.12 Construction & Interpretation:
The interpretation and construction of the terms of this Agreement will be
governed by the following conventions:
8.12.1 Headings for Convenience:
Except for the definition headings, all the table of contents, captions,
numbering sequences, paragraph headings and punctuation used in this Agreement
are inserted for convenience only and shall in no way define, limit or describe
the scope or intent of this Agreement or any part thereof, nor have any legal
effect other than to aid a reasonable interpretation of this Agreement.
8.12.2 Gender & Number:
The use of pronouns in whatever gender or number shall be deemed to be a
proper reference to the Parties to this Agreement though the Parties may be
individuals, business entities or groups thereof. Any necessary grammatical
changes required to make the provisions of this Agreement refer to the correct
gender or number shall in all instances be assumed as though each case was
fully expressed.
8.12.3 Independent Representation:
Each Party has had the benefit of independent representation with respect to the
subject matter of this Agreement. This Agreement, though drawn by one Party,
shall be construed fairly and reasonably and not more strictly against one Party
than another.
8.13 Integrated Agreement:
This Agreement, and the Exhibits and Schedules attached and incorporated herein,
and the instruments delivered at or in connection with the Closing hereunder
("Closing Documents") contains the final and entire agreement of the Parties
with respect to the subject matter of this contract. There are no
representations, warranties or promises, oral or written, between the Parties
other than those included in this Agreement or in any Closing Document. Upon
execution of this Agreement by all Parties, this Agreement shall supersede
and replace all previous negotiations, understandings or promises, whether
written or oral, relative to the subject of this Agreement. Each of the
Parties acknowledges that no other Party has made any promise, representation or
warranty that is not expressly stated in this Agreement or in any Closing
Document. This Agreement shall not be modified or changed (nor any provision
of this Agreement waived) except by a written amendment signed by all the
Parties. This Agreement is entire as to all the performances to be rendered
under it, and breach of any provision shall constitute a breach of the entire
Agreement. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
Party's rights under this Agreement at any time to enforce strict
compliance thereafter with every term or condition of this Agreement.
8.14 Binding Effect:
This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and assigns.
8.15 Multiple Counterparts:
This Agreement may be executed by signing the original or a counterpart hereof.
If this Agreement is executed in multiple counterparts, each counterpart shall
be deemed an original, and all of which when taken together shall constitute
but one and the same agreement with the same effect as if all Parties had
signed the same instrument.
8.16 Fair Notice Disclosure Statement:
PURCHASER'S ATTENTION IS DIRECTED TO CERTAIN PROVISIONS OF THIS
AGREEMENT WHICH REQUIRE PURCHASER TO DEFEND, INDEMNIFY AND
HOLD SELLER HARMLESS IRRESPECTIVE OF THE STRICT LIABILITY OF
SELLER OR THE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE,
NEGLIGENCE OF SELLER, AND IN SOME CASES THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF SELLER.
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date
first above written.
SHELL OFFSHORE INC.
By: _________________________
K. R. Sissell
Agent & Attorney-in-Fact
SOI FINANCE INC.
By: _________________________
K. R. Sissell
Agent & Attorney-in-Fact
McMoRan OIL & GAS LLC
By: _________________________
Glenn A. Kleinert
Senior Vice President
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, on this day personally appeared K. R.
SISSELL, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he, being fully authorized to do so,
executed and delivered the same as Agent and Attorney-in-Fact for Shell
Offshore Inc., a Delaware corporation, on the day and year therein mentioned
and as the act and deed of said corporation, for the purpose and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 14th day of January, 2000.
____________________________________
Notary Public
My Commission is for life.
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, on this day personally appeared K. R.
SISSELL, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that he, being fully authorized to do so,
executed and delivered the same as Agent and Attorney-in-Fact for SOI Finance
Inc., a Delaware corporation, on the day and year therein mentioned and as
the act and deed of said corporation, for the purpose and consideration
therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 14th day of January, 2000.
____________________________________
Notary Public
My Commission is for life.
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, on this day personally appeared Glenn
A. Kleinert, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he, being fully authorized
to do so, executed and delivered the same as Senior Vice President for
McMoRan Oil & Gas LLC, a Delaware limited liability company, on the day and
year therein mentioned and as the act and deed of said corporation,
for the purpose and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 14th day of January, 2000.
____________________________________
Notary Public
My Commission is for life.
Exhibit 10.34
THE PORTIONS OF THIS EXHIBIT 10.34 MARKED "********" HAVE BEEN OMITTED
HEREFROM AND CONFIDENTIALLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Offshore Exploration Agreement
By and Between
Texaco Exploration and Production Inc.
And
McMoRan Oil & Gas LLC
December 20, 1999
TABLE OF CONTENTS
ARTICLE PAGE
1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND
CONSTRUCTIONS 1
1.1 Subject Matter and Purpose 1
1.2 Defined Terms 2
1.3 Exhibits 6
1.4 Rules of Construction 7
2. CONTRACT AREA 7
2.1 Contract Area 7
2.2 Texaco Prospects 7
2.3 Exhibit 8
2.4 Area of Mutual Interest 8
2.5 Early Relinquishment Lease Schedule 9
3. TERM OF AGREEMENT 9
3.1 Term 9
3.2 Option Periods 9
4. PROSPECT IDENTIFICATION 10
4.1 Prospect Identification 10
4.2 Co-Working Interest Owner's Proposals 12
4.3 Restriction on Use of Existing Platforms 13
4.4 Election Not to Participate in a Co-Working
Interest Owner Well 14
4.5 Rights Limitation on Use of Existing Wells 14
4.6 Wells Proposed by Texaco after the Effective Date 15
4.7 Access to Well Data 15
4.8 Protection from Drainage 15
4.9 Third Party Well Proposal Restriction 15
5. FARMOUT/SUBLEASE ACREAGE 16
5.1 Individual Farmout Agreements 16
5.2 Contract Acreage Restrictions/Limitations 16
5.3 Texaco's Participation Options and Overriding Royalty 16
5.4 General Farmout Agreement Terms and Conditions 18
5.5 Impenetrable Substances 20
5.6 Project Payout 20
5.7 Payout Notice 21
5.8 Option to Participate 21
5.9 Overriding Royalties 21
5.10 Proportionate Reduction 23
5.11 Failure to Drill the Initial Test Well 23
5.12 McMoRan's Continuous Option to Earn 23
5.13 Operating Agreement Execution 23
5.14 Designation of Operator 24
6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS 25
6.1 Pressure Communication Restriction 25
6.2 Common Reservoirs 26
7. FINANCIAL OBLIGATIONS 27
7.1 Obligation to Fund Exploratory Operations 28
7.2 Spending Schedule 28
7.3 Exploratory Wells and Other Exploration Activities 29
7.4 Spending Schedule Deficit Penalty 30
7.5 Spending Schedule Deficit Penalty Deferral 30
7.6 Liquidated Damages Credit 31
7.7 Exhibit 31
7.8 Accounting Report 31
7.9 Audit Rights 32
7.10 Right to Option Period 32
7.11 Parent Company Guarantee 32
8. PERIODIC TECHNICAL REVIEWS 33
8.1 Periodic Technical Overview 33
9. TEXACO'S TECHNICAL REPRESENTATION 33
9.1 Technical Staff 33
9.2 Cost of Texaco Personnel 34
10. ACREAGE RELEASE SCHEDULE 34
10.1 Option Period 1 Acreage Release 34
10.2 Option Period 2 Acreage Release 34
10.3 Option Period 3 Acreage Release 34
10.4 Option to Release Additional Acreage 34
10.5 Release Notification 35
10.6 Acreage Release Credit 35
11. NOTICES 36
11.1 Notices 36
11.2 Change in Designated Representative 36
12. EXISTING AGREEMENTS AND PREFERENTIAL RIGHTS 36
12.1 Existing Agreements 36
12.2 Preferential Rights and Consents to Assign 37
13. RIGHTS RESERVED 37
13.1 Lease Rights Reservations 37
14. PRODUCTION HANDLING AND CONTRACT OPERATIONS 38
14.1 Production Handling Option 38
14.2. Contract Operating Option 38
15. TAX MATTERS 39
15.1 Income Tax Election 39
16. EXISTING FACILITIES 39
16.1 Existing Facilities 39
17. GEOPHYSICAL DATA 40
17.1 Seismic Rights 40
17.2 Hazard Survey Data 40
17.3 Texaco's Proprietary Seismic Data 40
18. RENTALS, MINIMUM ROYALTY AND LEASE MAINTENANCE 41
18.1 Rentals and Minimum Royalty 41
19. MEDIA RELEASES 42
19.1 Public Announcements 42
19.2 Media Releases 42
20. FILES 42
20.1 Access to Files 42
21. ASSIGNMENTS AND TRANSFER OF INTEREST 44
21.1 Assignment of this Agreement 44
21.2 Lease or Prospect Successors and Assigns 44
21.3 Appointment of Agent 44
22. CONFIDENTIALITY 45
22.1 Confidentiality 45
22.2 Speculative Seismic Data 45
22.3 Disclosure of Confidential Data 45
22.4 Risk of Use of Confidential Data 46
22.5 Confidentiality Agreement - Exhibit 46
23. GOVERNING LAW 46
23.1 Choice of Law 46
23.2 Pending and Future Litigation and Claims 46
24. FORCE MAJEURE 47
24.1 Force Majeure 47
25. DISPUTE RESOLUTION 49
25.1 Dispute Resolution 49
26. TERMINATION 49
26.1 Termination 49
26.2 Lease Expiration or Termination 49
27. INDEMNITY 49
27.1 Indemnity 49
28. BREACH 50
28.1 Breach 50
29. NO WARRANTY 50
29.1 Non-Warranty 50
30. GENERAL PROVISIONS 51
30.1 Leases Treated Separately 51
30.2 Non-Interference 51
30.3 Governmental Approvals 52
30.4 Amendments 52
30.5 Declaration of Agreement 52
30.6 Other Rights, Remedies Reserved 52
30.7 No Waiver 52
30.8 No New Lease Burdens 52
30.9 Severability 53
30.10 Entire Agreement 53
30.11 Further Assurances 53
30.12 Waiver of Subrogation 53
30.13 Surviving Obligation 53
30.14 Conflict of Terms 53
LIST OF EXHIBITS
Exhibit "A" Leases Subject to this Agreement
Exhibit "A-1" Early Relinquishment Termination Schedule
Exhibit "B" Texaco Identified Prospects
Exhibit "C" Area of Mutual Interest
Exhibit "D" Farmout Agreement
Exhibit "E" Sublease
Exhibit "F" Prospect Dispute Resolution Procedure
Exhibit "G" Operating Agreement
Exhibit "H" Confidentiality Agreement
Exhibit "I" Dispute Resolution Procedure
(Excepting Prospect Disputes)
Exhibit "J" Declaration of Agreement
OFFSHORE EXPLORATION AGREEMENT
THIS OFFSHORE EXPLORATION AGREEMENT ("Agreement"),
is made and entered into
this 20th day of December, 1999, by and between Texaco
Exploration and Production Inc., a Delaware
corporation, hereinafter sometimes referred to as
"Texaco", and McMoRan Oil & Gas LLC, a Delaware
limited liability company, hereinafter sometimes referred
to as "McMoRan". Texaco and McMoRan are
sometimes hereinafter referred to individually as "Party"
and/or collectively as "Parties".
W I T N E S S E T H:
WHEREAS, McMoRan has expressed a desire to secure the
right to earn and/or own certain
leasehold interests currently owned by Texaco Exploration
and Production Inc. (Texaco) in the Outer
Continental Shelf, Offshore Louisiana and Texas and the
State of Louisiana; and
WHEREAS, Texaco is desirous of having an entity with
proven expertise in both exploring for
and producing wells in the central and western portions
of the Gulf of Mexico evaluate through
exploratory drilling the hydrocarbon potential on a
significant portion of the non-productive leasehold
currently owned by Texaco in such areas; and
WHEREAS, McMoRan has, in the past, demonstrated its
ability to find commercial quantities
of hydrocarbons in the Gulf of Mexico and is willing to
commit financial and personnel resources now
and in the future to explore and develop the non-
producing acreage of Texaco as described herein; and
WHEREAS, Texaco is agreeable in to granting McMoRan the
right and option to explore
certain Texaco non-productive leasehold, and if
successful, to earn an interest in such leasehold all as
more particularly set forth below.
NOW THEREFORE, for and in consideration of the
mutual advantages and benefits accruing to
the Parties hereto, the sufficiency of which is hereby
acknowledged, the Parties hereto agree that the
following shall constitute the agreement between Texaco
and McMoRan concerning the drilling of various
wells hereinafter described on the "Contract Acreage"
hereinafter identified and, upon the satisfaction of
certain conditions contained herein, the acquisition of
interests by McMoRan from Texaco. This
Agreement upon execution by Texaco and McMoRan shall
supersede and replace all prior agreements and
verbal conversations between Texaco and McMoRan regarding
the transaction set forth herein.
ARTICLE 1
1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND CONSTRUCTIONS
1.1 Subject Matter and Purpose.
The subject matter of this Agreement is the
exploration and development of the Contract Area,
as defined below, by McMoRan and Texaco pursuant to the
terms and conditions hereinafter provided
together with the rights and obligations of McMoRan and
Texaco concerning such exploration and
development of the Contract Area..
The purpose of this Agreement is to provide a means
whereby Texaco is to make available to
McMoRan offshore acreage (as defined herein) for the
drilling of Exploratory Wells by McMoRan in an
attempt to find and develop economic reserves for the
benefit of the Parties hereto. It is contemplated
that situations will arise during the term of this
Agreement that are not specifically covered herein. In
the event these situations do arise the Parties agree, in
the spirit of cooperation, to use all reasonable
efforts to resolve such situations to the mutual benefit
of both Parties.
1.2 Defined Terms.
For purposes of this Agreement, including the
Exhibits, except as otherwise expressly provided
or unless the context otherwise requires, the terms
defined in this Section 1.2 have the meanings
assigned to them herein and the capitalized terms defined
elsewhere in the Agreement by inclusion in
quotation marks and parentheses have the meanings so
ascribed to them.
"AFE" means an Authority for Expenditure prepared by a
Party to the Agreement, or a Co-
Working Interest Owner, for the purpose of estimating the
Well Costs to be incurred in connection with
a proposal to drill, deepen, or sidetrack a well
hereunder.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly
controlling or controlled by, or under common control
with, such Person. For purposes of this
definition, the term "control" (including, with
correlative meanings, the terms "controlling," "controlled
by" and "under common control with") as applied to any
Person, means the possession, directly or
indirectly, of the power to direct or cause the direction
of the management of such Person, whether
through ownership of voting securities, by contract or
otherwise, and specifically with respect to a
corporation, partnership or limited liability company
means ownership of fifty percent (50%) or more of
the voting stock in such corporation or of the voting
interest as a partner in such partnership or as a
member of such limited liability company.
"Agreement" means this Offshore Exploration Agreement
between Texaco and McMoRan
including the Exhibits attached hereto or referred to
herein.
"Allocation" shall mean the fractional share of
hydrocarbon reserves attributable to each Lease
(or portion thereof) within a Prospect. The necessity
for and procedures by which the Allocation is
made are set forth in Section 4.1 below. Allocation
under this Agreement is binding only on the Parties
hereto and their permitted successors and assigns. It is
not binding on Third Parties. The purpose of
this Allocation is to establish the initial participation
of the Leases included in a Prospect for purposes
of the sharing of costs (as well as ownership of
production) until such time as the Parties mutually agree
to the adjustment or re-determination thereof, or until
such adjustment or re-determination is otherwise
made in accordance with the terms hereof, or in
accordance with governmental regulations.
"Area of Mutual Interest" or "AMI" means the areas and
blocks listed on Exhibit "C" attached hereto.
"Available Acreage" shall mean the non-productive acreage
located on the Leases listed on
Exhibit "A" attached hereto and made a part hereof which
non-productive acreage is subject to this Agreement.
"Business Day" means a day on which the Minerals
Management Service New Orleans
Regional Office is open for business.
"Casing Point" means that point in time when a well
has reached the Objective Depth or such
other depth as may be mutually agreed by the Parties, and
all logs, cores and other tests have been
completed that are sufficient to make a determination
concerning the running of production casing or
the plugging and abandonment of the well, and the results
thereof have been furnished to all Parties as
customary under the controlling Operating Agreement.
"Contract Acreage" means collectively those
portions of the Leases and lands described as
Available Acreage on Exhibit "A" attached hereto and made
a part hereof .
"Co-Working Interest Owner" means an owner of a
record title, operating rights and/or
working interest in a Lease subject to this Agreement
that is not a Party hereto.
"Earning Well" means a well drilled in accordance with
the provisions of Article 5 hereof that
is (i) a well in which McMoRan participates in the
drilling of, and (ii) which is drilled to the Objective
Depth, and (iii) which is a well that satisfies the
criteria of to 30 CFR 250.111 as a well capable of
producing in paying quantities, and (iv) McMoRan, within
sixty (60) days from rig release of the Initial
Test Well, commits in writing to Texaco its plans to
install the necessary facilities (not including Existing
Facilities unless the owners thereof agree) as soon as
possible to place the hydrocarbons discovered on
production, and (v) which well is located at a bottom
hole location on a Lease subject hereto or in a Unit
including all or a portion of a Lease.
"Effective Date" means the effective date of this
Agreement, being 7:00 a.m., Central Standard
Time, January 1, 2000 or the first day of the calendar
month following the Execution Date, if later.
"Execution Date" shall be the date set forth above.
"Exclusion Areas" shall mean those portions of the Leases
outside the Contract Acreage which
are not subject to this Agreement.
"Existing Facilities" means all property located on
or associated with the Contract Acreage as of the
Effective Date used or held for use in connection with
the production, treatment, gathering, storage and
compression of oil and/or gas from, on, or attributable
to any Lease listed on Exhibit "A", including but not
limited to, (1) platforms, cassions, fixtures, tanks,
pumps, pipelines, appurtenances and improvements, (2) all
equipment or material permanently or temporarily located
on the Contract Acreage; and, (3) other structures
located on or used in connection with the Leases.
"Existing Operating Agreement" means the controlling
operating agreement between the
owners of a Lease effective prior to the Effective Date
of this Agreement, or any operating agreement
that would subsequently replace such an agreement.
"Exploratory Activities" means the acquisition, licensing
and/or processing of geophysical
data, the completion and submittal of required
governmental forms and permits, the conduct of shallow
hazards surveys and archeological surveys, the
mobilization and demobilization of a drilling rig, the
drilling, logging, temporarily or permanently abandoning
of an Exploratory Well, the payment of rentals
on non-producing leases and minimum royalties on
producing Leases and the costs of acquiring and
maintaining any leasehold interests pursuant to the
provisions of this Agreement (including but not
limited to the Area of Mutual Interest provisions
hereof).
"Exploration Program Co-Venturers" means the financial
co-venturers of McMoRan who have
executed a specific agreement with McMoRan to fund
certain oil and gas activities in the Gulf of Mexico
related to this Agreement.
"Exploratory Objective" means any zone, interval or
horizon not in pressure communication
with a zone, interval or horizon that is currently
producing or is capable of producing oil and/or gas
from an existing wellbore located on a Lease.
"Exploratory Well" means a well proposed to be
drilled into to evaluate an Exploratory
Objective. A well will be considered an Exploratory Well
if any bona fide objective in a well is an
Exploratory Objective, even if other objectives in the
well do not qualify as Exploratory Objectives. In
order for a well to qualify as an Exploratory Well, the
Parties must agree, in writing, on its designation
as an Exploratory Well prior to commencement of actual
drilling. Neither Party will unreasonably
withhold its agreement to such qualification. Any
substitute well or additional well specified under a
Farmout Agreement or Sublease drilled following the
drilling of an Initial Test Well, shall be considered
an Exploratory Well without a separate mutual agreement
being required for the designation thereof as
an Exploratory Well if and only if the substitute well or
additional well is proposed to be drilled to not
less than the Objective Depth of the unsuccessful
Exploratory Well it is replacing.
"Farmout Acreage" shall mean the acreage and depths
to be included under each Farmout
Agreement under the provisions of Section 5.2.
"Farmout Agreement" means the Farmout Agreement to
be entered into for each Prospect
established hereunder that is located on the Outer
Continental Shelf, Offshore Louisiana or Texas, the
form of which is attached hereto as Exhibit "D."
"Initial Test Well" shall be the first Exploratory Well
proposed by McMoRan and drilled after
the Effective Date of this Agreement on each Prospect
located on an Exhibit A Lease, on lands pooled
or unitized with an Exhibit A Lease, or on a Prospect
which includes all or a portion of an Exhibit A
Lease where Texaco has not previously been afforded the
opportunity to elect to retain its overriding
royalty or to participate as a working interest owner in
said Prospect as detailed in Section 5.3, below.
"Lease" or "Leases" shall mean the offshore oil and gas
leases issued by the United States of
America or State of Louisiana listed on Exhibit "A".
"Objective Depth" shall mean the objective total
depth of an Initial Test Well or substitute
well as specified in the AFE for such well as proposed in
accordance with the provisions of this
Agreement.
"Operating Agreement" means the Operating Agreement to be
entered into by the Parties in
accordance with the provisions of this Agreement and the
Farmout Agreement, Sublease or the
agreement entered into pursuant to Section 5.3.4, the
form of Operating Agreement which is attached
hereto as Exhibit "G."
"Operating Rights" shall mean all of the rights,
obligations, liabilities and attributes of a
working interest ownership covering less than all depths,
and potentially less than the entire surface
area, in and on a Lease.
"Paying Quantities" means that volume of production
of oil and/or gas in sufficient quantities
that when sold will yield a return of money in excess of
the cost of production, including taxes, royalty,
overriding royalty and similar burdens, lifting,
compression and transportation costs. The cost of
production does not include costs associated with
drilling, testing, completing, sidetracking, deepening,
re-completing or reworking a well or of surface or subsea
equipment and pipelines used in connection
with such production.
"Person" means, and shall be interpreted broadly to
include, without limitation, any individual,
corporation, association, company, limited liability
company, trust, estate, partnership, joint venture,
unincorporated organization, other business entity, any
government or any department or agency
thereof, or any other legal entity.
"Plugging and Abandonment" means the plugging,
replugging, abandonment, removal,
disposal, seafloor restoration and remediation
obligations which are required for wells drilled or other
operations conducted pursuant to this Agreement. Such
obligations shall include, but not be limited to,
all necessary and proper plugging and abandonment and/or
removal and disposal of the wells,
structures, and equipment located on or associated
therewith, the necessary and proper capping and
burying, if required, of all associated flow lines, and
any necessary disposal of naturally occurring
radioactive material ("NORM").
"Prospect" shall mean an area believed to encompass
an accumulation(s) of hydrocarbons
having one or more productive formations. The area
encompassing these accumulations shall be
described on a surface acreage basis, and subject to any
depth limitations agreed to by the Parties,
acceptable to the Minerals Management Service for
approval of transfer documents. If McMoRan
owns an interest in a lease contiguous to a Lease subject
to this Agreement, such lease (or portion
thereof) may also be included in a Prospect at the
request of McMoRan but subject to the approval of
Texaco. Procedures for determining the Lease, or
portions thereof, which are deemed to be included
within a Prospect are set forth in Section 4.1, below.
"Prospect Dispute" shall be a disagreement between
Texaco and McMoRan about (i) which
Leases, or portion thereof, comprise a Prospect; and/or
(ii) the Allocation as to the Leases within a
Prospect. In the event the Parties are unable to resolve
any disagreement as to the configuration of a
Prospect, the Prospect Dispute shall be resolved pursuant
to the procedures set forth in Exhibit "F".
"Remote Location" shall mean a drilling location
that is not from a platform.
"Representatives" means the respective directors,
officers, supervisors, employees, partners,
lenders, consultants, attorneys and legal counsel,
financial advisors, accountants, marketing
representatives and other agents of the Parties.
"Reservoir" means a subsurface porous, permeable
rock body that contains or is thought to
contain an accumulation of oil and/or gas, separated by
faulting or other subsurface anomaly from other
areas containing accumulations of oil and/or gas in the
same or different strata.
"Sublease" means the Sublease to be entered into
for each Prospect established hereunder that
is located in the State of Louisiana, the form of which
is attached hereto as Exhibit "E."
"Texaco Co-Working Interest Owner" is any Third
Party who owns a real property interest
with Texaco in any Lease listed on Exhibit "A".
"Third Parties" means a Person not a Party to this
Agreement.
"Well Costs" means the costs and expenses of all
services and materials used and associated
with drilling, sidetracking, deepening, testing,
completing, and equipping a well hereunder, including,
but not limited to the costs and expenses associated with
the following items: (1) permitting with
applicable government agencies; (2) drill site
preparation (including hazard surveys); (3) actual drilling,
deepening or sidetracking operations (including
mobilization and demobilization of the rig to the drill
site); (4) logging, coring and testing of the well for
the presence of oil and/or gas; (5) completing and
equipping the well for production (up to and including
wellhead connections in the event a well is not
then equipped with wellhead connections); (6) the costs
of Plugging and Abandonment if the well is not
saved for production; (7) the cost to temporarily abandon
a well; and (8) the drilling overhead rate for
the well as set forth in the applicable Accounting
Procedure attached to the Operating Agreement,
Farmout Agreement or Sublease. All such costs and
expenses shall be determined in accordance with
the Accounting Procedure.
"Unit" means the pooling of all or a portion of one
or more Leases with all or a portion of
another lease or leases not subject to this Agreement.
1.3 Exhibits.
The following Exhibits are attached hereto and
incorporated herein by reference:
Exhibit "A" Leases Subject to this Agreement
Exhibit "A-1" Early Relinquishment Termination Schedule
Exhibit "B" Texaco Identified Prospects
Exhibit "C" Area of Mutual Interest
Exhibit "D" Farmout Agreement
Exhibit "E" Sublease
Exhibit "F" Prospect Dispute Resolution Procedure
Exhibit "G" Operating Agreement
Exhibit "H" Confidentiality Agreement
Exhibit "I" Dispute Resolution Procedure
(Excepting Prospect Disputes)
Exhibit "J" Declaration of Agreement
1.4 Rules of Construction.
For purposes of this Agreement:
(a) Unless the context otherwise requires: (1) "or" is
not exclusive; (2) an accounting term
not otherwise defined has the meaning assigned to it in
accordance with accounting principles
generally accepted in the United States of America; (3)
words in the singular include the plural,
and words in the plural include the singular; (4) words
in the masculine include the feminine,
words in the feminine include the masculine and words
with appropriate correlative meanings
include such correlative meanings; (5) any date specified
for any action that is not a Business
Day shall be deemed to mean the first Business Day after
such date; (6) reference to a Person
includes such Person's successors and assigns and, in the
case of governmental bodies, Persons
succeeding to their respective functions and capacities;
and (7) any amounts due or payable
under this Agreement shall be paid in United States
currency.
(b) References to Articles and Sections are, unless
otherwise specified, to Articles and
Sections of this Agreement. Neither the captions to
Articles or Sections thereof nor the Table of
Contents shall be deemed to be a part of this Agreement
but are added for convenience only.
(c) References herein to any agreement or other
instrument shall, unless the context
otherwise requires (or the definition thereof otherwise
specifies), be deemed references to the
same as it may from time to time be changed, modified,
supplemented, amended or extended.
There is no incorporation by reference herein unless
expressly so stated.
ARTICLE 2
2. CONTRACT AREA.
2.1 Contract Area.
This Agreement shall cover certain non-producing
leasehold rights and interests of Texaco in and
to the Leases described in Exhibit "A." There are Leases
on Exhibit "A" which are currently held by
production and others which are in their primary term. The
productive areas on the Leases held by
production are specifically excluded both horizontally
and vertically from this Agreement and reserved by
Texaco. It is understood between the Parties hereto that
this Agreement shall apply only to the non-
productive portions of the referenced Leases as those
non-productive areas are specifically identified on
Exhibit "A" as Available Acreage. This Agreement
therefore shall cover only the Contract Acreage as
described on Exhibit "A" and all other portions of the
Leases subject hereto are specifically excepted from
this Agreement and reserved by Texaco.
2.2 Texaco Prospects.
Attached hereto as Exhibit "B" is a list of
Prospects Texaco has identified on various Leases
subject to this Agreement. Prior to the execution of
this Agreement, a technical presentation was given to
McMoRan by Texaco covering each of these Prospects.
Within thirty (30) days from the Effective Date
of this Agreement, McMoRan will notify Texaco in writing
of its selection and commitment to drill two
(2) or more of the Prospects identified on Exhibit "B"
for the purpose of spending at least $10,000,000.00
with respect to the interest of Texaco. This commitment
to spend at least $10,000,000.00 for the account
of Texaco shall be in addition to those amounts
referenced in Section 7.1 below, subject to the provisions
of Section 7.7. Once McMoRan has selected the Prospects
it will drill, the provisions of Article 5 herein
shall apply as to the selected Prospects. The Initial
Test Well on the Prospects which McMoRan selects to
drill must be commenced within the first twelve (12)
months from the Effective Date of this Agreement
unless mutually agreed to the contrary by the Parties
hereto. In the event McMoRan is unable to drill or
cause to be drilled a well on a Prospect selected from
Exhibit "B" after a good faith attempt to do so,
McMoRan will have the right to select a substitute
Prospect from the remaining Prospects listed on Exhibit
"B" or elect to drill a Prospect it generates from the
Leases listed on Exhibit "A". Should McMoRan elect
to substitute for the undrilled Prospect a Prospect
developed from the Leases listed on Exhibit "A", Texaco
shall have the same rights and options as it would have
had if the Prospect had been selected from Exhibit
"B" (i.e. a Casing Point election).
Exhibit "B" sets forth the description that is
mutually agreed for each of the Exhibit "B" Prospects.
The establishment of the Allocation, Objective Depth and
other items described in Section 4.1 that are
called for in order to constitute a complete proposal for
the drilling of the Initial Test Well hereunder for
each Exhibit "B" Prospect shall be accomplished in
accordance with the provision of Section 4.1.
2.3 Exhibit "B" Prospect Selection Period.
On Exhibit "B" is a column entitled "Option Period
Termination" wherein specific dates are listed
corresponding with each Texaco presented Prospect.
McMoRan will have the right and option on or
before the Option Period Termination date specified for
each Prospect to elect whether or not it will
commit to drill the corresponding Prospect. Should
McMoRan elect to drill a Prospect listed on Exhibit
"B", it will notify Texaco in writing of its election and
the provisions of Article 5 shall apply to each
Prospect so selected. With the exception of the Texaco
Prospects selected by McMoRan pursuant to
Section 2.2 above, should McMoRan fail to commit to drill
an Exhibit "B" Prospect on or before the
expiration of the Option Period Termination date,
McMoRan's option to drill and earn such Prospect in
accordance with the terms and conditions of this
Agreement shall automatically terminate without any
further action by either Party. Effective as of the
expiration of the Option Period Termination Date the
acreage associated with each of these Prospects, as
determined by Texaco, shall be excluded from this
Agreement and McMoRan will no longer have the right and
option to earn any portion of such acreage or
Prospect.
2.4 Area of Mutual Interest.
Absent an agreement to the contrary, in the event
on or before four (4) years from the Effective
Date of this Agreement McMoRan or its Affiliates acquires
an interest in a lease covering any of the
blocks identified on Exhibit "C", or any portion of such
blocks, then Texaco's rights and options as stated
in this Agreement regarding the overriding royalty and
working interest options shall apply to the interest
so acquired by McMoRan or its Affiliates. Based on
Texaco's elections as provided herein, McMoRan or
its Affiliates will assign to Texaco the applicable
overriding royalty or working interest in and to the
acquired lease at no cost to Texaco. If Texaco elects to
acquire a working interest, McMoRan or its
Affiliates will assign to Texaco Operating Rights in and
to the Prospect under which Texaco has elected to
acquire such working interest. Should Texaco elect to
acquire an overriding royalty, such overriding
royalty will be assigned to Texaco within thirty (30)
days of notice to McMoRan of such election. Texaco
will acquire its proportionate share of the obligations,
if any, associated with the acquired interest. In
addition, Texaco's overriding royalty or working interest
in such acquired lease shall be in the same
proportion as Texaco's previous interest in the lease if
Texaco owned such an interest, or if Texaco did not
have a previously owned interest in the lease, in the
same proportion as the offsetting Lease in which
Texaco has or had an ownership interest.
In the event Texaco should acquire an additional or
initial interest in any lease on a block listed on
Exhibit "C", Texaco will commit and include such interest
in and to this Agreement during the term
hereof. McMoRan's rights and options as provided herein
shall apply to any such additional or initial
interest acquired by Texaco as to the additional or
initial interest in such Exhibit "C" leases.
2.5 Early Relinquishment Lease Schedule.
Attached as Exhibit "A-1" is a list of Leases which
shall be subject to this Agreement for the
period of time shown in the "Option Period Termination
Date" column of said Exhibit "A-1". Should
McMoRan commit to pursue the drilling of an Exploratory
Well on any of the Leases listed on Exhibit "A-
1" on or before the corresponding Option Period
Termination Date shown for a particular Lease by
presenting its proposal to drill under Section 4.1, then
that particular Lease shall remain subject to this
Agreement and McMoRan's rights and options associated
with such Lease(s) shall continue. For any
Lease listed on Exhibit "A-1" where McMoRan does not
commit to pursue the drilling of an Exploratory
Well on or before the Option Period Termination Date,
this Agreement shall automatically terminate on
the Option Period Termination Date as to each such Lease.
ARTICLE 3
3. TERM OF AGREEMENT.
3.1 Term.
This Agreement shall begin on the Effective Date
and shall continue for a period of forty-two (42)
months (this 42 month period hereinafter referred to as
the "Primary Term"). If, prior to the end of
Option Period 3 as defined below, McMoRan has satisfied
the minimum financial obligations as specified
in Article 7, or is entitled to an extension as provided
under Section 7.10, this Agreement will be
automatically extended for an additional six (6) month
period (hereinafter referred to as the "Extended
Term"). At the end of the Primary Term or, if this
Agreement is extended as provided above, at the end of
the Extended Term, the provisions of Article 26 shall
apply.
3.2 Option Periods.
To effect the purposes of this Agreement, the
Primary Term shall be divided into four (4) separate
periods or segments identified as "Option Period 1",
"Option Period 2", "Option Period 3", and "Option
Period 4" (hereinafter referred to individually as
"Option Period" and collectively as "Option Periods").
These periods shall run sequentially in numeric order
with no lapse in time between the expiration of one
Option Period and the beginning of the next. The
separate Option Periods shall be defined as follows:
3.2.1 Option Period 1: "Option Period 1" shall
begin on the Effective Date and continue
for a period of eighteen (18) months.
3.2.2 Option Period 2: "Option Period 2" shall
begin on the first day of the nineteenth
(19th) month after the Effective Date and continue
through the last day of the thirtieth
(30th) month.
3.2.3 Option Period 3: "Option Period 3" shall
begin on the first day of the thirty-first
(31st) month after the Effective Date and continue
through the last day of the forty-second
(42nd) month.
3.2.4 Option Period 4: Should McMoRan be entitled
to "Option Period 4" as provided
in this Agreement, Option Period 4 shall begin on the
first day of the forty-third (43rd)
month after the Effective Date and continue through the
last day of the forty-eighth (48th)
month.
Once all applicable Option Periods have terminated, the
only acreage McMoRan will have access to will
be the acreage covered by the Farmout Agreement(s) and/or
Sublease(s) applicable to the Prospects
McMoRan has earned or elected to drill, subject to the
provisions of Section 7.2.4.
ARTICLE 4
4. PROSPECT IDENTIFICATION.
4.1Prospect Identification.
(a) In the event, during the term of this
Agreement, McMoRan identifies a Prospect on the
Contract Area on any Lease(s) subject hereto and wishes
to propose the drilling of an Initial
Test Well thereon or on lands pooled or unitized
therewith, such proposal by McMoRan shall be
presented at a detailed technical meeting to Texaco,
including without limitation, (1) a detailed
presentation of McMoRan's geological, geophysical and
engineering interpretations and
evaluations, including, but not limited to McMoRan
integrating any speculative and/or
proprietary 3-D seismic reprocessing data, subject to any
license or other contractual restrictions
imposed upon McMoRan; (2) McMoRan's drilling and
evaluation program and associated
AFE; (3) the proposed outline of the Prospect, possible
exploration, delineation and/or
development scenarios including cost estimates therefor,
when available. Should McMoRan's
proposed Prospect be comprised of all or a portion of
more than one (1) Lease subject hereto or
a Lease(s) or portions thereof and a lease (or portion
thereof) not subject to this Agreement in
which McMoRan owns an interest and/or has the
right/option to earn an interest, McMoRan
shall also provide to Texaco a proposed Allocation.
Except to the extent specifically restricted
by contract with Third Parties, McMoRan shall, prior to
the end of such technical meeting,
provide Texaco with color copies of any and all data
presented at such technical meeting.
Provided Texaco has a license to all the seismic data
utilized in proprietary reprocessing by
McMoRan, in order to assist Texaco in determining whether
or not to participate in the Initial
Test Well and Prospect as set forth below, McMoRan shall,
subject to contractual restrictions,
allow Texaco to utilize and work in McMoRan's offices any
reprocessed proprietary 3-D
seismic data which McMoRan has relied upon in proposing
the Initial Test Well or Prospect and
which directly relates to said well and/or Prospect.
This Section 4.1 shall not apply to a
proposal to drill a Texaco Co-Working Interest Owner
Initial Test Well by a Texaco Co-
Working Interest Owner which shall be governed by Section
4.2, below.
(b) The detailed technical meeting referenced
above in Section 4.1(a) shall be hosted by
McMoRan at McMoRan's offices in New Orleans upon ten (10)
Business Days prior written
notice to Texaco from McMoRan, unless mutually agreed
otherwise by the Parties. Any
technical meeting proposing an Initial Test Well shall be
held no less than sixty (60) days prior
to McMoRan spudding the Initial Test Well unless
otherwise mutually agreed. Texaco and
McMoRan shall mutually agree on the Prospect description
and Allocation, if applicable,
including the acreage to be allocated to the Prospect and
any depth limitation with respect thereto.
The acreage to be allocated to the Prospect will be
sufficient to encompass the potential drainage
area of all objective zones of the Prospect described on
a surface acreage basis in increments not
smaller than a 1/4 1/4 1/4 block.
If Texaco agrees with McMoRan's Prospect description and
Allocation, if applicable, Texaco
will have thirty (30) days to advise McMoRan of its
election as applicable under Section 5.3.2
herein. Should Texaco disagree with McMoRan's Prospect
description and/or Allocation, then
within ten (10) Business Days after the technical meeting
described above, Texaco shall notify
McMoRan it disagrees with the Lease(s), or portions
thereof, McMoRan has identified as
constituting the Prospect and/or the Allocation, as
applicable, and shall propose an alternate
description. Failure by Texaco to notify McMoRan of its
disagreement within such ten (10) day
period shall be considered agreement by Texaco both to
the Lease(s), or portion thereof,
McMoRan has identified as comprising the Prospect and
also the Allocation, if applicable. If
Texaco notifies McMoRan of its disagreement within the
aforesaid time, then McMoRan and
Texaco shall meet at McMoRan's offices in New Orleans
within five (5) days after receipt by
McMoRan of the notification and seek to reach agreement
on the Leases or portion thereof
comprising the Prospect and the Allocation (if
applicable). After good faith negotiations, if the
Parties fail to agree on the Lease(s) or portion(s)
thereof and depths comprising such Prospect at
such meeting, or the Allocation, if applicable, then
immediately thereafter both Texaco and
McMoRan shall resolve said dispute consistent with the
Prospect Dispute Resolution Procedure
(Exhibit "F").
(1) Provided there is no potential Lease expiration,
within forty-five (45) days from
the date of the technical meeting or, if the Parties have
been unable to agree on either
the areas and depths of the Lease(s) comprising the
Prospect or the Allocation and have
had to resort to the procedures set forth in Exhibit "F",
within ten (10) Business Days
from the decision of the arbitrator, Texaco shall have
the option to make the elections as
specified under Section 5.3 below.
(2) If the Lease where the proposed Initial Test
Well will be drilled will expire
within ninety (90) days, Texaco's aforesaid election
shall be made within ten (10)
Business Days of the meeting at which Texaco and McMoRan
attempted to resolve
their disagreement about the areas and depths of the
Leases comprising the Prospect or
the Allocation, as applicable. This election shall be
made even if the Parties have been
unable to agree on the areas and depths of the Leases
comprising the Prospect or the
Allocation and have elected to proceed under the Prospect
Dispute Resolution
Procedure (Exhibit "F"), and such dispute resolution
procedure has not been completed
on the date of Texaco's election.
(c) It is understood between the Parties hereto that
there may be occasions where Third
Parties are participating with McMoRan in the drilling of
a Prospect where McMoRan and said
Third Parties have previously executed an operating
agreement covering the subject Prospect.
Should an operating agreement exist, McMoRan will have
the obligation to provide a copy of
the operating agreement to Texaco at least ten (10)
Business Days in advance of any working
interest participation election Texaco is required to
make. The existing operating agreement
shall be the operating agreement to control operations on
the Prospect. It is understood between
the Parties hereto that in the event Texaco has to accept
and ratify an existing operating
agreement, in the event there are provisions in that
operating agreement which are unacceptable
to Texaco, McMoRan will in good faith attempt to amend
the operating agreement to satisfy
Texaco's concerns.
(d) Any election made by Texaco either to participate
as a working interest owner or to
retain an overriding royalty as detailed herein shall
apply separately on a Prospect by Prospect
basis. In the event a federal or state Unit is formed by
applicable governmental authority, a
single operating agreement covering the entirety of the
Unit will be acceptable.
4.2 Co-Working Interest Owner's Proposals.
(a)This Section 4.2(a) governs a Texaco Co-Working
Interest Owner's proposal to drill an
Exploratory Well at a Remote Location on the Contract
Area. This Section shall not apply to
the Initial Test Well proposed by McMoRan, which is
governed by Section 4.1 above. Should a
Texaco Co-Working Interest Owner propose the drilling of
an Exploratory Well in the Contract
Area (or portion thereof) at a Remote Location prior to
McMoRan proposing its Initial Test
Well applicable to an Exhibit A Lease, Texaco shall
extend to McMoRan, subject to applicable
existing contractual restrictions, the one-time option to
participate in such well. Texaco shall
provide McMoRan with all or that portion of the Co-
Working Interest Owner proposal Texaco
is contractually allowed to disclose. Texaco shall ,
subject to applicable existing contractual
restrictions make, in its sole opinion, relevant
geological, geophysical and/or engineering data
available to McMoRan, if Texaco has any such data
covering the proposal, and Texaco and
McMoRan shall establish a Prospect therefor in accordance
with the procedures described in
Section 4.1
(1) McMoRan will have a one-time option to elect
whether or not it chooses to
participate in the drilling of the Co-Working Interest
Owner Exploratory Well. This
option must be exercised within ten (10) Business Days of
receipt of notice from
Texaco of the Co-Working Interest Owner proposal. Should
McMoRan advise it is
willing to participate, Texaco will contact its Co-
Working Interest Owners in the
Lease(s) under which the proposal has been made and
propose farming out its interest
in the Co-Working Interest Owner proposal to McMoRan
covering the Prospect
established under Section 4.1 above. Should the
necessary number/required percentage
of the Co-Working Interest Owners concur with Texaco's
request to farmout, then the
provisions of Article 5 shall apply to the Co-Working
Interest Owner's proposal and
such Exploratory Well shall be the Initial Test Well as
provided hereunder. Should
McMoRan elect not to participate in the Co-Working
Interest Owner's proposal, then
McMoRan's right and option to drill and earn that portion
of the Contract area
associated with the Co-Working Interest Owner's
Exploratory Well Prospect shall
terminate and the Prospect will thereafter be excluded
from this Agreement should the
Co-Working Interest Owner's Exploratory Well be drilled.
In the event McMoRan
elects not to participate in the Co-Working Interest
Owner's proposal, Texaco will have
the right and option to participate in said proposal and
the Prospect associated with the
proposal shall be excluded from this Agreement should the
Co-Working Interest Owner
Exploratory Well be drilled.
(2) If prior to Texaco's receipt of its Co-Working
Interest Owner's Exploratory
Well proposal McMoRan had identified an identical and/or
similar Prospect pursuant
to Section 4.1(a) on the Lease where the Texaco Co-
Working Interest Owner
Exploratory Well proposal has been made, McMoRan will
continue to be required to
make the election specified in this Section 4.2.
(3) Notwithstanding anything to the contrary
stated in this Section 4.2, if the
existing agreements with Texaco's Co-Working Interest
Owners do not allow
McMoRan's participation in the Co-Working Interest Owners
proposal, or should any
of Texaco's Co-Working Interest Owners refuse to allow
Texaco to farmout all or a
portion of its interest in the Co-Working Interest Owners
Exploratory Well to
McMoRan, then McMoRan shall not be granted the right to
participate in the proposed
well and the acreage associated with the Co-Working
Interest Owners Prospect shall be
excluded from this Agreement should the Co-Working
Interest Owner's Exploratory
Well be drilled. Texaco will have the right and option
to participate in said proposal
and the Prospect associated with the proposal shall be
excluded from this Agreement
should the Co-Working Interest Owner Exploratory Well be
drilled.
(b) Should Texaco receive a Co-Working Interest Owner's
Exploratory Well proposal
covering a portion of the Contract Area where said well
is to be drilled from an Existing Facility
located on a Lease subject hereto, then Texaco may, but
shall not be obligated to, offer
McMoRan the opportunity to participate in such proposal
on the basis described in Section
4.2(a)(1), or as otherwise mutually agreed. If Texaco,
in its sole discretion, chooses not to offer
McMoRan the opportunity to participate in the proposal,
or should McMoRan elect not to
participate in such offered opportunity, then the
Prospect associated therewith will be
specifically excluded from this Agreement and McMoRan's
rights and options pursuant to this
Agreement associated with the Co-Working Interest Owners
Prospect will terminate if the well
proposed is drilled.
4.3 Restriction on Use of Existing Platforms.
Notwithstanding anything to the contrary in Section 4.2
above, this Agreement in no way will
be construed in any manner whatsoever as granting a right
and/or option for McMoRan to utilize any
platform, well, machinery, production equipment, pipeline
and/or any other improvement and
equipment in which it does not own an interest located on
and/or associated with any Lease subject
hereto, irrespective of a Texaco Co-Working Interest
Owner's proposal to drill a well from an existing
platform into the Contract Acreage. McMoRan will have
the obligation to negotiate and execute a
mutually agreeable platform use and/or production
handling agreement with Texaco and, if required, the
other owners of said Platform and/or facilities thereof
prior to McMoRan being given the opportunity to
participate in a Texaco Co-Working Interest Owner's
proposal. Should McMoRan fail to enter into a
mutually agreeable platform use and/or production
handling agreement, McMoRan shall be deemed to
have forfeited its right to earn an interest in the
Contract Acreage encompassing the Prospect the Texaco
Co-Working Interest Owner proposes to drill if said well
is actually drilled. If McMoRan does execute
the appropriate platform use and/or handling agreement
and participates in any such Texaco Co-
Working Interest Owner well, such well shall be deemed to
be the Initial Test Well for such Prospect
and McMoRan shall be entitled to a Farmout Agreement or
Sublease as the case may be.
4.4 Election Not to Participate in a Co-Working
Interest Owner Well.
Should McMoRan elect not to participate in a Texaco
Co-Working Interest Owner well
proposal and the well is drilled, McMoRan shall be deemed
to have automatically forfeited its right
and/or option to earn any portion of the Contract Acreage
included in the Prospect covered by the
Texaco Co-Working Interest Owners proposal. However, in
the event McMoRan has independently
identified a Prospect pursuant to Section 4.1 on the
portion of the Contract Acreage to be evaluated by
the Co-Working Interest Owners proposed well prior to
receiving written notice of said Texaco Co-
Working Interest Owner proposal and if McMoRan's Prospect
is not penetrated by the proposed well as
same may be deepened or sidetracked in connection with
the initial drilling operations for said well,
McMoRan's forfeiture shall not include the geographic
area assigned to McMoRan's Prospect, less the
associated subsea depths forfeited by virtue of not
participating in said Texaco Co-Working Interest
Owner's well proposal. Notwithstanding anything in this
Section 4.4 to the contrary, it is fully
understood and acknowledged that in the event both Texaco
and McMoRan elect not to participate in
the drilling of said Texaco Co-Working Interest Owner
Initial Test Well, the Contract Acreage
associated with the Prospect shall nevertheless be
excluded from this Agreement and McMoRan's rights
and options associated therewith shall terminate upon
notice from Texaco if the well is actually drilled.
4.5 Rights Limitation on Use of Existing Wells.
Notwithstanding anything to the contrary in this
Agreement, without the express approval of
Texaco, McMoRan shall not have the right and/or option to
participate in: (i) the deepening and/or
sidetracking of any existing well which has been drilled
into the Contract Acreage prior to the Effective
Date; and/or (ii) any well drilled from a platform by
Texaco and/or its Co-Working Interest Owners in
the Contract Acreage subsequent to the Effective Date for
which McMoRan did not have a participating
interest, that is also subsequently deepened and/or
sidetracked into the Contract Acreage subject hereto.
In either event, the subsea depths portion of the
Contract Acreage which McMoRan has not earned
penetrated by said deepening and/or sidetracking
originally made part hereof shall no longer be made
subject to this Agreement upon notice from Texaco.
4.6 Wells Proposed by Texaco after the Effective Date.
During the term of this Agreement Texaco may identify one
or more Prospects and submit a
proposal to McMoRan to drill a well or wells, or to
deepen or sidetrack an existing Texaco well or wells
to evaluate such Prospect. Texaco shall give McMoRan
notice regarding Prospects developed by
Texaco and shall submit such proposals to McMoRan in
writing. Texaco's notice shall include an
identification of the Prospect and the information
regarding the well to be drilled. It is agreed between
the Parties hereto that in the event Texaco proposes a
Prospect and well after the Effective Date of this
Agreement, the rights and options of Texaco and McMoRan
as to the Prospect and well proposed shall
apply as if the Prospect had been listed on Exhibit "B"
at the time of execution of this Agreement. All
Exhibit "B" Prospects initiated under this Section 4.6
shall be established in accordance with the
procedures set forth in Section 4.1, with the exception
that Texaco shall propose the Prospect to
McMoRan and McMoRan shall have the right to accept the
Prospect for inclusion under the terms of
this Agreement. Should McMoRan choose not to include
Texaco's Prospect under the terms of this
Agreement, Texaco will have the right and option to drill
or cause to be drilled the Prospect and exclude
the acreage associated with this Prospect from this
Agreement once the drilling contract to drill the
proposed well has been executed.
4.7 Access to Well Data. 4.7 Access to Well Data
tc \l 2 "4.7 Access to Well Data"
During the term of this Agreement Texaco shall be
entitled to receive, at no cost, a copy of any
and all well data obtained from any well drilled or
caused to be drilled by McMoRan or its Exploration
Program Co-venturers located on the Contract Acreage or
lands pooled therewith under any Farmout
Agreement or Sublease.
4.8 Protection from Drainage.
The Parties hereto recognize that producible reservoirs
common to both a Lease and adjacent or
adjoining lands not listed on Exhibit A may exist. In
the event McMoRan elects to develop or produce
hydrocarbons from such common reservoirs from adjacent
lands not listed on Exhibit A, McMoRan, in
good faith, shall attempt to pool or unitize that portion
of the Lease so as to reasonably protect the Lease
from drainage. In addition, in the event a Third Party
drills a well draining or capable of draining the
Contract Acreage, McMoRan will have the obligation to
take appropriate actions, to the extent it has the
right to do so, to protect the Contract Acreage from
drainage, including but not limited to drilling a well
pursuant to this Agreement. Should McMoRan fail or
refuse to timely take the above required steps
necessary to protect the Contract Acreage from drainage,
McMoRan shall forfeit that portion of the
Contract Acreage subject to drainage upon receipt of a
written demand from Texaco for the release of
said acreage.
4.9 Third Party Well Proposal Restriction.
Prior to McMoRan drilling (or causing to be
drilled) the Initial Test Well on a Prospect, or
participating in a Texaco Co-Working Interest Owner
Exploratory Well on a Lease, only a permitted
successor or assign of McMoRan, if any, to the rights
and/or options prescribed herein, shall have the
right and/or option to propose a well under this
Agreement as to such Exhibit A Lease.
ARTICLE 5
5. FARMOUT/SUBLEASE ACREAGE5.
5.1 Individual Farmout Agreements.
Pursuant to Section 4.1 above, should McMoRan
identify one or more Prospects it chooses to drill
on the Contract Acreage, the Parties shall enter into a
separate Farmout Agreement or Sublease (if the
Prospect(s) is located on any portion of a Louisiana
State Lease), similar in form to that which is attached
hereto as Exhibit "D" for the Farmout Agreement and
Exhibit "E" for the Sublease, as appropriately
modified to conform to the elections made under Section
5.3, below covering each Prospect McMoRan
commits to drill. The intent of the Parties hereto is
that each drillable Prospect identified by McMoRan
shall be independent and not be combined with any other
Prospect. The rights, obligations and elections
of the Parties, as stipulated in this Article 5, shall
apply separately for each Prospect.
5.2 Contract Acreage Restrictions/Limitations.
Under each Farmout Agreement or Sublease, the
geographic acreage associated with the identified
Prospect, including any geological restrictions/depth
limitations, will be identified and specifically stated
as constituting the Farmout Acreage or Sublease Acreage.
Each Prospect and the acreage associated
therewith will be treated independently of the other
Prospects identified on the Contract Acreage. The
acreage to be covered by the Farmout Agreement or
Sublease and any restrictions or limitations associated
therewith will be determined under Article 4. In the
event the Parties hereto, after good faith negotiations,
are unable to mutually agree on the acreage to be covered
by the Farmout Agreement or Sublease, or any
restrictions or limitations associated therewith, the
Prospect Dispute Resolution Procedure , as more fully
described in Section 4.1 shall apply. Should the
Parties, after good faith negotiations, be unable to
mutually agree on any term or condition to any Farmout
Agreement or Sublease other than those specified
in the main body of this Agreement, or in the forms
attached hereto as Exhibits "D" and "E", then the
Parties agree that the particular Prospect subject to the
disputed Farmout Agreement or Sublease shall be
excluded from the Contract Acreage and McMoRan shall
release same from this Agreement in a similar
matter as provided under Article 26 .
5.3 Texaco's Participation Options and Overriding Royalty.
Under any Farmout Agreement or Sublease
contemplated pursuant to this Agreement, Texaco
shall retain the continuing rights, options and elections
as specified below:
5.3.1 On Prospects listed on Exhibit "B", or
deemed, pursuant to Section 4.6 to be listed on
Exhibit "B", presented by Texaco to McMoRan, Texaco
shall:
5.3.1.1 On each Lease in each Prospect that is
currently held by production or on which
there is a well which satisfies the criteria of 30 CFR
250.111 on the Effective
Date of this Agreement, be carried, at no cost or
expense, to Casing Point on
the Initial Test Well, its substitute or an additional
well. At Casing Point,
Texaco will have the option to (1) begin participating in
the continued
operations of the Initial Test Well and all subsequent
operations on the Prospect
pursuant to the terms and conditions of the applicable
operating agreement, for a ******** working interest, or
(2) retain a ******** overriding royalty convertible
to a ******** working interest in each Lease to the extent it is
included in the Prospect at
Project Payout. In the event Texaco elects to acquire a
working interest, in no
event will Texaco be required to reimburse McMoRan for
any costs or
expenses incurred or accrued in regard to any operations
conducted on or
associated with the Prospect prior to Casing Point or
conversion of its
overriding royalty interest, whichever is applicable.
5.3.1.2 On each Lease in each Prospect that is
not described in Subsection 5.3.1.1, be
carried, at no cost or expense, to Casing Point on the
Initial Test Well, its
substitute or an additional well. At Casing Point,
Texaco will have the option
to (1) begin participating in the continued operations of
the Initial Test Well
and all subsequent operations on the Prospect pursuant to
the terms and
conditions of the applicable operating agreement, for a
******** working interest, or (2) retain a ********
overriding royalty convertible to a ******** working
interest in each Lease to the
extent it is included in the Prospect at Project Payout.
In the event Texaco
elects to acquire a working interest, in no event will
Texaco be required to
reimburse McMoRan for any costs or expenses incurred or
accrued in regard to
any operations conducted on or associated with the
Prospect prior to Casing
Point or conversion of its overriding royalty interest,
whichever is applicable.
5.3.2 On any Prospect not listed on Exhibit "B",
Texaco shall:
5.3.2.1 On each Lease in each Prospect that is
currently held by production or on which
there is a well which satisfies the criteria of 30 CFR
250.111on the Effective
Date of this Agreement, have the right and option to (1)
participate with
McMoRan for a ******** working interest in the Initial Test
Well, its substitute or additional well under the terms
and conditions of the
applicable operating agreement, or (2)******** overriding
royalty convertible to a ********
working interest in each such
Lease to the extent it is included in the Prospect at
Project Payout. In the event
Texaco elects to convert its overriding royalty to a
working interest, in no event
will Texaco be required to reimburse McMoRan for any
costs or expenses
incurred or accrued in regard to any operations conducted
on or associated with
the Prospect prior to conversion of its overriding
royalty interest.
5.3.2.2 On each Lease in each Prospect that is
not described in Subsection 5.3.2.1, have
the right and option to (1) participate with McMoRan for
a ********working interest in the Initial
Test Well, its substitute
or additional well under the terms and conditions of the
applicable operating agreement, or (2) ********
overriding royalty convertible to a ********working interest
in each such Lease to the extent it
is included in the Prospect at Project Payout. In the
event Texaco elects to
convert to its overriding royalty to a working interest,
in no event will Texaco
be required to reimburse McMoRan for any costs or
expenses incurred or
accrued in regard to any operations conducted on or
associated with the
Prospect prior to conversion of its overriding royalty
interest.
5.3.3 Under Subsections 5.3.1.1 and 5.3.1.2 above,
McMoRan shall pay ********of Texaco's share of the Well Costs to Casing
Point.
5.3.4 In the event Texaco elects to participate upfront
with a working interest in the Initial
Test Well on a Prospect in accordance with the provisions
of Section 5.3.2, then Texaco
and McMoRan agree to enter into an agreement implementing
such election, including
provisions setting forth the requirements for McMoRan's
earning of an assignment(s) of
operating rights in accordance with this Agreement,
obligating Texaco to execute the
appropriate assignment(s) of operating rights (with no
reservation of an overriding
royalty interest) subject to the satisfaction of the
applicable earning requirements, and
providing that the Parties will share the costs and risks
of the Initial Test Well as well as
all subsequent operations on a non-promoted basis in
accordance with the provisions of
an operating agreement consistent with the provisions of
Section 5.13.
5.3.5 Should Texaco fail to timely notify McMoRan in
writing of its election to participate
for a working interest, then Texaco's election shall be
deemed to be an election to retain
an overriding royalty as specified under Section 5.3.
5.4 General Farmout Agreement Terms and Conditions.
Notwithstanding anything herein to the contrary in
Section 5.3 above, Texaco will either
participate and/or farmout or sublease to McMoRan all or
that portion of its leasehold interest, as to which
it does not elect to participate, in the Contract Acreage
located in each Prospect McMoRan chooses to
drill. Subject to Texaco's elections as stipulated in
Section 5.3 above, the Texaco interest in the Contract
Acreage to be farmed-out or subleased will vary. Each
applicable Farmout Agreement or Sublease will
state the Texaco interest being farmed-out or subleased.
Except as otherwise provided in this Agreement,
the following terms and conditions shall be applicable to
all the Farmout Agreements and Subleases
executed by the Parties hereto pursuant to the provisions
of this Agreement.
5.4.1 Within ninety (90) days from the execution of
a Farmout Agreement or Sublease, or other
mutually agreed period of time, McMoRan will, at its sole
cost, risk and expense, and subject to
rig availability and the obtaining of required permits,
commence the drilling of the Initial Test
Well under the Farmout Agreement or Sublease. The
surface location, bottomhole location and
primary objective for the Initial Test Well shall be
mutually agreed upon between Texaco and
McMoRan, provided, however, in the event the Parties do
not agree, McMoRan's proposal(s)
shall govern unless Texaco elects, as provided in this
Agreement, to participate in the drilling of
the applicable well. Subject to the exception stated
below, McMoRan will not be required to
drill all Prospects identified during any Option Period
simultaneously; however, McMoRan will
have the obligation to drill the Initial Test Well on
each Prospect consecutively during any
individual Option Period with no more than ninety (90)
days elapsing between rig release on the
Initial Test Well on one Prospect as to which a Farmout
Agreement or Sublease has been
executed and commencement of the Initial Test Well on the
next Prospect. The order in which
all Initial Test Wells will be drilled during any
individual Option Period, and the grouping of
the Prospects, will be left to the discretion of McMoRan.
The well commencement deadlines
referenced herein, as will be reflected in the
appropriate Farmout Agreements or Subleases,
shall be subject to rig availability and the obtaining of
required permits, consents and waivers (if
any).
5.4.2 If prior to reaching the Objective Depth on
any well drilled pursuant to the provisions
stated in a Farmout Agreement or Sublease, conditions are
encountered in such well which render
further drilling operations impractical, McMoRan will
have thirty (30) days in which to advise
Texaco of its election to drill a substitute well. In
the event McMoRan elects to drill a substitute
well, the well must be commenced within sixty (60) days
after the date the rig is released from the
previous well, subject to rig availability and the
obtaining of any required permits. Any substitute
well drilled will be drilled under the same terms and
conditions as the well it is replacing.
McMoRan will not be required to pursue the drilling of
the next Prospect located on the Contract
Acreage during a specific Option Period until it has
drilled a well, or its substitute(s), to the
Objective Depth on the Prospect where it was currently
conducting drilling operations.
5.4.3 In the event the Initial Test Well or
its substitute on any individual Prospect is (1) drilled
to the Objective Depth, (2) satisfies the criteria under
the provisions of 30 CFR 250.111 as a well
capable of producing in paying quantities, and (3)
McMoRan, within sixty (60) days from rig
release, commits in writing to Texaco its plans to
install the necessary facilities as soon as possible
to develop the hydrocarbons discovered, McMoRan will have
earned an assignment from Texaco
of Texaco's Operating Rights, as specified herein, in
that portion of the Contract Acreage
associated with the Prospect drilled from the surface
down to the stratigraphic equivalent of the
total depth drilled and logged, or such deeper depths as
mutually agreed, (this well being an
"Earning Well"), subject to the reservations stated in
Section 5.3 above.
In the event any such Initial Test Well or
its substitute or any subsequent well under Section 5.12
does not reach the Objective Depth due to encountering
any formation which cannot be
penetrated, or any adverse condition which cannot be
overcome by means considered reasonable
and appropriate in the industry and at reasonable cost,
but such well satisfies the criteria described
above in (2) and (3) of this Section 5.4.3, McMoRan will
have earned an assignment of Operating
Rights, as specified herein in that portion of the
Contract Acreage associated with the Prospect
drilled from the surface down to the stratigraphic
equivalent of the base of the deepest geological
horizon that satisfies the criteria of 30 CFR 250.111 in
such well, excluding any reserved depths
(this well also constitutes an Earning Well but limited
as to depth described above). No such
Earning Well shall preclude the drilling of a substitute
well.
5.4.4 Unless otherwise specifically stated in
this Agreement, any Operating Rights assignment
made by Texaco in favor of McMoRan, pursuant to the
provisions stated in the applicable
Farmout Agreement(s) or Sublease(s), will if applicable
be made subject to Texaco retaining the
overriding royalty specified in Section 5.3 in and to all
production from the Prospect acreage
before Project Payout (as defined below) for each
Prospect. Under Farmout Agreements or
Subleases where Texaco retains an overriding royalty
interest, at Project Payout, Texaco will have
the option of retaining its overriding royalty interest
in the Prospect or converting the retained
overriding royalty interest to a ********working interest.
Texaco's election to
convert its overriding royalty to a working interest
shall be exercisable on a Prospect by Prospect
basis upon Project Payout as defined below.
5.4.5 McMoRan shall not earn or have the right to earn
any interest in nor be responsible or
liable for any existing wells, platforms, flowlines or
environmental conditions which are located
on any portion of the Contract Acreage prior to the
Effective Date of this Agreement. In addition,
notwithstanding anything herein to the contrary, under no
circumstances will McMoRan be
allowed to earn any productive sand segment in pressure
communication with Texaco's wells
located in or around any acreage covered by any Farmout
Agreement or Sublease executed
pursuant hereto except as otherwise mutually agreed. The
pressure communication and common
reservoir restrictions are found under Article 6 below.
5.4.6 The dollar amount of liquidated damages for failure
to drill the Initial Test Well, to be
filled in the blank space of each Farmout Agreement or
Sublease, shall be an amount not to
exceed ******** of the AFE dry hole cost for
the Initial Test Well for each Prospect
on which the Parties mutually agree liquidated damages
will be appropriate.
5.5 Impenetrable Substances.
If McMoRan drills to a depth shallower than the
agreed upon Objective Depth and
encounters "impenetrables," including any formation which
cannot be penetrated, or any adverse
condition which cannot be overcome, by means considered
reasonable and appropriate in the industry
and at reasonable cost, McMoRan shall have the right to
drill a substitute well in accordance with
Subsection 5.4.2 above.
5.6 Project Payout.
"Project Payout" shall be defined as that point in
time when the proceeds from the sale of
production attributable to McMoRan's interest farmed in
from Texaco in all successful wells drilled by
McMoRan on a Prospect [exclusive of a) royalties which
are to be paid or delivered to Lessor under the
terms of the applicable leases, b) Texaco's overriding
royalty, c) any other burdens of record covering the
Contract Acreage existing prior to the Effective Date of
this Agreement d) transportation charges allowed
under the terms of the applicable Lease(s), e) Third
Party and/or Texaco processing, handling and
transportation fees, and f) any production taxes], equal
the sum of the total actual cost incurred by
McMoRan attributable to McMoRan's interest farmed in from
Texaco in the drilling, testing, completing,
equipping and workover of all successful wells through
the installation of the wellhead equipment,
including any caissons and/or other type of well
protectors, any flowlines or pipelines installed, production
equipment exclusively purchased for said wells and/or a
platform with production facilities installed to
service such wells and production, and the monthly
operating cost allocated to the wells. The
determination of all Project Payout costs shall be made
in accordance with the Accounting Procedure
attached to the applicable Farmout Agreement or Sublease.
Project Payout shall not include any costs or
expenses associated in any way with any unsuccessful
well(s) drilled or unsuccessful operations conducted
in any well located on the Contract Acreage operated by
McMoRan or in which McMoRan has an interest.
5.7 Payout Notice.
McMoRan shall promptly notify Texaco in writing at
least thirty (30) days prior to the
point in time when McMoRan anticipates Project Payout
will occur on each individual Prospect.
5.8 Option to Participate. 5.8
On each Prospect where Texaco has elected to retain
an overriding royalty before Project
Payout, Texaco shall have the option, on a Prospect by
Prospect basis, to convert its retained overriding
royalty interest to a working interest in all wells
located on each Prospect earned by McMoRan, the
equipment therein and thereon and the production
therefrom, by giving written notice thereof to
McMoRan within sixty (60) days after receipt of the
aforementioned Project Payout notification. In the
event Texaco exercises such option, McMoRan agrees to
assign to Texaco, effective as of the date of
Project Payout, an undivided ******** of
its rights in and to the wells, the equipment
therein, thereon and related thereto, and the production
therefrom attributable to the interest covered by the
applicable Farmout Agreement or Sublease. McMoRan shall
reassign to Texaco ******** of the Operating Rights originally
conveyed by Texaco to McMoRan in said Prospect(s). The
assignment from McMoRan to Texaco shall be free and clear
of all burdens except Lessor's royalty and
other burdens of record covering the earned Contract
Acreage existing prior to the Effective Date of this
Agreement.
5.9 Overriding Royalties.
Any overriding royalties reserved by Texaco
pursuant to any Farmout Agreement or
Sublease shall be delivered or paid to Texaco as herein-
below provided:
(a) The overriding royalties which are reserved herein on
oil and/or other liquid
hydrocarbons that are produced from a Prospect, shall be
an amount equal to the
percent of total production produced and saved at the
wellhead, the separator or drips;
the same shall be delivered to the credit of Texaco in
the pipeline to which the well(s)
may be connected, free of all costs except that the
overriding royalty shall bear its
proportionate share of Third Party transportation costs
actually incurred, if any;
provided, however, if McMoRan, or an affiliate of
McMoRan, purchases or sells such
oil and/or other liquid hydrocarbons at the well(s) or at
a delivery point on or off the
leased premises, McMoRan shall pay the price being paid
for such oil and/or other
liquid hydrocarbons under an arm's-length transaction at
the point of sale for such oil
and/or other liquid hydrocarbons, or the resale price
received by McMoRan, or any
affiliate of McMoRan, whichever is greater, for its own
oil and/or other liquid
hydrocarbons produced from said well(s) received at the
well(s) or at a delivery point
on or off the leased premises after the deduction of
Third Party transportation cost
actually incurred, if any. In no event shall the price
paid be less than the price received
by McMoRan, or an affiliate of McMoRan, after the
deduction of Third Party
transportation cost actually incurred, if any, whichever
is greater. Anything to the
contrary notwithstanding, the price used for determining
Texaco's overriding royalties
shall not be less than the price used for royalty
valuation in favor of the Minerals
Management Service, as Lessor of its respective leases
described herein, or the State of
Louisiana, as Lessor of its respective leases.
(b) The overriding royalties which are reserved herein
on gas, casinghead gas and/or other
gaseous substances shall be an amount equal to the
percent of total production specified
above which may be produced and saved from the Prospect
at the well(s) or on the
lease, the same to be delivered to the credit of Texaco
in the pipeline to which the
well(s) my be connected, free of all costs except that
the overriding royalty shall bear its
proportionate share of Third Party transportation costs
actually incurred, if any;
provided, however, if McMoRan purchases, utilizes or
sells same at the well(s) or at a
delivery point on or off the leased premises, McMoRan
shall pay the resale price
realized therefrom by McMoRan, or an affiliate of
McMoRan, but in no event less than
the gross proceeds received from the sale of such gas,
after deducting the costs of any
required dehydration, separation and Third Party
transportation of such gas which occur
on the leased premises or at a delivery point off the
leases premises. Anything to the
contrary notwithstanding, the price used for determining
Texaco's overriding royalties
shall not be less than the price used for royalty
valuation in favor of the Minerals
Management Service, as Lessor of its respective leases
described herein, or the State of
Louisiana, as Lessor of its respective leases described
herein.
(c) The overriding royalty interest herein
reserved shall bear its proportion of all production
related taxes, if any, which now or hereafter become
applicable thereto or affect same, as
well as its proportionate part of all oil or gas used for
operations hereunder. However,
McMoRan shall pay to Texaco the proportion of said taxes
charged to the overriding
royalty interest herein reserved which are refunded to
McMoRan by the purchaser of
production.
(d) Texaco may, at any time or from time to time,
require that the payment of any or all of the
above reserved overriding royalties be made in kind upon
thirty (30) days written notice.
Any gas contract with a term exceeding six (6) months
executed by McMoRan after the
date hereof shall provide that upon thirty (30) days
written notice of Texaco's intention to
take its overriding royalty gas in kind, such overriding
royalty gas shall be released from
the contract. The right to take overriding royalty in
kind is entirely separate as to oil and
gas; that is, Texaco may take the royalty oil without
taking the gas, or vice versa, and said
right may be exercised as to either of said products from
time to time.
(e) Payments of the aforesaid overriding royalties shall
be made by McMoRan to Texaco as
to oil monthly between the first and the end of the
calendar month next succeeding the
month in which the oil which is covered hereby is sold or
utilized, and as to gas monthly
between the first and the end of the second calendar
month next succeeding the month in
which the gas which is covered hereby is sold or
utilized. Such overriding royalties are
over and above the royalty and overriding royalties
McMoRan is obligated to pay to the
Lessor and others under the applicable Lease(s). McMoRan
agrees it will remit to
Texaco, in the time period set out above, the full amount
of the overriding royalty
due Texaco regardless of the number of co-venturers
McMoRan may have in the
Prospect, if any. Texaco shall look only to McMoRan for
the payment of its
overriding royalty.
5.10 Proportionate Reduction.
All percentage interests of Texaco referred to in
this Article 5 assume that the Texaco Leases
cover the entirety of the mineral interest in each Lease
subject to this Agreement and that Texaco has
the right to one hundred percent (100%) of the working
interest in any well hereunder. In the event that
Texaco's interest in any existing Lease is less than one
hundred percent (100%) of the mineral interest in
any Lease subject hereto, or if Texaco has less than the
right to 100% working interest in any well, then
the percentage interests of Texaco and Operating Rights
interest McMoRan is entitled to receive, and
McMoRan's obligations to bear costs and liabilities,
shall be proportionately reduced to reflect the
actual interests of Texaco in the Contract Acreage,
Leases and Prospect prior to McMoRan earning a
portion thereof pursuant to the applicable Farmout
Agreement or Sublease.
5.11 Failure to Drill the Initial Test Well.
Should McMoRan fail to commence or cause to be commenced
operations for the drilling of the
Initial Test Well on the farmed-out or subleased Prospect
or lands pooled or unitized therewith in
accordance with the terms of the Farmout Agreement or
Sublease, then the Farmout Agreement or
Sublease shall terminate and McMoRan shall be subject to
the liquidated damages penalty stated in the
applicable Farmout Agreement or Sublease.
Notwithstanding the payment of the penalty as specified in
the Farmout Agreement or Sublease, McMoRan shall continue
to have the right and option to again
propose the drilling of an Initial Test Well on a
Prospect created pursuant to the provisions stated in
Article 4 above.
5.12 McMoRan's Continuous Option to Earn.
It is understood and agreed that in the event McMoRan
drills the Initial Test Well and/or
substitute therefor and fails to earn an interest in the
Operating Rights associated therewith pursuant to
the terms and conditions of this Agreement, McMoRan may
drill additional well(s) under the applicable
Farmout Agreement or Sublease or, at its option, shall
have the continuing right and option to earn the
acreage in the Prospect it has failed to earn by
including the acreage in another Prospect under another
Farmout Agreement or Sublease.
5.13 Operating Agreement Execution.
In the event Texaco elects to participate with a working
interest in the Initial Test Well pursuant
to Sections 5.3.1 or 5.3.4, Texaco and McMoRan shall
execute an operating agreement substantially
similar in form to the one attached hereto as Exhibit "G"
within ten (10) Business Days of Texaco's
election to participate. A separate operating agreement
shall be executed for each Prospect in which
Texaco elects to participate with a working interest.
Should McMoRan propose the drilling of an Initial
Test Well pursuant to Section 4.1 above,
and Texaco subsequently elects to participate in the
drilling of said well pursuant to Section 5.3.2
,Texaco and McMoRan shall, as soon as reasonably possible
from Texaco's election to participate, enter
into an operating agreement substantially similar in form
to that which is attached hereto as Exhibit "G"
(the Parties acknowledge that changes in such form may be
necessary to accommodate requests of Third
Parties) to cover the Lease(s) (or the portion thereof)
within the Prospect, such operating agreement to
be effective as of the date of Texaco's election to
become a working interest co-owner, irrespective of
when such agreement is executed. In the event an
operating agreement is already in place between
McMoRan and its co-owner(s), Texaco shall be provided a
copy of such operating agreement at the
detailed technical meeting referred to in Section 4.1
above. Texaco will be required to accept and ratify
such existing operating agreement if it so elects to
become a working interest co-owner specifically
subject to McMoRan's agreement and obligation to, in good
faith, attempt to amend such operating
agreement to satisfy any objections Texaco has to such
operating agreement.
In the event McMoRan earns an interest in any
Prospect farmout or sublease acreage and Texaco
elects to convert its retained overriding royalty
interest to a working interest in an individual Prospect at
Project Payout, the Parties shall enter into a mutually
acceptable form of operating agreement, similar in
form to that which is attached as Exhibit "G", that will
apply exclusively to and control further operations
on that particular Prospect. The operating agreement
shall be negotiated as soon as reasonably practical
after Texaco has made its election to convert its
overriding royalty to a working interest. Texaco's election
to convert its overriding royalty to a working interest
shall apply separately to each Prospect at Project
Payout of that particular Prospect. An election by
Texaco to convert its overriding royalty to a working
interest on one Prospect shall not apply to any other
Prospect. In the event an operating agreement is
already in place between McMoRan and its co-owner(s),
Texaco shall be provided a copy of such
operating agreement at the time it receives notice from
McMoRan that Project Payout will soon be
reached. Texaco will be required to accept and ratify
such existing operating agreement if it so elects to
become a working interest co-owner specifically subject
to McMoRan's agreement and obligation to, in
good faith, attempt to amend such operating agreement to
satisfy any objections Texaco has to such
operating agreement.
5.14 Designation of Operator.
Should an Initial Test Well be proposed by McMoRan on a
Prospect which encompasses all or a
part of a Lease in which Texaco is the one hundred
percent (100%) owner and Operator, Texaco shall
designate McMoRan, under the terms hereof, Operator of
the Contract Area necessary to drill the
proposed well. Should said Initial Test Well be proposed
by McMoRan on a Lease in which Texaco is
not the one hundred percent (100%) owner, but is the
designated Operator, as indicated thereon, Texaco
will provide McMoRan with Designation of Operator forms,
under the terms hereof, naming McMoRan
Operator thereof, after receipt from McMoRan of notice
that all other record title and applicable
operating rights owners of the Contract Acreage in
question have agreed to designate McMoRan as
operator. Should said Initial Test Well be proposed by
McMoRan on a Lease in which Texaco is not the
designated Operator, Texaco will timely provide McMoRan,
under the terms hereof, with Designation
of Operator forms subsequent to McMoRan providing Texaco
with written concurrence from Texaco's
co-owner(s) that they have agreed to designate McMoRan as
Operator. Notwithstanding anything to the
contrary in this Section 5.14, should McMoRan fail to
earn an interest in the Operating Rights as
prescribed herein, McMoRan shall automatically relinquish
operatorship to the entity previously
designated as operator for that portion of the Contract
Acreage McMoRan was designated operator.
Should Texaco at any time become a working interest
owner in any Prospect, and in any operation
subsequent to the drilling of the Earning Well or its
substitutes, Texaco shall have the option, but not the
obligation to assume the responsibility of Operator and
the designated applicant under the applicable
regulations for oil spill financial responsibility
purposes for the Prospect on which it has become a
working interest owner if the majority of the owners in
such Prospect mutually agree (or such other
percentage that may be specified in the applicable
operating agreement).
ARTICLE 6
6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS.
6.1 Pressure Communication Restriction
Notwithstanding anything to the contrary in any
other Section in this Agreement, any productive
sand interval encountered in any well drilled or caused
to be drilled by McMoRan under this Agreement
that is in reservoir or pressure communication with a
productive sand interval that is producing or is
capable of producing in Paying Quantities from any well
drilled prior to the drilling of a McMoRan well
on a Lease by Texaco or its co-owners shall be excluded
from this Agreement and specifically reserved by
Texaco. If at any time McMoRan proposes to drill a well
which could encounter a sand interval(s) which
could potentially be in reservoir or pressure
communication with a productive sand interval(s) that is
producing or capable of producing in any such existing
well as described above, prior to drilling such well
Texaco and McMoRan will establish the criteria for
determining whether the well once drilled would be in
reservoir or pressure communication. In the event
McMoRan drills a well and encounters a sand
interval(s) not originally anticipated to contain
hydrocarbons in Paying Quantities but, upon review by
either Party is believed to potentially be in reservoir
or pressure communication with a productive sand
interval(s) that is producing or capable of producing in
Paying Quantities in an existing well as described
above, the Parties hereto will exchange information and
shall meet as soon as reasonably possible to
establish the criteria for determining whether or not the
interval(s) in question is actually in reservoir or
pressure communication.
McMoRan shall provide Texaco a geologic,
geophysical and engineering review ("the Technical
Review") before or after reaching total depth in any well
drilled hereunder that encounters a productive
hydrocarbon zone that may be in communication with a
productive horizon in such an existing well drilled
by Texaco or its co-owners. Texaco shall advise McMoRan
within 90 business days of the Technical
Review if it, in good faith, believes that a sand
interval encountered in such well is potentially in reservoir
or pressure communication with a sand interval that is
producing or capable of producing in Paying
Quantities from such an existing well drilled by Texaco
or its co-owners. McMoRan and Texaco shall
provide reasonable access to available geologic,
geophysical and engineering data. If Texaco fails to give
McMoRan notice within the 90 day period Texaco shall
cease to have any rights to claim that any interval
encountered in McMoRan's well is in reservoir or pressure
communication with such an interval in a
Texaco well.
In the event there is a disagreement between Texaco
and McMoRan as to whether or not such a
Texaco well containing a producing sand, or sand capable
of producing in Paying Quantities, is in
reservoir or pressure communication with a productive
sand, or sand capable of producing in McMoRan's
well, then within 180 days after the Technical Review or;
if customary and necessary pressure data
specific to the interval in question in McMoRan's well is
not then available; 90 days following receipt of
such data, Texaco and McMoRan shall furnish all available
geological, geophysical and engineering data,
including bottom hole pressure data and reservoir
characteristics, to a mutually acceptable engineering
firm to determine, with reasonable confidence, whether or
not reservoir or pressure communication exists
between such intervals. The decision of the engineering
firm shall be final and binding on the Parties
hereto. The cost of the work performed by the
engineering firm shall be shared equally between Texaco
and McMoRan.
In the event the only sand interval(s) capable of
producing hydrocarbons in commercial quantities
discovered in a well drilled by McMoRan is in reservoir
or pressure communication with one or more sand
interval(s) producing or capable of producing in Paying
Quantities from such an existing Texaco well(s),
then unless otherwise agreed by the Parties, McMoRan
shall not earn any portion of the Prospect as a
result of the drilling of that well. For the purpose of
this Agreement, this particular well shall be
considered unsuccessful and the provisions of Section 5.4
above as to wells incapable of producing in
Paying Quantities shall apply.
In the event that Texaco has timely notified
McMoRan that a sand interval in a McMoRan well is
potentially in reservoir or pressure communication with
such an existing Texaco well as described above,
and the issue has not been previously resolved, prior to
producing any such sand interval, McMoRan will
gather at McMoRan's expense the pressure data in
McMoRan's well in the interval necessary to assist
both Parties in determining whether or not such sand
interval is actually in reservoir or pressure
communication with a sand interval producing or capable
of producing in such an existing Texaco well.
6.2 Common Reservoirs.
In the event McMoRan drills a well located on a
Prospect that discovers a reservoir(s) not in
reservoir communication with a productive sand
interval(s) that is producing or is capable of producing in
paying quantities from a well drilled by Texaco or its
co-owner(s) located on the lease, but which
discovered reservoir(s), based on well information and
available seismic data, underlies both the Prospect
and acreage owned by Texaco located outside the Contract
Acreage and not covered by this Agreement
("non-farmout acreage"), McMoRan shall, prior to
producing said well enter into an agreement with
Texaco calling for the unitization of the common
Reservoir(s).
An initial determination of equity interest between
Texaco and McMoRan in the common
reservoir(s) will be based on available geologic,
engineering, and geophysical data to develop composite
equivalent net acre feet within most likely limits of the
common Reservoir(s) underlying the Prospect and
non-farmout acreage. Equivalent net acre feet (gas and
oil net acre feet shall be added together at the ratio
of six (6) thousand cubic feet to one (1) barrel of
liquid ratio) shall be determined for the common
Reservoir(s) from isopach and/or isochore maps prepared
by Texaco and/or McMoRan. If more than one
Reservoir is common between the Prospect and non-farmout
acreage, the total composite net acre feet for
the Prospect and non-farmout acreage shall be determined
by summing all the net acre feet for the various
common reservoirs. Texaco's and McMoRan's interest
ownership in the unit shall be determined based on
a ratio of the net acre feet allocated to the Prospect
and non-farmout acreage as that acreage bears to the
total net acre feet of the common reservoir(s). The
Parties will endeavor to determine the initial equity
interest no later than 180 days from rig release from the
earning well.
In the event there is a disagreement between Texaco
and McMoRan as to the most likely limits of
the common Reservoir(s) as based on available geologic,
engineering, and geophysical data and as
depicted on the isopach and isochore maps prepared by
Texaco and/or McMoRan, or Texaco and
McMoRan cannot agree upon the calculation of the
composite net acre feet of said Reservoir(s) as
between the acreage covered by this Agreement and the
non-farmout acreage, Texaco and McMoRan shall
furnish all available geological, geophysical and
engineering data, including bottom hole pressure data and
Reservoir characteristics, to a mutually acceptable oil
and gas consulting firm to prepare isopach and
isochore maps and calculate the composite net acre feet
of said Reservoir(s). The isopach and isochore
maps prepared by the consulting firm shall be the ones
used by the Parties hereto. The cost of the work
performed by the consulting firm(s) shall be shared
equally between Texaco and McMoRan. In no event
will McMoRan produce any common Reservoir in any well
drilled pursuant hereto until all outstanding
issues between Texaco and McMoRan have been resolved
regarding the sharing of production from and
equity interest in such common Reservoir(s). Texaco
shall prepare the appropriate unitization agreement
and forward such agreements to McMoRan for negotiation,
review and comments. In such agreements
Texaco shall address cost equalization and equity
determinations and/or redeterminations as appropriate.
Once the unitization agreement(s) is/are executed by
Texaco and McMoRan, McMoRan will be allowed to
produce the well that encountered a common Reservoir(s).
Commitment of all or any portion of the
Prospect to a Unit shall not reduce McMoRan's cost
recoupment rights under the applicable Farmout
Agreement or Sublease.
In the event, prior to drilling any well on any
Prospect subject hereto, McMoRan determines it
will encounter a geological horizon that may contain
commercial quantities of hydrocarbons which could
possibly underlie both a portion of the Contract Acreage
and acreage owned by Texaco not subject to this
Agreement, McMoRan shall advise Texaco of this
possibility and propose the formation of a Unit. Should
the Parties agree to form a Unit prior to McMoRan
drilling said well, an agreement covering the Parties
rights and obligations in the proposed Unit shall be
executed by the Parties. Failure by the Parties to reach
an agreement will not preclude McMoRan from drilling its
well on the Prospect in accordance with the
provisions stated herein.
ARTICLE 7
7. FINANCIAL OBLIGATIONS.
7.1 Obligation to Fund Exploratory Operations.
During the term of this Agreement, McMoRan shall
have the obligation to spend, subject to
Section 7.3 below, not less than One Hundred Million
dollars ($100,000,000.00) on Exploratory Wells
and Exploration Activities on or directly associated with
Texaco's interest in the Contract Acreage and
Leases associated therewith. Satisfaction of this
obligation to spend is strictly to be determined based
on Texaco ownership interest in a Lease or lands pooled
or unitized therewith as that interest exists on
the Effective Date of this Agreement. In no event will
McMoRan be allowed to satisfy the obligation to
spend the committed funds as stated above on any other
ownership interest of any party in any Lease or
lands pooled or unitized therewith. (As an example, if
Texaco owns a 50% interest in a Lease, and
McMoRan farms-in all of Texaco's and the other leasehold
owners interest in the Lease, should
McMoRan spend $1,000,000.00 drilling a well under the
farmout, McMoRan will be allowed to credit
only $500,000 in satisfying its expenditure obligation to
Texaco.)
7.2 Spending Schedule.
The spending obligation of McMoRan as described
above shall be divided into four (4) separate
periods or segments to coincide with the Option Periods
described in Section 3.2 above. "Spending
Schedule 1" will coincide with "Option Period 1",
"Spending Schedule 2" will coincide with "Option
Period 2", "Spending Schedule 3" will coincide with
"Option Period 3", and "Spending Schedule 4"
will coincide with "Option Period 4" (hereinafter
referred to individually as "Spending Schedule" and
collectively as "Spending Schedules"). These Spending
Schedules shall run sequentially in numeric
order with no lapse in time between the expiration of one
Spending Schedule and the beginning of the
next. The separate Spending Schedules shall be defined
as follows:
7.2.1 Spending Schedule 1: "Spending Schedule 1"
shall begin on the Effective Date and
continue until the end of the eighteenth (18th) month
from the Effective Date and shall
cover forty percent (40%) of the obligatory amount stated
in Section 7.1 McMoRan is
required to spend pursuant to this Agreement.
7.2.2 Spending Schedule 2: "Spending Schedule 2"
shall begin on the first day of the
nineteenth (19th) month after the Effective Date and
continue through the last day of the
thirtieth (30th) month and shall cover thirty percent
(30%) of the obligatory amount stated
in Section 7.1 McMoRan is required to spend pursuant to
this Agreement.
7.2.3 Spending Schedule 3: "Spending Schedule 3"
shall begin on the first day of the thirty-
first (31st) month after the Effective Date and continue
through the last day of the forty-
second (42nd) month and shall cover thirty percent (30%)
of the obligatory amount stated
in Section 7.1 McMoRan is required to spend pursuant to
this Agreement.
7.2.4 Spending Schedule 4: With respect to
Option Period 4, there shall be no Spending
Schedule and McMoRan shall not be obligated to spend any
obligatory amount during
such Option Period. During Option Period 4 Texaco and
McMoRan shall have the same
rights and obligations hereunder as existed during Option
Periods 1, 2 and 3 (except for
McMoRan not having any minimum expenditure or well
commitment obligations). As to
any Prospect that is established and on which McMoRan
commits to participate in the
drilling of an Exploratory Well prior to the end of
Option Period 4, the Parties shall use
their best efforts to mutually agree upon and execute the
appropriate Farmout Agreement
or Sublease as provided herein prior to the end of Option
Period 4 but, if despite such
efforts, such Farmout Agreement or Sublease is not
executed by both Parties prior to the
Option Period 4 expiration date, this Agreement will
survive such expiration date as to,
and only as to, such Lease or portions thereof included
in a previously agreed upon
Prospect to be included under a Farmout Agreement or
Sublease (including any Farmout
Agreement or Sublease agreed to by Texaco and McMoRan
executed within sixty (60)
days of the end of Option Period 4). If the Parties are
unable to mutually agree upon and
execute the appropriate Farmout Agreement(s) or
Sublease(s) within sixty (60) days from
termination of the remainder of this Agreement as
provided under Article 26, then the
rights and obligations of the Parties hereto shall
terminate as to any Lease or portion
thereof not included under a fully executed Farmout
Agreement or Sublease. The sole
consequence of any failure by McMoRan to drill an
Exploratory Well that is committed
to during Option Period 4 (other than any mutually agreed
liquidated damages
incorporated into the applicable Farmout Agreement or
Sublease) shall be the forfeiture of
all rights as to the affected Prospect.
7.3 Exploratory Wells and Other Exploration Activities.
For purposes of determining what funds will be
credited to McMoRan in the fulfillment of its
obligation to spend the funds stated in Section 7.1, the
Parties hereto agree that at least eighty percent
(80%) of the funds allocated to each Spending Schedule
must be spent by McMoRan on Well Costs
directly attributable to Exploratory Wells, and any
substitute wells or additional wells prior to earning or
which earns an interest in the affected Prospect drilled
therefor pursuant to this Agreement. Funds
actually spent or funds committed to be spent by McMoRan
on Exploratory Wells during any singular
Spending Schedule period shall be credited to McMoRan for
that particular Spending Schedule. For
funds committed to, but not spent, in any Spending
Schedule period, those funds will be credited to the
Spending Schedule period for which they were committed as
long as the funds are fully spent in the
subsequent Spending Schedule period. If the committed
funds are not fully spent in the subsequent
Spending Schedule period, McMoRan will lose the credit it
had received for the committed funds it did
not spend. The credit previously given for the
committed funds will be reversed out of the applicable
Spending Schedule period and a determination of whether
or not any deficit penalty is due pursuant to
Section 7.4 will be made. If a deficit penalty is due,
payment of such penalty will be handled as
provided under Section 7.4 below.
In regard to the remaining required expenditure
obligation due during any individual Spending
Schedule, McMoRan shall have the option, if it chooses
not to spend the remaining funds or portions
thereof on drilling Exploratory Wells, to derive such
remaining expenditures from any Exploration
Activities, other than those Exploration Activities
directly associated with the drilling of Exploratory
Wells, conducted during a Spending Schedule period. Funds
actually spent or funds committed to be
spent by McMoRan on these Exploration Activities during
any singular Spending Schedule period shall
be credited to McMoRan for that particular Spending
Schedule. For funds committed to but not spent in
any Spending Schedule period, those funds will be
credited to the Spending Schedule period for which
they were committed as long as the funds are fully spent
in the subsequent Spending Schedule period.
If the committed funds are not fully spent in the
subsequent Spending Schedule period, McMoRan will
lose the credit it had received for the committed funds
it did not spend.
Any funds spent in excess of the funds, as
described in this Section 7.3, actually spent or
committed to be spent during any Spending Schedule period
shall be credited toward satisfying the
following Spending Schedule period(s).
Notwithstanding anything herein to the contrary, McMoRan
will be allowed to take credit for
allowable Exploratory Activities expenditures incurred
between November 17, 1999 and the Execution
Date on Leases subject to this Agreement.
7.4 Spending Schedule Deficit Penalty.
Should McMoRan fail to spend, and/or commit to
spend, the required funds necessary to meet
or exceed the expenditure amounts stated in any Spending
Schedule, subject to Section 7.5 below,
McMoRan will have the obligation, within thirty (30) days
of receipt of notice from Texaco, to pay to
Texaco in cash, as directed by Texaco, ********
of the funds in any single Spending
Schedule not spent or committed to be spent for that
particular Spending Schedule period.
Notwithstanding anything herein to the contrary, in the
event any preferential rights to purchase any
interests subject hereto are exercised as specified in
Section 12.2 below, and McMoRan is not entitled to
earn an interest in the applicable Prospect as provided
herein, then McMoRan will be given credit against
the spending obligations set out in Section 7.2 above,
after the Exploratory Well is drilled, for the Well
Costs it would have spent (based on the cost to drill,
log and temporarily or permanently plug and abandon
the Exploratory Well as estimated in McMoRan's AFE for
said Exploratory Well) for the account of
Texaco had it been allowed to participate in the drilling
of such Exploratory Well.
7.5 Spending Schedule Deficit Penalty Deferral.
Notwithstanding the obligation to pay a deficit
penalty as described in Section 7.4 above, during
any Option Period McMoRan, upon mutual agreement between
the Parties hereto, which agreement will
not be unreasonably withheld by either Party, will be
allowed to defer up to twelve and one-half percent
(12.5%) of the Spending Schedule amount required to be
spent during any Option Period as a result of
McMoRan's inability, after attempting in good faith, to
cause an Exploratory Well to be drilled on a
Prospect included under a Farmout Agreement or Sublease.
The amounts to be deferred shall be based
on the cost to drill, log and temporarily or permanently
plug and abandon the Exploratory Well as
estimated in McMoRan's AFE for the well(s) that would
have been drilled. The deferred amounts shall
be added to the total amount of the required funds to be
expending under the following Spending
Schedule. If in fact funds are deferred from one
Spending Schedule to the next, the amount deferred
when added to the existing amount required to be spent
within a Spending Schedule shall establish, and
for purposes of this Agreement, a new revised Spending
Schedule for the applicable Option Period. In
the event all funds are not spent by the end of Option
Period 3, or Option Period 4 as the case may be,
the deficit penalty as specified in Section 7.4 above
shall apply.
7.6 Liquidated Damages Credit.
During the term of this Agreement, should
liquidated damages come due as a result of
McMoRan's failure to drill a well as provided under any
applicable Farmout Agreement or Sublease, any
payments due to Texaco shall not be in addition to the
penalty as specified in Section 7.4 above. When
liquidated damages are incurred, McMoRan shall note these
amounts on the monthly reports as specified
in Section 7.8 below. No payment of any liquidated
damages shall be owed to Texaco until the deficit
penalty for any Spending Schedule Option Period has been
determined. If a deficit penalty is due, the
amount of the liquidated damages owed to Texaco shall
replace that portion of the deficit penalty that is
equal to the cumulative liquidated damages incurred for
that Spending Schedule Option Period. If the
cumulative liquidated damages exceed the deficit penalty
the difference in the two amounts shall be
deferred to the next Option Period. This carried
forward portion of the liquidated damages shall be added
to any liquidated damages incurred in that particular
Spending Schedule Option Period. At the end of this
Spending Schedule Option Period reconciliation of the
liquidated damages and deficit penalty for that
particular Spending Schedule Option Period shall be
handled in the same manner as specified above for
the previous Spending Schedule Option Period. If at the
end of the Option Period 2 there are liquidated
damages amounts remaining after accounting for the
deficit penalty as specified herein, the liquidated
damages will be added to the funds McMoRan is required to
spend for Spending Schedule 3. In the event
liquidated damages remain or become due at the end of
Option Period 3, those funds shall be paid to
Texaco after adjusting for the deficit penalty as
specified in this Section 7.6; provided, however, in the
event the term of this Agreement is extended and Option
Period 4 is applicable, the amount of such
liquidated damages shall be reduced by the amount of any
expenditures incurred or commitments made by
McMoRan during Option Period 4. Notwithstanding anything
herein to the contrary, if any liquidated
damages become due during the term of this Agreement
McMoRan, at its sole option and upon written
notice to Texaco, shall have the right to add the amount
of the liquidated damages to the amount it is
obligated to spend in any Spending Schedule.
7.7 Exhibit "B" Well Commitment.
Notwithstanding anything herein to the contrary
regarding this Article 7, after McMoRan has
selected the two (2) or more Texaco Prospects listed on
Exhibit "B" it chooses to specifically commit to
drill for the purpose of satisfying the $10,000,000
commitment specified in Section 2.2 above,
McMoRan shall have the obligation, not option, to drill
these wells in accordance with the applicable
Farmout Agreement or Sublease. The first $10,000,000.00
of the funds spent by McMoRan in regard to
these two (2) or more obligatory wells shall not be
included in the amounts required to be spent by
McMoRan to satisfy its spending obligations specified in
Section 7.1. However, any amount spent in
excess of said $10,000,000.00 shall be credited toward
satisfying the obligation specified in Section 7.1
above.
7.8 Accounting Report.
McMoRan will record and document the expenditures it
makes in satisfying its expenditure
obligations as stated herein. McMoRan will provide
Texaco with a report every month beginning the
month following the first month after the Effective Date
where McMoRan expends any funds pursuant
hereto. Each report shall detail the expenditures
McMoRan has incurred or committed to incur that are
known at the time the report comes due. This report
shall be due by the fifteenth (15th) of the month
following the reporting month. Within sixty (60) days
after the end of any Spending Schedule period,
McMoRan will provide a summary report for the preceding
Spending Schedule period. In all reports
prepared by McMoRan, McMoRan will summarize the amount of
funds spent or committed to be spent
claimed during the applicable month or Spending Schedule
period.
7.9 Audit Rights.
Upon written notice to McMoRan, Texaco may examine
McMoRan's accounts and records from
time to time during normal business hours required to
verify McMoRan's compliance with the financial
obligations assumed by McMoRan in this Agreement. Such
examinations shall be made directly by
Texaco at its expense or through an independent
accounting firm of Texaco's choice retained at Texaco's
expense. If performed, Texaco shall commence its initial
audit of McMoRan's accounts and records
pursuant hereto, including but not limited to the audit
of the production and sales of all hydrocarbons
received from the property, within twenty-four (24)
months from the end of the calendar year in which the
first report as specified in Section 7.8 above is
received by Texaco. After the initial audit has been
conducted or the initial audit period has expired without
such audit being commenced, Texaco may
commence subsequent audits only within the twenty-four
(24) months following the end of the calendar
year in which subsequent production statements are
received.
7.10 Right to Option Period.
As provided herein, in the event McMoRan has
satisfied the minimum financial obligations as
specified in Section 7.1 and 7.7 above, this Agreement
will be automatically extended for Option Period 4
as described in Subsection 3.2.4. In addition, should
McMoRan fail to spend all the funds required in
Spending Schedule 3, and a deficit penalty becomes due as
provided herein, then the provisions of Section
7.5 shall apply and McMoRan will, pursuant to Section
7.5, be allowed to defer a portion of the unspent
funds to Option Period 4. At the termination of Option
Period 4 should McMoRan, after good faith
attempts, be unsuccessful in spending the Spending
Schedule 4 funds, any deficit penalty due will
automatically be forgiven. In the event McMoRan fails to
use good faith in attempting to spend the
Spending Schedule 4 funds, the applicable deficit penalty
will be due.
In the event McMoRan has obtained the right to
Option Period 4, if requested by McMoRan,
Texaco will attempt to supplement Exhibit "A" with
additional leases to assist McMoRan in identifying
Prospects to drill. Supplementing Exhibit "A" will be at
the option to Texaco and shall not be considered
an obligation.
7.11 Parent Company Guarantee.
McMoRan shall provide Texaco, upon the Execution Date of
this Agreement, a parent
guarantee in a form acceptable to Texaco covering the
deficit spending and liquidated damages
obligations of McMoRan as described in this Article 7.
In addition to the above guaranty obligations,
the parent of McMoRan will also guarantee any
indemnification obligations of McMoRan arising out of
any Farmout Agreement, Sublease or Operating Agreement
between McMoRan and Texaco entered
into pursuant to this Agreement.
ARTICLE 8
8. PERIODIC TECHNICAL REVIEWS8.
8.1 Periodic Technical Overview.
Within six (6) months from the Effective Date and each
six (6) month period thereafter during
the term of this Agreement, McMoRan shall present to
Texaco, at a mutually agreeable time in
McMoRan's New Orleans office, its evaluations and
interpretations, of any geological, geophysical and
engineering data, including but not limited to any 2-D or
3-D seismic data reprocessing, either
speculative or proprietary (subject to license and other
contractual limitations), that McMoRan
generated, acquired, performed and/or conducted by itself
or its consultants over any portion of the
Contract Area McMoRan is currently evaluating or has
evaluated since the last overall technical
presentation as specified in this Section 8.1. During
each meeting McMoRan will provide Texaco with
a written report identifying the Prospects McMoRan
anticipates will be proposed to Texaco for
inclusion either under a Farmout Agreement or Sublease
within the next six (6) months. Included in this
report will be any information McMoRan has developed
regarding the location and configuration of the
Prospect(s), the well(s) to be drilled, objectives of
the/these well(s), timing of wells to be drilled and
cost estimates McMoRan generated, if any.
ARTICLE 9
9. TEXACO'S TECHNICAL REPRESENTATION9.
9.1 Technical Staff.
During the term of this Agreement, Texaco shall have the
right to assign two (2) of its
employees, representatives and/or consultants to work
with, consult or advise McMoRan's employees,
consultants or advisors on matters related to this
Agreement. McMoRan will provide Texaco's
employees, representatives or consultants with office
space in McMoRan's New Orleans office or in an
office where work on the Contract Acreage or acreage
associated therewith is being conducted. In
addition, McMoRan will provide the necessary office and
other equipment to allow Texaco's
employees, representatives or consultants to work with,
consult or advise on matters directly related to
the Leases and Contract Acreage subject hereto. The
McMoRan office space and equipment shall be
provided at the expense of McMoRan. Texaco will retain
the right, as it so chooses, to alternate the
employees, representatives or consultants working,
consulting or advising on matters related to this
Agreement. Any Texaco employee, representatives or
consultants temporarily located in a McMoRan
designated office will agree prior to entering the
McMoRan office to follow the rules and guidelines, as
disclosed by McMoRan, of safe office conduct. During the
period of time any Texaco employee,
representative or consultant is located in a designated
McMoRan office, any McMoRan proprietary data
disclosed to the Texaco employees, representatives and/or
consultants shall be considered and held
confidential in accordance with Section 22.1 and shall
not be disclosed to Third Parties without the
written consent of McMoRan.
9.2 Cost of Texaco Personnel.
During the term of this Agreement, should Texaco at
any time elect to locate an employee,
representative or consultant in a McMoRan designated
office, the salaries, wages, fees, charges or
benefits, if any, associated with each such employee,
representative or consultant, shall be the
responsibility of Texaco.
ARTICLE 10
10. ACREAGE RELEASE SCHEDULE.
10.1 Option Period 1 Acreage Release.
On or before the expiration of Option Period 1as
described in Section 3.2 above, McMoRan
agrees to identify and release from this Agreement not
less than twenty-five percent (25%) of the Leases
comprising the Contract Acreage as described on Exhibit
"A" after deducting any Lease included in any
Prospect drilled or committed to be drilled by McMoRan as
provided herein or released pursuant to
Sections 10.5 and 10.6 hereof. After release of this
portion of the Contract Acreage, this Agreement shall
only apply to the remaining portion of the Contract
Acreage and associated Leases not released.
10.2 Option Period 2 Acreage Release.
On or before the expiration of Option Period 2 as
described in Section 3.2 above, McMoRan
agrees to identify and release from this Agreement not
less than forty percent (40%) of the balance of the
Leases comprising the Contract Acreage as described on
Exhibit "A" after deducting any Lease included
in any Prospect drilled or committed to be drilled by
McMoRan as provided herein and after taking into
account the Leases and Contract Acreage released pursuant
to Section 10.1 above and Sections 10.5 and
10.6 below. After release of this portion of the
Contract Acreage, this Agreement shall only apply the
remaining portion of the Contract Acreage and associated
Leases not released.
10.3 Final Option Period Acreage Release.
On or before the expiration of the final Option
Period hereunder (either Option Period 3 or Option
Period 4, whichever is applicable as described in Section
3.2 above), McMoRan agrees to identify and
release from this Agreement any remaining Lease and/or
portion of the Contract Acreage not subject to a
Farmout Agreement or Sublease as specified in Article 5
above, or subject to a Farmout Agreement or
Sublease, or as provided for in Section 7.2.4. After
release of the remaining uncommitted portions of the
Contract Acreage, this Agreement shall only apply to
those portions of the Contract Acreage and
associated Leases covered by or committed to a Farmout
Agreement or Sublease.
10.4 Option to Release Additional Acreage.
McMoRan will be allowed to select what portion of
the Contract Acreage and associated Leases it
will release. McMoRan will also have the option to
release more than twenty-five percent (25%) of the
Leases as specified in Section 10.1 and forty percent
(40%) of the Leases specified in Section 10.2.
10.5 Release Notification.
To perfect the release of the Leases and Contract
Acreage as specified herein, McMoRan shall, on
or before the end of the applicable release period as
defined in Sections 10.1, 10.2 and 10.3 above, prepare
and deliver to Texaco a written document identifying the
Leases and Contract Acreage which McMoRan
has selected for release. Any release document submitted
to Texaco will be effective no later than the last
day of the Option Period on which such acreage is being
released. Upon delivery of the release
document(s) to Texaco, the rights and options granted
McMoRan under this Agreement as to the released
Leases and Contract Acreage shall terminate.
Notwithstanding anything herein to the contrary, in no
event shall the execution of a release as described in
this Article 10 relieve McMoRan of any financial
obligation that has been incurred or accrued pursuant to
this Agreement.
10.6 Acreage Release Credit.
In addition to the releases provided for above, the
partial or full releases of Leases effected as a
result of: (i) the exclusion of acreage from this
Agreement in accordance with Section 2.3 and/or (ii) the
relinquishment of Leases in accordance with Section 2.5,
shall be credited toward satisfaction of the
release requirements of this Article 10. Also, if
McMoRan drills more than one (1) Exploratory Well on a
Lease(s) in separate Prospects hereunder, McMoRan shall
receive a credit of one (1) Lease for each
Exploratory Well so drilled in excess of one (1)
Exploratory Well, for purposes of calculating the number
of Leases that McMoRan is obligated to release in
satisfaction of its obligation under this Article 10. If
under the operation of any provisions of this Agreement
an interest in the Contract Acreage is excluded or
relinquished or is no longer subject to this Agreement,
including but not limited to a Lease terminating
under the provisions stated in said Lease, it will
automatically be deemed to be included in McMoRan's
list of released Leases.
In the event any Lease subject hereto terminates or
expires under its own terms prior to McMoRan
electing to relinquish its rights to such Lease(s)
pursuant to this Article 10, McMoRan will be given credit
toward its acreage release obligation for each such
terminated or expired Lease. This credit shall apply to
the Option Period in which such Lease(s) terminated or
expired. Any Lease that terminates or expires
shall, subject to Section 2.4 above, be excluded from
this Agreement and neither Party hereto shall have
any obligation to the other regarding such terminated or
expired Lease(s).
After identification of the Leases and Contract Acreage
to be released under any release required
under this Article 10, Texaco shall be free to drill,
sell, farmout, joint venture or dispose of, in any manner
it so chooses, the released acreage. McMoRan hereby
agrees and releases Texaco from any liability
whatsoever with regard to the released acreage relating
to the activities of McMoRan and any information
and/or data McMoRan may have given to Texaco in regard
thereto. In the event Texaco discloses this
data to any Third Party within two (2) years of the
release of acreage, Texaco will require the Third Party
to execute an appropriate confidentiality agreement.
ARTICLE 11
11. NOTICES.
11.1 Notices.
All notices authorized or required between the
Parties by any of the provisions of this
Agreement, unless otherwise specifically provided, shall
be in writing and delivered in Person or by
United States mail, overnight express delivery, courier
service, telegram or facsimile (with receipt
confirmed), postage or charges prepaid, and addressed to
such Parties at the addresses set forth below:
Texaco Exploration and Production Inc. McMoRan Oil & Gas LLC
400 Poydras Street (70130) 1615 Poydras, Suite 500 (70112)
P. O. Box 60252 P.O. Box 60004
New Orleans, Louisiana 70160 New Orleans, Louisiana 70160
Attention: Land Manager - OCS Attention: Mr. Glenn A. Kleinert,
Senior Vice President
Any originating notice and/or response thereto
given under any provision hereof shall be deemed
given only when received by the party to whom such notice
is directed, except that; (1) any notice or
response by certified U.S. mail, return receipt
requested, properly addressed pursuant to this Article 12,
and with all postage and charges prepaid, shall be deemed
received on the date that the party to whom it
was directed has received it, and (2) any notice or
response given by overnight express delivery or courier
shall be deemed received upon acknowledgement of receipt
by the party to whom it was directed, or
within 72 hours of delivery of such notice whichever is
sooner.
11.2 Change in Designated Representative.
Each party shall have the right to change its
address and its designated representative at any time,
and from time to time, by giving prior written notice
thereof to the other party.
ARTICLE 12
12. EXISTING AGREEMENTS AND PREFERENTIAL RIGHTS.
12.1 Existing Agreements.
McMoRan recognizes and acknowledges that many Leases are
either currently producing on a
lease basis, currently producing on a unit basis and/or
currently maintained by unit activity and/or
production, and thus, are subject to certain agreements
and other contracts that may affect the rights
and/or options granted to McMoRan under this Agreement.
It is understood between the Parties hereto
that the rights and option of McMoRan shall be
specifically subject to these existing agreements as
those agreements apply to the Contract Acreage. McMoRan
shall upon execution of a Farmout
Agreement or Sublease become bound by all such existing
agreements relating to the affected Prospects
to the extent of its interest, whether disclosed or
undisclosed to it by Texaco prior to McMoRan
executing any Farmout Agreement or Sublease, provided
that McMoRan shall be bound by undisclosed
agreements only in the event that McMoRan acting with due
diligence could have discovered the
undisclosed agreements. Provided further that McMoRan
shall not be bound by such agreements in the
event McMoRan is unable to drill the required well under
the applicable Farmout Agreement or
Sublease which subsequently terminate.
12.2 Preferential Rights and Consents to Assign.
Upon the establishment of the description of a Prospect
and the execution of the applicable
Farmout Agreement or Sublease, Texaco shall promptly
prepare and send: (1) notices to the
holders of any consents to assign any of the interest
in the Prospect covered under such Farmout
Agreement or Sublease requesting such consents; and (2)
notices to the holders of any applicable
preferential rights to purchase any interest in the
Prospect, if any, requesting waivers of such
preferential rights to purchase. Texaco shall use
reasonable efforts to cause such consents and waivers
of preferential rights to purchase (or the exercise
thereof) to be obtained as soon as reasonably practical
after providing such notices. McMoRan shall cooperate
with Texaco in seeking to obtain such consents
and waivers of preferential rights.
If any preferential rights to purchase any interests
subject hereto are exercised, those interests in
the Lease(s) to be transferred to a Third Party as a
result of the exercise of such preferential rights shall
be excluded from this Agreement for all purposes. Should
a preferential right be exercised and
McMoRan not be entitled to earn an interest in the
applicable Prospect as provided herein, then pursuant
to Section 7.4 above, McMoRan will be given credit, after
the Exploratory Well is drilled, for the
applicable Well Costs.
ARTICLE 13
13. RIGHTS RESERVED.
13.1 Lease Rights Reservations.
TEXACO EXPRESSLY RETAINS AND RESERVES EXCLUSIVELY
UNTO ITSELF THE FOLLOWING:
(a) All oil, gas and mineral rights, except as to
those areas described on Exhibit "A" as to
the Contract Acreage, and all rights of ingress, egress,
use, occupancy, and any and all other rights
granted by, through and under the federal or state leases
subject hereto, necessary or convenient to
exercise and enjoy all oil, gas and mineral rights
reserved to Texaco, including but not limited to, the
right to conduct operations on the Exclusion Areas,
construct, maintain and operate platforms and
pipelines on and across Leases and Exclusion Areas,
subject to McMoRan's rights to earn the
assignment(s)/sublease(s) as provided hereunder.
(b) One hundred percent (100%) of the leasehold
and working interest in and to the Exclusion Areas.
(c) In the Exclusion Areas, all of the oil
and/or gas produced and to be produced therefrom
and all of the revenues associated therewith, all
producing reservoirs or reservoirs currently identified
by Texaco as capable of producing underlying the Contract
Acreage associated with any existing
wellbores as of the Effective Date, and the right to
drill new wells, sidetrack or deepen existing wells or
any other activity as directed by Texaco, or in which
Texaco participates if directed by a Co-Working
Interest Owner, on the Leases as to the Exclusion Areas.
(d) All rights of ownership and use held by
Texaco's Affiliates in any pipeline or rights of
ways.
(e) The right of ownership and/or operatorship of
the Existing Facilities and the revenues realized
therefrom.
(f) Texaco also reserves any platform, facilities,
wellbores, pipelines or rights-of-way installed,
drilled or obtained in the future located on or in the
vicinity of the Contract Acreage related to Texaco's
operations on the Leases subject hereto, in which McMoRan
does not own an interest.
ARTICLE 14
14. PRODUCTION HANDLING AND CONTRACT OPERATIONS.
14.1 Production Handling Option.
Texaco, as an accommodation to McMoRan, will
consider handling production resulting from any
well drilled by McMoRan on any acreage farmed out or
subleased at Texaco's facilities (if excess capacity
exists) located in the vicinity of any acreage earned by
McMoRan pursuant to any Farmout Agreement or
Sublease. McMoRan will have the option to enter into an
agreement with Texaco to handle its production
attributable to any Prospects earned by paying reasonable
and customary fees for the services provided. A
production handling agreement will be negotiated by the
Parties in the event one is needed and if the
Parties mutually agree to pursue Texaco handling
McMoRan's production.
14.2 Contract Operating Option.
Texaco, as an accommodation to McMoRan, will
consider contract operating any successful wells
drilled by McMoRan on any Prospect earned by McMoRan
pursuant to any Farmout Agreement or
Sublease located on a Lease operated by Texaco. McMoRan
will have the option to enter into a contract
operating agreement with Texaco paying reasonable and
customary fees for the services provided. A
contract operating agreement will be negotiated by the
Parties in the event one is needed if the Parties
mutually agree to pursue Texaco contract operating
McMoRan's wells and/or facilities.
ARTICLE 15
15. TAX MATTERS.
15.1 Income Tax Election.
Notwithstanding any other provision herein, the
rights and liabilities hereunder are several and not
joint or collective and this Agreement shall not
constitute a partnership. If for federal income tax
purposes this Agreement and the operations or activity
hereunder are regarded as a partnership, then for
federal income tax purposes each party elects to be
excluded from the application of all provisions of
Subchapter K, Chapter 1, Subtitle A, Internal Revenue
Code of 1986 as amended ("Code"), as permitted
and authorized by Section 761 of said Code and the
regulations promulgated thereunder. Texaco is hereby
authorized and directed to execute on behalf of each
party such evidence of this election as may be
required, including specifically, but not by way of
limitation, all of the returns, statements and data
required by law.
Should there be any requirement that each party
further evidence this election, each party agrees
to execute such documents and furnish such other evidence
as may be required. Each party further agrees
not to give any notices or take any other action
inconsistent with the election made hereby. If any present
or future income tax law of the United States or any
state contains provisions similar to those contained in
Subchapter K, Chapter 1, Subtitle "A" of the Code, under
which an election similar to that provided by
Section 761 of said Subchapter K is permitted, each party
agrees to make such election as may be
permitted by such laws. In making this election, each
party states that the income derived by it from the
operations or activities under this Agreement can be
adequately determined without the computation of
partnership taxable income.
The provisions of this Article 15 shall not affect
or demise the Parties rights and obligations
under any Farmout Agreement or Sublease entered into
pursuant to this Agreement.
ARTICLE 16
16. EXISTING FACILITIES.
16.1 Existing Facilities.
Notwithstanding any rights and/or options provided
McMoRan under the terms and conditions
of this Agreement, this Agreement shall in no way be
construed in any manner whatsoever as a right
and/or option for McMoRan to utilize any Existing
Facility; provided, however, Texaco is agreeable, in
its capacity, to assisting McMoRan and McMoRan's co-
working interest owners, if any, to by
expending reasonable and good faith efforts to provide
McMoRan and its co-working interest owners
with access to an Existing Facility if capacity is
available or projected to be available and not planned to
be utilized by Texaco and/or any of Texaco's co-working
interest owners; provided McMoRan and its
co-working interest owners, if any, agree to pay
reasonable fees for the use of any such Existing Facility
and the services, if any, provided therewith.
Notwithstanding the willingness of McMoRan to pay
reasonable fees, under no circumstances will it be
construed that Texaco is under any obligation
whatsoever to provide access to or capacity on any
Existing Facility located on any Lease subject to this
Agreement. In no event shall McMoRan have any liability
or obligation with respect to any Existing
Facility except as specifically provided in a separate
written agreement between McMoRan and the
owners of such facilities.
ARTICLE 17
17. GEOPHYSICAL DATA.
17.1 Seismic Rights.
During the term of this Agreement and subsequent to
any detailed technical meeting held by
McMoRan pursuant to Section 4.1 above, should McMoRan, in
support of its findings and/or
interpretations, present to Texaco certain initial or
reprocessed proprietary 2-D or 3-D, Texaco shall
have the right to acquire a license (subject to existing
contractual restrictions imposed on McMoRan) to
said proprietary initial or reprocessed data from McMoRan
,at no cost to Texaco, subject only to the
execution of a mutually agreed upon form of data license.
In the event McMoRan presents data owned
by Third Parties which has been reprocessed by McMoRan,
Texaco will have the right and option to
acquire a license, for no cost, from McMoRan covering
such reprocessed data only in the event Texaco
has a license as to all speculative data utilized in the
reprocessing. In all cases where Texaco exercises
its option to acquire a license from McMoRan covering the
data referenced in this Section 17.1, Texaco
will be required to pay all tape copy and delivery
charges. McMoRan makes no representation and shall
have no liability to Texaco regarding the accuracy or
completeness of any data disclosed to Texaco
hereunder. However, in the event McMoRan becomes aware
of any error in any data, it shall use good
faith efforts to advise Texaco of such error(s). Any
such information or data provided hereunder is
provided as a convenience only and any reliance on or use
by Texaco is at Texaco's sole risk.
17.2 Hazard Survey Data.
Texaco will attempt, at no cost to McMoRan, upon
its written request, to make available for a
limited time, and from time to time, those shallow hazard
data Texaco owns and/or controls covering
any Exhibit A Lease. Texaco's hazard data is provided
only as an accommodation and such data shall
be returned to Texaco as soon as McMoRan has completed
its use of same or upon Texaco's written
request to return such data. Texaco makes no
representations or warranties and shall have no liability
whatsoever to McMoRan regarding the accuracy or
completeness of the shallow hazard data disclosed
to McMoRan hereunder. Any such information or data
provided hereunder is provided as a
convenience and accommodation only and any reliance on or
use by McMoRan is at McMoRan's sole
risk.
17.3 Texaco's Proprietary Seismic Data.
Prior to earning any acreage under this Agreement,
Texaco will allow McMoRan access to its
proprietary seismic data covering the Contract Acreage.
Upon McMoRan earning an assignment of a
Prospect, Texaco is agreeable to granting McMoRan a
license covering that portion of Texaco's
proprietary seismic data covering the Contract Acreage
associated with the earned Prospect. The fee to be
paid to license the seismic data, and the licensing
agreement to be executed between Texaco and
McMoRan, shall be negotiated at the time McMoRan elects
to license the data. McMoRan must submit a
written proposal to Texaco prior to the termination of
this Agreement proposing the license of a portion of
Texaco's data. Failure of McMoRan to submit such a
proposal, or in the event the Parties are unable to
negotiate a mutually agreeable licensing fee and/or
licensing agreement, shall terminate Texaco's
obligation to license McMoRan any data. After earning an
assignment of a Prospect, McMoRan will no
longer be allowed access to Texaco's proprietary seismic
data covering that particular Prospect unless it
acquires a license to use said data. This right to
acquire a license covering Texaco's seismic data shall
apply separately to each Prospect earned by McMoRan.
Texaco makes no representation and shall have
no liability to McMoRan regarding the accuracy or
completeness of any data disclosed to McMoRan
hereunder. Any such information or data provided
hereunder is provided as a convenience only and any
reliance on or use by McMoRan is at McMoRan's sole risk.
ARTICLE 18
18. RENTALS, MINIMUM ROYALTY AND LEASE MAINTENANCE.
18.1 Rentals and Minimum Royalty.
McMoRan shall be responsible for reimbursing Texaco for
Texaco's share of any rental or
minimum royalty that comes due and payable, on a lease-
by-lease basis, for each Exhibit "A" Lease,
commencing on the Effective Date, less any share that any
Third Party is obligated to pay. This
responsibility shall continue until the first to occur of
the following: (a) McMoRan relinquishes its right
to earn an interest in the affected Lease, (b) the Lease
terminates, or (c) this Agreement terminates
pursuant to Article 26 below, whichever occurs first.
Texaco shall pay or cause to be paid the rental
and/or minimum royalty on each Lease. McMoRan agrees to
reimburse Texaco for the entirety of
Texaco's share of such rental and/or minimum royalty,
excluding any share that any Third Party is
obligated to pay, within thirty (30) days after receipt
of an invoice from Texaco for same. However, on
a lease-by-lease basis, with at least sixty (60) days
advance written notice received by Texaco,
McMoRan, at its sole option and discretion, shall have
the right to relinquish to Texaco its right to earn
an interest in a Lease and thereby relieving itself of
its obligation to reimburse Texaco. Should
McMoRan elect to relinquish its rights to Texaco, but
fail to provide Texaco with sixty (60) days
advanced written notice, McMoRan will remain liable for
the next ensuing rental or minimum royalty
payment for which timely notification was not received.
If McMoRan fails to reimburse Texaco within the
time specified, Texaco may terminate this
Agreement as to that particular Lease, provided Texaco
has given McMoRan written notice of its intent to
terminate and within five (5) days following receipt of
notice, McMoRan fails to make such
reimbursement. Once McMoRan has earned and received an
assignment as provided herein, McMoRan
will continue to be responsible for reimbursing Texaco
for making any rentals or minimum royalty
payments that may come due regarding any Lease that
remains subject hereto. Texaco shall not be liable
for failure to make a proper payment during the time in
which it is responsible for doing so, but agrees to
use the same degree of care used in making such payments
under its other leases. The termination of this
Agreement or the termination of any such assignment of
interest pursuant to this Agreement shall not
relieve McMoRan of its obligations to reimburse Texaco
for any payments so made during the period this
Agreement was in effect, and during the period that such
Lease(s) are subject to this Agreement, the right
of such termination to be an additional right reserved by
Texaco and not a limitation of any of Texaco's
rights herein.
ARTICLE 19
19. MEDIA RELEASES.
19.1 Public Announcements.
The Parties hereto agree that prior to making any
public announcement or statement with
respect to the transaction contemplated by this
Agreement, the Party desiring to make such public
announcement or statement shall provide the other Party
with a copy of the proposed announcement or
statement at least seven (7) Business Days prior to the
intended release date of such announcement. The
other Party shall thereafter consult with the Party
desiring to make the release, and the Parties shall
exercise their reasonable best efforts to (i) agree upon
the text of a joint public announcement or
statement to be made by both such Parties or (ii) in the
case of a statement to be made solely by one
Party, obtain approval of the other Party hereto to the
text of a public announcement or statement.
Nothing contained in this paragraph shall be construed to
require either Party to obtain approval of the
other Party hereto to disclose information with respect
to the transaction contemplated by this
Agreement to any state or federal governmental authority
or agency to the extent required by applicable
law or necessary to comply with disclosure requirements
of the New York Stock Exchange or any other
regulated stock exchange.
19.2 Media Releases.
Except as may be otherwise authorized by the applicable
operating agreement, if any, neither
Party shall make any press release or other public
announcement regarding operations conducted
pursuant to this Agreement without the prior written
consent of the other, which consent shall not be
unreasonably withheld; provided that McMoRan shall be
entitled to issue press releases concerning the
results of drilling or testing of wells or other
operations conducted pursuant to this Agreement without
the prior consent of Texaco, but McMoRan shall provide a
copy of each such press release to Texaco
prior to releasing same. The foregoing, however, shall
not restrict disclosures by either Party which are
required by applicable securities or other laws or
regulations or the applicable rules of any stock
exchange having jurisdiction over the disclosing party or
its Affiliates.
ARTICLE 20
20. FILES.
20.1 Access to Files.
During the term of this Agreement, Texaco shall
permit, to the extent it has the right to do so,
McMoRan and its Representatives at reasonable times
during normal business hours to examine, in
Texaco's offices at their actual location, the Prospect
and land files (excluding all economic and risk
evaluations, reserve information, all legal files,
attorney-client communications or attorney work
product, records and documents subject to confidentiality
provisions and auditor's reports) pertaining to
the Prospects disclosed by Texaco to McMoRan as listed on
Exhibit "B". In addition, to the extent it
has the right to do so, McMoRan will be allowed access to
geological, geophysical, engineering and
land files, subject to the same exclusions listed above,
covering the Leases hereto in support of the
development of McMoRan's Prospects as contemplated
herein. McMoRan shall be obligated to
maintain the confidentiality of such files and
information in accordance with the provisions and
limitations described in Article 22, below. Texaco and
its representatives make no representation or
warranty as to, and shall have no liability to McMoRan
regarding, the accuracy or completeness of the
information disclosed to McMoRan hereunder. Any
information or data furnished hereunder by Texaco
is provided as a convenience only and any reliance on or
use of same is at McMoRan's sole risk. The
inadvertent disclosure by Texaco to McMoRan of attorney-
client communications, attorney work
product, legal files or other confidential information
shall not be deemed to be a waiver of the attorney-
client privilege, the attorney work-product privilege, or
any other privilege or right protecting the
confidentiality of data or information. Anything in this
Agreement to the contrary notwithstanding,
however, Texaco and their representatives shall have no
liability to McMoRan for failing to allow
McMoRan to examine, or to grant McMoRan access to any of
the files or materials referred to in this
Section 20.1. Access to Texaco's Prospect files is
strictly and solely as an accommodation to
McMoRan.
ARTICLE 21
21. ASSIGNMENTS AND TRANSFER OF INTEREST .
21.1 Assignment of this Agreement.
It is agreed that McMoRan shall not assign, either
in whole or in part, its rights and interest in this
Agreement without the prior written consent of Texaco,
such consent not to be unreasonably withheld.
Upon receipt of Texaco's written consent, which consent
can be conditioned on, but not limited to,
requesting adequate security for the future performance
by assignee, payment of all delinquent accounts
and resolving all outstanding disputes, any assignment
made by McMoRan hereof shall 1) contain a
limitation in favor of Texaco requiring that Texaco's
written consent must also be obtained prior to any
future assignments of this Agreement in whole or in part,
2) that said instrument contain a provision
indicating said assignment is made subject to this
Agreement, and 3) the assignee agrees in writing to be
bound by all the terms and conditions of this Agreement.
21.2 Lease or Prospect Successors and Assigns.
It is agreed that McMoRan shall not assign, either
in whole or in part, its interest or rights to
interest in and to any Lease or Prospect without the
written consent of the Texaco, such consent not to be
unreasonably withheld, provided, however, McMoRan shall
have the right to assign an interest in any
Lease or Prospect to its Exploration Program Co-
Venturers. Upon receipt of Texaco's written consent, or
in the event of an assignment by McMoRan to its
exploration program partners, any assignment made by
McMoRan hereof shall 1) contain a limitation in favor of
Texaco requiring that Texaco's written consent
must also be obtained prior to any future assignments of
interest in whole or in part, 2) that said instrument
contain a provision indicating said assignment is made
subject to this Agreement, and 3) the assignee
agrees in writing to be bound by all the terms and
conditions of this Agreement. It shall be fully
understood that in the event the assigning party
encumbers or burdens the Contract Acreage or any portion
thereof after earning an interest herein, the assigning
party shall hold the non-assigning party free and clear
of any and all obligations, liability and/or
responsibility for such encumbrance(s) or burden(s). Any
assignment made pursuant to this Section 21.2 shall be in
accordance with and in compliance to the
accepted practices, guidelines and policies of the
Minerals Management Service.
21.3 Appointment of Agent.
If at any time the interest of McMoRan or its
successor is divided among or is assigned to and
owned by two or more co-owners or an entity in which
equity ownership is held by two or more co-
owners, Texaco may, at its discretion, require such co-
owners designate in writing a trustee, mandatory or
agent with full authority and all rights necessary to
settle, compromise, dismiss, or release on behalf of
such co-owners any loss, expense, claim, damage, penalty,
fine, lawsuit, or similar matter arising from
operations hereunder, including full authority to act for
all said co-owners as insureds under or with
respect to any policy of insurance relevant to such
matters.
ARTICLE 22
22. CONFIDENTIALITY.
22.1 Confidentiality.
It is understood and agreed that no Party to this
Agreement, for a period of four (4) years from the
effective date hereof, shall divulge to any Third Party
or parties any geophysical, geological or engineering
information that is received from the other Party on the
Contract Acreage without first obtaining the
written consent of such other Party to this Agreement to
release any such information that it received.
Such consent, however, shall not be necessary for a Party
to divulge such information to any part(y)ies
from whom said Party to this Agreement may receive a
contribution for the drilling of a well under any
Farmout Agreement or Sublease, to a financial institution
(or similar entity) from whom a Party is
attempting to secure funds or financing, to a pipeline
company for the purpose of securing a pipeline
connection, or to Exploration Program Co-venturers or
Representatives. Notwithstanding the above,
either Party may disclose confidential data to its
Affiliate(s) provided that such Affiliate agrees to maintain
the confidentiality of such confidential data under the
same conditions as stated herein.
Subject to disclosures that may be authorized by any
operating agreement applicable to a
particular Lease, any and all data revealed and disclosed
by Texaco to McMoRan and McMoRan to
Texaco shall be treated as confidential, less and except
any data that now or hereafter becomes generally
available to the public, was known by Texaco or McMoRan
prior to the Execution Date of this
Agreement, was already in Texaco's or McMoRan's
possession prior to the Execution Date of this
Agreement, or hereafter comes into Texaco's or McMoRan's
possession from a Third Party who has the
right to disclose such information as applicable.
22.2 Speculative Seismic Data.
The Parties hereto have in their possession certain
seismic data licensed from Third Parties
("Speculative Seismic Data") which impose various
restrictions and limitations on either Parties right to
use, disclose and/or display such data relating to the
properties identified in Exhibit "A". Notwithstanding
any other provision in this Agreement, Texaco and McMoRan
both agree that neither Party shall remove
from each others office, copy, or reveal to any other
party whomsoever, any Speculative Seismic Data
disclosed by one Party to the other. Each Party agrees
it will only view such Speculative Seismic Data for
no other purpose other than necessary to review the work
product generated as a result of the purpose of
this Agreement. Under no circumstances will the Party
who views the Speculative Seismic Data be
allowed to use the Speculative Seismic Data for any other
purpose than what viewing the data was
intended unless the viewing Party has first obtained a
license from the Third Party owner of such
Speculative Seismic Data or the disclosing Party, or the
owner of the Speculative Seismic Data, advises
the viewing Party that such data is no longer to be held
confidential.
22.3 Disclosure of Confidential Data.
In the event a Party hereto, or its
representatives, are required by any court or legislative or
administrative body (by oral questions, interrogatories,
requests for information or documents, subpoena,
civil investigation demand, or any similar process) to
disclose any confidential information or data not
owned by said Party, the Party required to make such
disclosure shall provide the owner of the
confidential information or data with prompt notice of
such requirement in order to afford the owner of
such information or data the opportunity to seek an
appropriate protective order. However, if the owner of
such information or data is unable to obtain or does not
seek such protective order and the Party that is
required to make such disclosure, or its representatives,
are, in the opinion of counsel, compelled to
disclose confidential information or data under pain of
liability for contempt or other censure penalty,
disclosure of such information or data may be made
without liability.
22.4 Risk of Use of Confidential Data.
It is understood by the Parties hereto that any
confidential information or data, both oral and
written, furnished by one Party to the other is to be
considered accurate, however, neither Party hereto
makes any representations or warranties, express,
implied, statutory or otherwise, with respect to the
accuracy or completeness of the confidential information
or data disclosed or any condition or aspect
thereof. To the best of it's knowledge, the Party making
such disclosure represents that it has full legal or
contractual authorization or right to disclose such
information and data to the other Party. Each Party
hereto agrees that it will use such confidential
information and data at its sole peril and risk, and the
disclosing Party shall have no liability whatsoever with
respect to the use by receiving Party of any
information or data, whether confidential or otherwise,
furnished by the disclosing Party to the Receiving
Party. Any decision or action taken by the receiving
Party of such disclosed confidential information and
data shall be based solely on the receiving Party's
independent evaluation, judgement and decisions.
22.5 Confidentiality Agreement - Exhibit "H".
Attached hereto as Exhibit "H" is a document
entitled "Confidentiality and AMI Agreement".
The Parties hereto executed this Confidentiality and AMI
Agreement prior to the Effective Date of this
Agreement. The Parties hereto agree that upon the
Effective Date of this Agreement the AMI provisions
as stated in the Confidentiality and AMI Agreement shall
terminate and no longer be in force and effect.
The remaining provisions as stated in Exhibit "H" shall
also terminate and no longer be in force and effect
for every property listed on Exhibit "A" to the
Confidentiality and AMI Agreement with the exception of
those Leases subject hereto listed on Exhibit "B" hereto
which said remaining provisions of such
Confidentiality and AMI Agreement shall remain in full
force and effect for the term stated therein, except
to the extent that such provisions are inconsistent with
the provisions of this Agreement.
ARTICLE 23
23. GOVERNING LAW.
23.1 Choice of Law.
The terms and conditions of this Agreement shall be
governed and interpreted under the LAWS
OF THE STATE OF LOUISIANA excluding, however, any
provisions of Louisiana law which might
direct or refer such determination to the laws of any
other jurisdiction.
23.2 Pending and Future Litigation and Claims.
McMoRan acknowledges that Texaco Exploration and
Production Inc. is a party in the lawsuits
listed in that certain letter dated December 20, 1999
from Texaco to McMoRan, in which lawsuits Texaco
or Affiliates of Texaco, along with other persons, have
been named as defendants ("Pending Litigation").
In no event shall Texaco be liable to McMoRan for
any additional royalties that McMoRan may
be required to pay on McMoRan's share of production or
other damages or losses incurred by McMoRan
as a result of the Pending Litigation or future
litigation involving the Leases. Provided, however, should
there be an increase in royalty rate resulting from the
Pending Litigation or future litigation for events
which occurred, or are alleged to have occurred, prior to
the Effective Date related to the Texaco Leases or
related to those portions of the Leases reserved or
excluded from this Agreement by Texaco, such increase
in royalty rate shall first be satisfied out of the
overriding royalty and/or working interest reserved by
Texaco before McMoRan will become liable to pay any
portion of the increased royalty rate.
McMoRan acknowledges and agrees that Texaco and its
Affiliates shall have full and unfettered
discretion in the handling and settling of any such
claim, demand, action, cause of action, or lawsuit for
events which occurred, or alleged to have occurred prior
to the Effective Date pursuant to the Pending
Litigation or where future litigation as they relate to
the Texaco Leases, and McMoRan specifically
waives any claim it may otherwise have against Texaco
arising out of or relating to the handling or
settling of any such claim, demand, action, cause of
action, or lawsuit asserted under the Pending
Litigation or future litigation; provided, however, that
in the event that such claim contemplated by this
Section 23.2 covers periods after the Effective Date,
McMoRan may assist in defending the litigation.
The references in this Agreement to any suits or claims
are not intended to be exclusive, and
Texaco and their Representatives shall have no liability
to McMoRan for failing to refer to, or otherwise
advise McMoRan regarding any other suits or claims.
ARTICLE 24
24. FORCE MAJEURE.
24.1 Force Majeure.
Should McMoRan be prevented from complying with any
express or implied covenant of this
Agreement (other than the obligation to make monetary
payments), by reason of "force majeure", as
hereinafter defined, the express or implied covenant so
affected shall automatically be extended so long as
the cause or causes for such delays or interruptions
continue and for an additional sixty (60) days
following the cessation of such delay or interruption.
"Force majeure" is herein defined as an act of God,
adverse weather conditions, inability to obtain materials
in the open market or transportation thereof, war,
strikes, lockouts, riots, insurrections or any other
conditions or circumstances not wholly within the control
of McMoRan (other than financial) or any federal, state
or municipal law, order, permit, rule or regulation.
McMoRan shall not be liable to Texaco in damages for
failure to perform as required hereunder or to
comply with any covenant, agreement or requirement hereof
during the time McMoRan is relieved from
its obligations hereunder, provided that McMoRan has
given written notice to Texaco within thirty (30)
days after the occurrence of the cause relied upon to
suspend the obligations of McMoRan hereunder.
McMoRan shall not be relieved from any express or implied
obligations under the oil, gas or mineral lease
by operation of force majeure hereunder, unless such oil,
gas or mineral lease also suspends such
obligations for the same cause. Further, if the oil and
gas lease provides for a time for the suspension of
obligations less than sixty (60) days, the provisions of
such lease shall control.
ARTICLE 25
25. DISPUTE RESOLUTION.
25.1 Dispute Resolution.
Notwithstanding anything contained heretofore in
this Agreement to the contrary, and except as
to those disputes involving Prospect Identification which
shall be resolved in accordance with the
provisions of Article 4 hereof, the Parties specifically
acknowledge and agree that any claim,
controversy or dispute arising out of, relating to, or in
connection with this agreement, including the
interpretation, validity, termination or breach thereof,
shall be resolved solely in accordance with the
Dispute Resolution Procedure set forth in Exhibit "I"
attached hereto and made a part hereof.
ARTICLE 26
26. TERMINATION.
26.1 Termination.
Unless terminated pursuant to another provision in
this Agreement or unless extended pursuant to
another provision, this Agreement shall remain in effect
from the date first above written through June 30,
2003 (or through December 31, 2003 if the Extended Term
is applicable under Section 3.2 above), at
which time it shall automatically terminate without any
other action by any Party hereto. As to each Lease
listed on Exhibit "A", as each Lease expires or
terminates, it will no longer be subject to this Agreement.
Subject to the provisions of Article 18, Texaco may also
elect to terminate this Agreement as to a
particular Lease for McMoRan's non-payment of minimum
royalty or rental as required pursuant
hereto. It is understood between the Parties hereto that
after termination of this Agreement the only
acreage McMoRan will have access to will be that acreage
covered by the individual Farmout Agreements
or Subleases which have been executed (or committed to
under Section 7.2.4) between Texaco and
McMoRan pursuant to this Agreement. Notwithstanding the
termination of this Agreement each Party
shall continue to be obligated to fulfill its existing
commitments, obligations, liabilities and
undertakings theretofore incurred hereunder or incurred
under the terms of those agreements attached as
Exhibits hereto.
26.2 Lease Expiration or Termination.
Although Texaco will use its best good faith
efforts to monitor ongoing activities on the Leases,
Texaco shall not be liable to McMoRan for any Lease
termination and/or Texaco's (or its co-owners)
failure to maintain any Lease during the term of this
Agreement but Texaco will attempt, so long as
Texaco owns Record Title or Operating Rights in any such
Lease, to notify McMoRan at least sixty (60)
days before such Lease will terminate.
ARTICLE 27
27. INDEMNITY.
27.1 Indemnity.
McMoRan agrees to protect, indemnify, and save
Texaco, its parent, subsidiaries, affiliates, and/or
successors and the directors, officers, employees or
agents of each ("Texaco Company Group") free and
harmless from all obligations, business dealings,
liabilities, debts, charges, claims, damages, demands,
costs (including attorneys' fees and court costs),
penalties and causes of action arising directly or indirectly
out of all of McMoRan's operations under this Agreement,
and related to any dealing with Third Parties
McMoRan has with regard to financing or the assignment
of, in whole or in part, any rights under this
Agreement, and to relieve the Texaco Company Group from
any and all liability (exclusive of business
debts and charges) incurred as a result of such
operations. The indemnities and covenants of this Section
27.1 shall be effective whether or not such obligations,
business dealings, liabilities, debts, charges, claims,
damages, demands, costs (including attorneys' fees and
court costs), penalties and causes of action
aforesaid are caused wholly or partly by negligence
attributed to the Texaco Company Group, or by any
other means, excepting those occurrences involving the
gross negligence or willful misconduct of the
Texaco Company Group.
Texaco agrees to protect, indemnify, and save
McMoRan, its parent, subsidiaries, affiliates, and/or
successors and the directors, officers, employees or
agents of each ("McMoRan Company Group") free
and harmless from all obligations, liabilities, debts,
charges, claims, damages, demands, costs (including
attorneys' fees and court costs), penalties and causes of
action arising directly or indirectly out of all of
Texaco's operations under this Agreement and to relieve
the McMoRan Company Group from any and all
liability incurred as a result of such operations. The
indemnities and covenants of this Section 27.1 shall
be effective whether or not such obligations,
liabilities, debts, charges, claims, damages, demands, costs
(including attorneys' fees and court costs), penalties
and causes of action aforesaid are caused wholly or
partly by negligence attributed to the McMoRan Company
Group, or by any other means, excepting those
occurrences involving the gross negligence or willful
misconduct of the McMoRan Company Group.
ARTICLE 28
28. BREACH.
28.1 Breach.
Anything herein to the contrary notwithstanding,
any failure by McMoRan to comply with any
material obligation hereunder shall be considered a
breach of this Agreement, except where the Agreement
is deemed to immediately terminate upon the occurrence or
non-occurrence of an event or action and/or
where Texaco is not required to give prior notice to
McMoRan under any provision in this Agreement. In
the event of any such breach, Texaco shall notify McMoRan
of such breach and if McMoRan does not
correct or is not in good faith attempting to correct
such breach within thirty (30) days of receipt of such
notice, Texaco may terminate this Agreement in whole or
in part by notifying McMoRan in writing of
such termination, without prior notice or demand being
made upon McMoRan and without the necessity
of placing McMoRan in default; provided, however, the
failure by Texaco to exercise at any time or from
time to time such right of termination shall not effect a
waiver of any breach or of Texaco's right
subsequently to terminate this Agreement.
ARTICLE 29
29. NO WARRANTY.
29.1 Non-Warranty.
THIS AGREEMENT IS MADE WITHOUT ANY WARRANTY WHATSOEVER, EXPRESS,
STATUTORY OR IMPLIED, AS TO TITLE, MERCHANTABILITY, CONDITION, QUALITY OR
FITNESS FOR A PARTICULAR PURPOSE AS TO THE TEXACO LEASES, AND ALL OTHER
PROPERTY COVERED BY THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO THE
WELL BORES, EQUIPMENT AND FACILITIES UTILIZED BY MCMORAN HEREUNDER, OR
ANY OTHER SORT OF WARRANTY AND IS WITHOUT RECOURSE AGAINST TEXACO
WHATSOEVER, EVEN AS TO THE RETURN OF CONSIDERATION. TEXACO REPRESENTS
THAT IT HAS NOT ASSIGNED OR MORTGAGED THE TEXACO LEASES. TEXACO MAKES NO
REPRESENTATIONS OR WARRANTIES REGARDING MCMORAN'S RIGHT OF INGRESS TO
AND EGRESS FROM THE TEXACO LEASES ACROSS ADJACENT OR ADJOINING LANDS.
TEXACO SPECIFICALLY DISCLAIMS, AND MCMORAN EXPRESSLY WAIVES THE
IMPLIED WARRANTY OF TITLE NOTED IN LA. R. S. 31:120 WITH RESPECT TO THE
TEXACO LEASES. MCMORAN ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE
CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS AGREEMENT AND PART OF
THE CONSIDERATION GIVEN THEREFOR. MCMORAN FURTHER ACKNOWLEDGES THAT
THIS WAIVER HAS BEEN SPECIFICALLY BROUGHT TO MCMORAN's ATTENTION AND
THAT MCMORAN HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER.
THE PARTIES AGREE THAT FOR THE PURPOSES OF THIS WAIVER OF THE IMPLIED
WARRANTY OF TITLE, TEXACO AND THEIR AFFILIATES SHALL BE CONSIDERED AS THE
SELLER HEREUNDER AND MCMORAN EXPRESSLY WAIVES ALL RIGHTS OF
SUBROGATION IN WARRANTY OF THE SELLER AGAINST OTHER PERSONS GRANTED TO
A BUYER BY LOUISIANA CIVIL CODE ARTICLE 2503.
MCMORAN ACKNOWLEDGES THAT (i) IT IS A SOPHISTICATED INVESTOR AND
OPERATOR IN THE OIL AND GAS BUSINESS; (ii) IT UNDERSTANDS THE RISKS INVOLVED
IN OIL AND GAS EXPLORATION AND DEVELOPMENT; AND (iii) IT UNDERSTANDS THAT
ITS PARTICIPATION IN THIS AGREEMENT IS A HIGHLY RISKY UNDERTAKING AND THAT
MCMORAN MIGHT NOT RECOVER ANY OF ITS INVESTMENT MADE HEREUNDER.
ARTICLE 30
30. GENERAL PROVISIONS.
30.1 Leases Treated Separately.
Unless otherwise provided, the terms and provisions
stated in Article 5 above, shall apply
separately to each Lease listed on Exhibit "A".
30.2 Non-Interference.
Any and all operations conducted and/or performed on any
Lease for which McMoRan is
operator shall be conducted and performed with due
diligence and in a workmanlike manner and shall
be coordinated and scheduled so as not to unreasonably
interfere with existing or anticipated operations
located on the interests in the leases not transferred
hereunder by Texaco, if applicable. In the event that
the proposed drilling on an Initial Test Well on any
Prospect is delayed because of potential interference
with operations on a Lease by Texaco or its co-owners,
then Texaco agrees that the period to commence
operations on the Initial Test Well shall be extended, if
requested by McMoRan, for the duration of the
interference plus a reasonable amount of time for McMoRan
to coordinate its activities after cessation
of operations by Texaco or its co-owners.
30.3 Governmental Approvals.
From and after the execution hereof, each of the Parties
hereto, without further consideration,
shall use its best efforts to execute, deliver, submit,
gain approvals of, and record (or cause to be
executed, delivered, submitted, and recorded) good and
sufficient permits, designations, other regulatory
documents, and instruments of conveyance and transfer (as
applicable), and take such other action as
may be reasonably required to carry out the purposes of
this Agreement and to give effect to the
covenants, stipulations and obligations of the Parties
hereto.
30.4 Amendments.
This Agreement shall not be modified or amended
except by mutual agreement of the Parties in
writing. No action or failure to act on the part of
either party hereto shall be construed as a modification or
amendment to, or a waiver of, any of the provisions of
this Agreement.
30.5 Declaration of Agreement.
Should either Party request a Declaration of
Agreement be executed for filing in the applicable
public records, both Parties agree to execute a
Declaration of Agreement similar in form as that which is
attached hereto as Exhibit "J." Either Party shall have
the right and option, at its own expense, of filing
such Declaration of record in the appropriate State
and/or Federal offices.
30.6 Other Rights , Remedies Reserved.
No provision contained herein providing for
the termination of this Agreement shall be construed
as precluding, nor shall it preclude, Texaco from
asserting its respective rights to specific performance,
damages, or any other rights or remedies to which it may
be entitled.
30.7 No Waiver.
Texaco's failure to enforce any of the provisions
of this Agreement shall not effect a waiver of any
violation thereof nor preclude enforcement of that or any
other provisions hereof at that or any other time.
30.8 No New Lease Burdens.
As to each Lease that remains subject to this
Agreement, until McMoRan has received an
assignment of an interest, or relinquishes its rights to
earn any interest therein, or until this Agreement
terminates, Texaco agrees not to create any additional
lease burdens on such Lease and not to assign all or
a portion of its interest in the Contract Acreage unless
such assignment is expressly subject to this
Agreement. Prior to McMoRan receiving an assignment of
an interest in a Prospect, Texaco shall not
create or allow the creation of any additional lease
burdens affecting the Contract Acreage which
McMoRan has a right to earn hereunder. During the term
of this Agreement, Texaco will use its best
efforts not to prejudice the rights and options of
McMoRan as stipulated hereunder.
30.9 Severability.
Every provision in this Agreement is intended to be
severable. If any term or provision hereof is
held by a court of competent jurisdiction to be illegal
or invalid for any reason whatsoever, all other
conditions and provisions of this Agreement shall
nevertheless remain in full force and effect.
30.10 Entire Agreement.
This Agreement constitutes the entire understanding
between the parties with respect to the
subject matter hereof, superseding all negotiations,
prior discussions and prior agreements and
understandings relating to the subject matter hereof.
30.11 Further Assurances.
Each Party agrees to execute and deliver all such
additional documents, instruments and
assurances and to perform such additional acts as may be
necessary or appropriate to effectuate and
perform all of the terms and conditions of this
Agreement.
30.12 Waiver of Subrogation.
McMoRan shall provide from its insurers a waiver of
subrogation for any matter covered under
the applicable Farmout Agreements or Subleases and Texaco
shall be named as an additional insured
under these policies as permitted.
30.13 Surviving Obligation.
THE TERMINATION OF THIS AGREEMENT SHALL NOT RELIEVE ANY PARTY
HERETO FROM ANY EXPENSE, LIABILITY OR OTHER OBLIGATION OR ANY REMEDY
THEREFOR WHICH HAS ACCRUED OR ATTACHED PRIOR TO THE DATE OF SUCH
TERMINATION.
30.14 Conflict of Terms.
In the event of any conflict between the main body of
this Agreement and attached exhibits, the
provisions of the main body of this Agreement shall
control.
IN WITNESS WHEREOF, this Agreement is executed and
made effective by the Parties hereto
on the date first above written.
WITNESSES:
TEXACO EXPLORATION AND PRODUCTION INC.
By:
Name: Keith G. Schroth
Title: Attorney-in-Fact
MCMORAN OIL & GAS LLC
By:
Name: Glenn A. Kleinert
Title: Senior Vice President
Exhibit "A"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Leases Subject to this Agreement"
Exhibit "A-1"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Description of Additional Acreage with Termination
Dates"
Exhibit "B"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Texaco Identified Prospects"
Exhibit "C"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Area of Mutual Interest"
Exhibit "D"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Farmout Agreement"
Exhibit "E"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Sublease"
Exhibit "F"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Prospect Dispute Resolution Procedure"
Exhibit "G"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Operating Agreement"
Exhibit "H"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Confidentiality Agreement"
Exhibit "I"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Dispute Resolution Procedure"
Exhibit "J"
Attached to and made a part of that certain Offshore
Exploration Agreement dated December 20,
1999, by and between Texaco Exploration and Production
Inc. and McMoRan Oil & Gas LLC.
"Declaration of Agreement"
Exhibit 21.1
SUBSIDIARIES AND AFFILIATES OF
McMoRan EXPLORATION CO.
Name Under Which
Entity Organized It Does Business
- ---------------------------- --------------- ----------------
Freeport-McMoRan Sulphur LLC Delaware Same
FM Services Company Delaware Same
McMoRan Oil & Gas LLC Delaware Same
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into
McMoRan Exploration Co.'s previously filed Registration Statements
on Form S-3 (File No. 333-95195), on Forms S-8 (File Nos. 333-67485
and 333-67963).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New Orleans, Louisiana
February 7, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers, we hereby consent to the
use of our name included herein or incorporated by reference in
this Form 10-K by McMoRan Exploration Co. and to the reference to
our estimates of reserves and present value of future net
reserves as of December 31, 1999, into McMoRan Exploration Co.'s
previously filed Registration Statements on Form S-3 (File No.
333-95195) and on Forms S-8 (File Nos. 333-67485 and 333-67963).
/s/ Ryder Scott Company L.P.
RYDER SCOTT COMPANY, L.P.
Houston, Texas
February 4, 2000
Exhibit 24.1
McMoRan Exploration Co.
Secretary's Certificate
I, Douglas N. Currault II, Assistant Secretary of McMoRan
Exploration Co. (the "Company"), a corporation duly organized and
existing under the laws of the State of Delaware, do hereby certify
that the following resolutions were duly adopted by the Sole
Director of the Company on November 12, 1998, and that such
resolutions have not been amended, modified or rescinded and are in
full force and effect on the date hereof:
RESOLVED, That the Corporation's officers be, and
each of them hereby is, authorized, in the name and on
behalf of the Corporation, to execute and cause to be
filed with the Commission all such further schedules,
forms, statements, reports, or other documents in
connection with the public offering of the Shares that
they may from time to time deem necessary or advisable to
comply fully with the provisions of the Securities
Exchange Act of 1934 (the "Exchange Act") and the
Securities Act, including without limitation, the
registration of the Shares under Section 12(b) of the
Exchange Act
IN WITNESS WHEREOF, I have hereunto signed my name on this 7th
day of February, 2000.
(Seal) /s/ Douglas N. Currault II
-----------------------
Douglas N. Currault II
Assistant Secretary
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT and NANCY D.
PARMELEE, and each of them acting individually, his true and lawful
attorney-in-fact with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of him, in his
name and in his capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1999, and
any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be done by
virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Richard C. Adkerson
- -----------------------
Richard C. Adkerson
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Morrison C. Bethea
- ----------------------
Morrison C. Bethea
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Robert A. Day
_________________
Robert A. Day
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Gerald J. Ford
- ------------------
Gerald J. Ford
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ H. Devon Graham, Jr.
- ------------------------
H. Devon Graham, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Rene L. Latiolais
- ---------------------
Rene L. Latiolais
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Gabrielle K. McDonald
- -------------------------
Gabrielle K. McDonald
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint RICHARD C. ADKERSON and NANCY
D. PARMELEE, and each of them acting individually, his true and lawful
attorney-in-fact with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of him, in his
name and in his capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1999, and
any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be done by
virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ James R. Moffett
- --------------------
James R. Moffett
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ B. M. Rankin, Jr.
- ---------------------
B.M. Rankin, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ C. Donald Whitmire, Jr.
- ---------------------------
C. Donald Whitmire, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT, RICHARD C.
ADKERSON and NANCY D. PARMELEE, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him, in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year
ended December 31, 1999, and any amendment or amendments thereto
and any other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of them, full
power and authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ J. Taylor Wharton
- ---------------------
J. Taylor Wharton
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of Directors of
McMoRan Exploration Co., a Delaware corporation (the "Company"), does
hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C.
ADKERSON, and each of them acting individually, his true and lawful
attorney-in-fact with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of him, in his
name and in his capacity or capacities as aforesaid, an Annual Report of
the Company on Form 10-K for the year ended December 31, 1999, and
any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever that said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of
the foregoing as the undersigned might or could do personally or in the
capacity or capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be done by
virtue of this Power of Attorney.
EXECUTED this 31st day of January, 2000.
/s/ Nancy D. Parmelee
- ---------------------
Nancy D. Parmelee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the McMoRan
Exploration Co's financial statements at December 31, 1999 and the year then
ended, and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000064279
<NAME> MCMORAN EXPLORATION CO.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,470
<ALLOWANCES> 0
<INVENTORY> 16,619
<CURRENT-ASSETS> 46,507
<PP&E> 243,025
<DEPRECIATION> 44,493
<TOTAL-ASSETS> 301,281
<CURRENT-LIABILITIES> 49,615
<BONDS> 14,000
0
0
<COMMON> 142
<OTHER-SE> 154,929
<TOTAL-LIABILITY-AND-EQUITY> 301,281
<SALES> 244,031
<TOTAL-REVENUES> 244,031
<CGS> 225,607
<TOTAL-COSTS> 225,607
<OTHER-EXPENSES> 6,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 679
<INCOME-PRETAX> 180
<INCOME-TAX> 71
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
