<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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: 0-7062
NOBLE AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 73-0785597
(State of incorporation) (I.R.S. employer identification number)
110 West Broadway
Ardmore, Oklahoma 73401
(Address of principal executive offices) (Zip Code)
(405) 223-4110
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock outstanding as of July 31, 1997: 56,871,413
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term cash investments ....................... $ 79,060 $ 94,768
Accounts receivable-trade .................................. 140,832 206,151
Materials and supplies inventories ......................... 2,763 4,489
Other current assets ....................................... 9,166 11,395
----------- -----------
Total Current Assets ....................................... 231,821 316,803
----------- -----------
Property, Plant and Equipment ................................. 2,680,095 2,571,964
Less: accumulated depreciation,
depletion and amortization ....................... (1,142,349) (1,000,200)
----------- -----------
1,537,746 1,571,764
----------- -----------
Other Assets .................................................. 71,910 68,371
----------- -----------
Total Assets ............................................... $ 1,841,477 $ 1,956,938
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade ..................................... $ 149,663 $ 143,408
Other current liabilities .................................. 20,134 75,736
Current installments of long-term debt ..................... 50,000
Income taxes-current ....................................... 9,908 10,662
----------- -----------
Total Current Liabilities .................................. 179,705 279,806
----------- -----------
Deferred Income Taxes ......................................... 126,431 108,434
----------- -----------
Other Deferred Credits and Noncurrent Liabilities ............. 60,033 50,603
----------- -----------
Long-term Debt ................................................ 706,384 798,028
----------- -----------
Shareholders' Equity:
Common stock ............................................... 194,652 194,402
Capital in excess of par value ............................. 357,291 355,651
Retained earnings .......................................... 232,399 185,432
----------- -----------
784,342 735,485
Less common stock in treasury
(at cost, 1,524,900 shares) ................................ (15,418) (15,418)
----------- -----------
Total Shareholders' Equity ................................. 768,924 720,067
----------- -----------
Total Liabilities and Shareholders' Equity ................. $ 1,841,477 $ 1,956,938
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 3
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales and royalties . . . . . . . . . . . . . . . . . $ 384,982 $ 227,937
Gathering, marketing and processing . . . . . . . . . . . . . . . 167,332 122,087
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 6,808 3,971
------------ ------------
559,122 353,995
------------ ------------
COSTS AND EXPENSES:
Oil and gas exploration . . . . . . . . . . . . . . . . . . . . . 35,444 20,455
Oil and gas operations . . . . . . . . . . . . . . . . . . . . . 84,482 49,358
Gathering, marketing and processing . . . . . . . . . . . . . . . 158,094 110,895
Depreciation, depletion and amortization . . . . . . . . . . . . 149,028 82,926
Selling, general and administrative . . . . . . . . . . . . . . . 24,853 18,885
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,467 10,676
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . (2,049) (877)
------------ ------------
477,319 292,318
------------ ------------
INCOME BEFORE TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 81,803 61,677
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . 30,288(1) 22,139(1)
------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,515 $ 39,538
============ ============
PRIMARY EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . $ .91(2) $ .78(2)
============ ============
FULLY DILUTED EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . $ .91(3) $ .75(3)
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales and royalties . . . . . . . . . . . . . . . . . $ 165,660 $ 119,522
Gathering, marketing and processing . . . . . . . . . . . . . . . 67,222 63,286
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 3,785 764
----------- ---------
236,667 183,572
----------- ---------
COSTS AND EXPENSES:
Oil and gas exploration . . . . . . . . . . . . . . . . . . . . . 15,839 12,897
Oil and gas operations . . . . . . . . . . . . . . . . . . . . . 40,965 26,828
Gathering, marketing and processing . . . . . . . . . . . . . . . 63,293 58,781
Depreciation, depletion and amortization . . . . . . . . . . . . 71,308 44,787
Selling, general and administrative . . . . . . . . . . . . . . . 12,666 9,213
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,183 5,328
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . (1,336) (312)
----------- ---------
215,918 157,522
----------- ---------
INCOME BEFORE TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 20,749 26,050
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . 7,597 (1) 9,191(1)
----------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,152 $ 16,859
=========== =========
PRIMARY EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . $ .23 (2) $ .33(2)
=========== =========
FULLY DILUTED EARNINGS PER SHARE . . . . . . . . . . . . . . . . . $ .23 (3) $ .32(3)
=========== =========
</TABLE>
See notes to consolidated condensed financial statements.
4
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NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 51,515 $ 39,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . 149,028 82,926
Amortization of undeveloped lease costs, net . . . . . . . . . . 1,799 3,882
Increase in other deferred credits . . . . . . . . . . . . . . . 27,428 12,044
(Increase) decrease in other . . . . . . . . . . . . . . . . . . 814 (1,140)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable . . . . . . . . . . . 65,319 (6,101)
(Increase) decrease in other current assets and inventories . . 3,846 8,668
Increase (decrease) in accounts payable . . . . . . . . . . . . 6,255 13,249
Increase (decrease) in other current liabilities . . . . . . . . (56,356) 2,896
---------- ---------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . 249,648 155,962
---------- ---------
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (129,400) (128,438)
Proceeds from sale of property, plant and equipment . . . . . . . 10,575 2,962
---------- ---------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . (118,825) (125,476)
---------- ---------
Cash Flows From Financing Activities:
Exercise of stock options . . . . . . . . . . . . . . . . . . . . 1,891 2,907
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (4,549) (4,024)
Repayment of bank debt . . . . . . . . . . . . . . . . . . . . . (389,000)
Proceeds from issuance of senior debt . . . . . . . . . . . . . . 245,127
---------- ---------
Net Cash Used in Financing Activities . . . . . . . . . . . . . . . (146,531) (1,117)
---------- ---------
Increase (Decrease) in Cash and Short-term Cash Investments . . . . . (15,708) 29,369
---------- ---------
Cash and Short-term Cash Investments at Beginning of Period . . . . . 94,768 12,429
---------- ---------
Cash and Short-term Cash Investments at End of Period . . . . . . . . $ 79,060 $ 41,798
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . $ 28,156 $ 9,258
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,750 $ 8,000
</TABLE>
See notes to consolidated condensed financial statements.
5
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of Noble Affiliates, Inc. ("Company"), the accompanying
unaudited consolidated condensed financial statements contain all adjustments,
consisting only of necessary and normal recurring adjustments, necessary to
present fairly the Company's financial position as of June 30, 1997 and
December 31, 1996, and the results of operations for the three month and six
month periods ended June 30, 1997 and 1996 and the cash flows for the six month
periods ended June 30, 1997 and 1996. These consolidated condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto incorporated in the Company's annual report on Form 10-K for the
year ended December 31, 1996.
(1) INCOME TAX PROVISION
For the six months ended June 30:
<TABLE>
<CAPTION>
(In thousands)
------------------------
1997 1996
---- ----
<S> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,289 $ 14,732
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,999 7,407
-------- --------
$ 30,288 $ 22,139
======== ========
For the three months ended June 30:
(In thousands)
-----------------------
1997 1996
---- ----
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,032 $ 5,521
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,565 3,670
-------- --------
$ 7,597 $ 9,191
======== ========
</TABLE>
(2) PRIMARY EARNINGS PER SHARE
The primary earnings per share of common stock was computed using the
weighted average number of shares of common stock outstanding during the period
as follows:
<TABLE>
<CAPTION>
(In thousands)
----------------------------
1997 1996
---- ----
<S> <C> <C>
For the six months ended June 30 . . . . . . . . . . . . . . . 56,855 50,318
For the three months ended June 30 . . . . . . . . . . . . . . 56,869 50,363
</TABLE>
(3) FULLY DILUTED EARNINGS PER SHARE
The fully diluted earnings per share of common stock for the three months
and six months ended June 30, 1996 was computed using the "if converted
method," assuming the Company's convertible debt was converted into additional
outstanding shares of common stock at the beginning of the period. For the
three months and six months ended June 30, 1996 the weighted average number of
shares of common stock outstanding using the if converted method was 57,033,000
and 56,988,000, respectively, and the increase in income related to the assumed
reduction in after tax interest expense was $1,564,000 and $3,128,000,
respectively. There was no dilution of earnings per share in the three months
and six months ended June 30, 1997.
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 128 "Earnings per Share", No. 129 Disclosure of
Information about Capital Structure", No. 130 "Reporting Comprehensive Income"
and No. 131 "Disclosure about Segments of an Enterprise and Related
Information" in the first half of 1997. Statement No. 128 and No. 129 are
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Statement No. 130 and No. 131 are effective for 1998.
The Company
6
<PAGE> 7
believes that its adoption of these statements at December 31, 1997
and for 1998 will not have a material effect on its financial statements.
(4) TRADING AND HEDGING ACTIVITIES
The Company, through its subsidiaries, from time to time, uses various
hedging arrangements in connection with anticipated crude oil and natural gas
sales of its production to minimize the impact of product price fluctuations.
Such arrangements include fixed prices hedges, costless collars, swaps, options
and other contractual arrangements.
Hedging gains and losses, as applicable, related to the Company's oil
and gas production are recorded in oil and gas sales and royalties.
In addition to the hedging arrangements pertaining to the Company's
production as described above, Noble Gas Marketing ("NGM"), a wholly owned
subsidiary of the Company, employs various hedging arrangements in connection
with its purchases and sales of third party production to lock in profits or
limit exposure to gas price risk. Most of the purchases made by NGM are on an
index basis; however, purchasers in the markets in which NGM sells often require
fixed or NYMEX related pricing. NGM may use a hedge to convert the fixed or
NYMEX sale to an index basis thereby determining the margin and minimizing the
risk of price volatility.
NGM records hedging gains or losses relating to fixed term sales as
gathering, marketing and processing revenues in the periods in which the
related contract is completed.
(5) MINERALS MANAGEMENT SERVICE CLAIMS
Over the past several years, Samedan Oil Corporation ("Samedan"), a
wholly owned subsidiary of the Company, has settled various claims which it had
against parties who had contracted to purchase gas at fixed prices which were
greater than market, or who had take-or-pay contracts with Samedan in which
such obligations to take-or-pay for quantities of gas were not fulfilled. It is
the Company's policy, which is consistent with general industry practice, that
such payments do not represent payment for gas produced and therefore, are not
subject to royalty payments. The Federal government, with respect to leases on
both onshore and offshore Federal lands, certain other governmental bodies, and
some private landowners in recent years asserted claims against oil and gas
companies for royalties on some or all of such settlement amounts.
The Company participated in a joint effort with the Independent Petroleum
Association of America ("IPAA") wherein Samedan was a party to a test case
involving such a claim made with respect to a lease on Indian lands. In the
U.S. District Court for the District of Columbia, Samedan and other plaintiffs
challenged the determination by the U.S. Minerals Management Service ("MMS")
that royalties were payable to the government on certain proceeds received by
Samedan (and the other plaintiffs) with respect to a contract settlement. The
U.S. District Court ruled in favor of the MMS, and a judgment in the amount of
$20,000 was awarded against Samedan. Samedan appealed this judgment, and on
August 27, 1996, the U.S. Court of Appeals for the District of Columbia Circuit
overturned the U.S. District Court's decision. The appeals court decision
ordered the MMS to cease its efforts to collect royalties from Samedan for any
contract settlement that was not recoupable and in February 1997 the U.S.
Department of Justice announced that it would not seek Supreme Court action to
overturn the decision.
(6) SUBSEQUENT EVENTS
On July 25, 1997, the U.S. District Court for the District of Columbia, in
ruling upon Samedan's and the IPAA's request for an injunction, affirmed with
respect to Samedan that royalties are not owed on non-recoupable take-or-pay
settlement payments and ordered that the MMS is barred from taking actions in
an effort to collect these royalties from Samedan (the "District Court
Ruling"). The MMS has 60 days to appeal this order.
Notwithstanding the District Court Ruling, other claims may be brought
against Samedan by private landowners or, subject to the MMS appealing the
District Court Ruling, by the Federal government, based upon other take-or-pay
or contract settlements. There can be no assurance that Samedan will prevail on
any similar claims which may be asserted against it based on other take-or-pay
or contract settlements. The Company is unable to estimate the possible amount
of loss, if any, associated with this contingency.
7
<PAGE> 8
On August 6, 1997, the Company issued $100,000,000 aggregate principal
amount of 7 1/4% Senior Debentures Due 2097. The net proceeds from the sale, of
approximately $97.4 million, were used together with available cash to repay
$100 million of the outstanding principal under the revolving loan under the
Company's bank credit agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") include without limitation future
production levels, future prices and demand for oil and gas, results of future
exploration and development activities, future operating and development costs,
the effect of existing and future laws and governmental regulations (including
those pertaining to the environment) and the political and economic climate of
the United States and the foreign countries in which the Company operates from
time to time, as discussed in this quarterly report on Form 10-Q and the other
documents of the Company filed with the Securities and Exchange Commission (the
"Commission"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
ACQUISITION OF ENERGY DEVELOPMENT CORPORATION
On July 31, 1996, Samedan acquired all the outstanding common stock of
Energy Development Corporation, a New Jersey corporation, pursuant to the terms
of a Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of July
1, 1996 between Samedan and Enterprise Diversified Holdings Incorporated
("EDHI"), a New Jersey corporation and the sole stockholder of EDC (the "EDC
Acquisition").
The purchase price paid at closing as determined under the Stock Purchase
Agreement was approximately $768,000,000 in cash. The Company accounted for the
acquisition under the purchase method of accounting. The purchase price was
allocated to the assets and liabilities acquired based on estimated fair value.
During the second quarter of 1997, the Company reduced its estimate of
preacquisition contingencies and reduced the purchase price allocated by
approximately $15 million.
In connection with the acquisition, the Company entered into a new
$800,000,000 bank credit facility pursuant to a Credit Agreement (the "Credit
Agreement") dated as of July 31, 1996 among the Company, as borrower, certain
commercial lending institutions which are or may become a party thereto, as
lenders, and Union Bank of Switzerland, Houston Agency, as agent for the
lenders. The Credit Agreement which provides for a $400,000,000 term loan,
which has certain scheduled prepayments and a final maturity of July 31, 2001,
and a $400,000,000 revolving credit facility with a final maturity of July 31,
2001. Borrowings of $800,000,000 under the Credit Agreement were used to fund
the purchase price for EDC and, together with funds on hand, to repay
$48,000,000 of outstanding indebtedness under the Company's then existing
credit agreement (the "old credit agreement") with certain banks. The Company's
old credit agreement was cancelled in connection with the repayment.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $249.6 million in
the six months ended June 30, 1997 from $156.0 million in the same period of
1996. Cash and short-term cash investments decreased from $94.8 million at
December 31, 1996 to $79.1 million at June 30, 1997.
8
<PAGE> 9
On August 6, 1997, Company issued $100,000,000 aggregate principal amount
of its 7 1/4% Senior Debentures Due 2097. The net proceeds from the sale,
estimated to be approximately $97.4 million, were used together with available
cash to repay $100 million of the outstanding principal under the revolving
loan under the Credit Agreement.
Additionally, the Company issued $250,000,000 aggregate principal amount
of its 8% Senior Notes Due 2027 on April 7, 1997. Net proceeds of the issuance
together with $104 million of available cash were used to repay the outstanding
principal of $349 million plus accrued interest under the term loan under the
Credit Agreement. The Company paid down an additional $40 million on its credit
agreement on June 3, 1997. Total long-term debt as of June 30, 1997 was $706
million.
The Company has expended approximately $129.4 million of its $344.5
million 1997 capital budget through June 30, 1997. The Company expects to fund
internally its remaining 1997 capital budget through cash flows from
operations. The Company's 1997 capital budget includes approximately $4.2
million for potential acquisitions of producing properties. The Company
continues to evaluate possible strategic acquisitions and believes it is
positioned to access external sources of funding should it be necessary or
desirable in connection with an acquisition.
The Company's current ratio (current assets divided by current
liabilities) was 1.29 at June 30, 1997 compared with 1.13 at December 31, 1996.
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's estimated gas imbalance receivables were $18.5
million at June 30, 1997 and $19.3 million at December 31, 1996. Estimated gas
imbalance liabilities were $27.3 million at June 30, 1997 and $21.7 million at
December 31, 1996. These imbalances are valued at the amount which is expected
to be received or paid to settle the imbalances. The settlement of the
imbalances can occur either over the life or at the end of the life of a well,
on a volume basis or by cash settlement. The Company does not expect that a
significant portion of the settlements will occur in any one year. Thus, the
Company believes the settlement of gas imbalances will not have a material
impact on its liquidity.
RESULTS OF OPERATIONS
For the second quarter of 1997, the Company recorded net income of $13.2
million, or $.23 per share, compared to net income of $16.9 million, or $.33
per share in the second quarter of 1996. During the first six months of 1997,
the Company recorded net income of $51.5 million, or $.91 per share, compared
to net income of $39.5 million, or $.78 per share, in the first six months of
1996.
Gas sales for the Company, excluding third party sales by Noble Gas
Marketing ("NGM"), a wholly owned subsidiary of the Company, increased 49
percent and 90 percent, respectively, for the three months and six months ended
June 30, 1997. The increase in sales is primarily due to a 46 percent and 64
percent increase, respectively, in average daily production and a 3 percent and
17 percent increase, respectively, in the average gas price for the three
months and six months ended June 30, 1997, as compared to the same periods in
1996. The substantial increase in average daily production was primarily due to
the Company's acquisition of EDC on July 31, 1996 and new properties coming on
line in the latter part of 1996, primarily in the Gulf of Mexico.
Oil sales increased 24 percent and 39 percent, respectively, for the
three months and six months ended June 30, 1997, as compared with the same
periods in 1996. The primary reasons for the increased sales were due to a 28
percent and 34 percent increase, respectively, in average daily production for
the three months and six months ended June 30, 1997, as compared to the same
periods in 1996. The average oil price decreased 3 percent for the three months
ended June 30, 1997 and increased 5 percent for the six months ended June 30,
1997, as compared with the same periods in 1996.
NGM markets the Company's natural gas as well as certain third party gas.
NGM sells gas directly to end-users, gas marketers, industrial users,
interstate and intrastate pipelines, and local distribution companies. Noble
Trading Inc. ("NTI"), a wholly owned subsidiary of the Company, markets a
portion of the Company's oil as well as certain third party oil. The Company
records all NGM's and NTI's sales as gathering, marketing and processing
revenues and expenses. All intercompany sales and expenses have been
eliminated.
The Company, from time to time, uses various hedging arrangements in
connection with anticipated crude oil and natural gas sales of its own
production and third party production purchased and sold by NGM to minimize the
impact of product price fluctuations. Such arrangements include fixed price
hedges, costless collars and other contractual arrangements. Although these
hedging arrangements expose the Company to credit risk, the Company
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<PAGE> 10
monitors the creditworthiness of its counterparties, which generally are major
institutions, and believes that losses from nonperformance are unlikely to
occur.
During the second quarter of 1997, the Company had natural gas hedging
contracts that hedged approximately 19 percent of its average daily production.
The net effect of these hedges was a $.04 per MCF reduction in the average
natural gas price for the second quarter. Hedges for July 1997 through December
1997, which average approximately 19 percent of the Company's estimated average
daily natural gas production, were not closed at June 30, 1997. The Company
also had various crude oil hedging contracts that hedged approximately 18
percent of its average daily production during the second quarter of 1997. The
net effect of these hedges was a $.02 per BBL increase in the average crude oil
price for the second quarter. Hedges for July 1997 through December 1997,
which average approximately 18 percent of the Company's estimated average daily
crude oil production, were not closed at June 30, 1997. For the six months
ended June 30, 1997, the net effect of natural gas hedging was a $.14 per MCF
reduction in the average natural gas price. For the same period, the net effect
of crude oil hedging was a $.31 per BBL reduction in the average crude oil
price.
The Company records hedging gains and losses, as applicable, related to
its oil and gas production in oil and gas sales and royalties in the periods in
which the related contract is completed.
In addition to the hedging arrangements pertaining to the Company's
production as described above, NGM employs various hedging arrangements in
connection with its purchases and sales of third party production to lock in
profits or limit exposure to gas price risk. Most of the purchases made by NGM
are on an index basis; however, purchasers in the markets in which NGM sells
often require fixed or NYMEX related pricing. NGM may use a hedge to convert
the fixed or NYMEX sale to an index basis thereby determining the margin and
minimizing the risk of price volatility. During the second quarter of 1997,
NGM had hedging transactions with broker-dealers that represented approximately
454,182 MMBTU's of gas per day, which resulted in a loss of $25,000 for the
second quarter of 1997. Hedges for July 1997 through August 1998, which range
from 323 MMBTU's to 493,082 MMBTU's of gas per day for future physical
transactions, were not closed at June 30, 1997. During the second quarter of
1996, NGM had hedging transactions with broker-dealers that represented
approximately 303,000 MMBTU's of gas per day at prices ranging from $1.68 to
$2.86 per MMBTU. NGM records hedging gains and losses relating to fixed term
sales as gathering, marketing and processing revenues in the periods in which
the related contract is completed.
Certain selected oil and gas operating statistics follow:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Oil revenues (in thousands).......... $ 59,692 $ 48,222 $ 128,989 $ 92,535
Average daily oil production - BBLS.. 38,434 30,091 39,015 29,203
Average oil price per BBL............ $ 17.46 $ 18.09 $ 18.71 $ 17.86
Gas revenue (in thousands)........... $ 101,793 $ 68,122 $ 246,428 $ 129,923
Average daily gas production - MCFS.. 566,852 388,826 589,393 359,673
Average gas price per MCF............ $ 2.03 $ 1.98 $ 2.37 $ 2.02
BBLS - barrels
MCF - thousand cubic feet
</TABLE>
Oil and gas exploration expense increased $2.9 million and $15.0 million,
respectively, for the three months and six months ended June 30, 1997, as
compared to the same periods in 1996. This increase is primarily attributable
to an increase of $1.5 million and $11.6 million, respectively, in dry hole
expense, as compared with the same periods in 1996.
Oil and gas operations expense increased $14.1 million and $35.1 million,
respectively, for the three months and six months ended June 30, 1997, as
compared to the same periods in 1996. The increases are due primarily to an
increased number of properties as a result of the EDC Acquisition and new
properties commencing production in the Gulf of Mexico.
10
<PAGE> 11
Depreciation, depletion and amortization (DD&A) expense increased 59
percent and 80 percent, respectively, for the three months and six months ended
June 30, 1997, as compared to the same periods in 1996. The unit rate of DD&A
per barrel of oil equivalent (BOE), converting gas to oil on the basis of 6 MCF
per barrel, was $6.00 for the first six months of 1997, as compared to $5.11
for the same period of 1996. The increase in the unit rate per BOE is due to
the purchase price allocation to the properties obtained in the EDC Acquisition
which averaged $7.55 per BOE for the first six months of 1997, compared with
Samedan's properties which average $5.50 per BOE for the same period. The
Company has recorded, through charges to DD&A, a reserve for estimated future
liabilities related to dismantlement and reclamation costs for offshore
facilities. Approximately $3.4 million and $7.8 million, respectively, was
charged to DD&A for the three months and six months ended June 30, 1997 for
these estimated future liabilities. This reserve is based on the best estimates
of Company engineers of such costs to be incurred in future years.
Interest expense increased $7.9 million and $16.8 million for the three
months and six months ended June 30, 1997, as compared to the same periods in
1996. This increase resulted from the increased debt associated with the EDC
Acquisition.
Interest capitalized increased $1.0 million and $1.2 million,
respectively, for the three months and six months ended June 30, 1997, as
compared to the same periods in 1996. This increase resulted from construction
projects for various properties located in the Gulf of Mexico.
FUTURE TRENDS
Over the past several years, Samedan has settled various claims which it
had against parties who had contracted to purchase gas at fixed prices which
were greater than market, or who had take-or-pay contracts with Samedan in
which such obligations to take-or-pay for quantities of gas were not fulfilled.
It is the Company's policy, which is consistent with general industry practice,
that such payments do not represent payment for gas produced and therefore, are
not subject to royalty payments. The Federal government, with respect to leases
on both onshore and offshore Federal lands, certain other governmental bodies,
and some private landowners have begun to assert claims in recent years against
oil and gas companies for royalties on some or all of such settlement amounts.
The Company participated in a joint effort with the Independent Petroleum
Association of America ("IPAA") wherein Samedan was a party to a test case
involving such a claim made with respect to a lease on Indian lands. In the
U.S. District Court for the District of Columbia, Samedan and other plaintiffs
challenged the determination by the U.S. Minerals Management Service ("MMS")
that royalties were payable to the government on certain proceeds received by
Samedan (and the other plaintiffs) with respect to a contract settlement. The
district court ruled in favor of the MMS, and a judgment in the amount of
$20,000 was awarded against Samedan. Samedan appealed this judgment, and on
August 27 1996, the U.S. Court of Appeals for the District of Columbia
overturned the U.S. District Court's decision. The appeals court decision
ordered the MMS to cease its efforts to collect royalty from Samedan for any
contract settlement that was not recoupable and in February 1997 the U.S.
Department of Justice announced that it would not seek Supreme Court action to
overturn the decision.
On July 25, 1997, the U.S. District Court for the District of Columbia,
ruling upon Samedan's and the IPAA's request for an injunction, affirmed with
respect to Samedan that royalties are not owed on non-recoupable take-or-pay
settlement payments and that the MMS is barred from taking actions in an effort
to collect these royalties from Samedan (the "District Court Ruling"). The MMS
has 60 days to appeal this order.
Notwithstanding the District Court Ruling, other claims may be brought
against Samedan by private landowners or, subject to the MMS appealing the
District Court Ruling, by the Federal government, based upon other take-or-pay
or contract settlements. There can be no assurance that Samedan will prevail on
any similar claims which may be asserted against it based on other take-or-pay
or contract settlements. The Company is unable to estimate the possible amount
of loss, if any, associated with this contingency.
Management believes the Company is well positioned with its balanced
reserves of oil and gas to take advantage of future price increases that may
occur. However, the uncertainty of oil and gas prices continues to affect the
domestic oil and gas industry. Due to the volatility of oil and gas prices, the
Company, from time to time, uses hedging and plans to do so in the future as a
means of controlling its exposure to price changes. The Company cannot predict
the extent to which its revenues will be affected by inflation, government
regulation or changing prices.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The information required by this Item 6 (a) is set forth in the Index
to Exhibits accompanying this quarterly report and is incorporated
herein by reference.
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1997.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE AFFILIATES, INC.
(Registrant)
Date August 13, 1997 /s/ WM. D. DICKSON
---------------------------------
WM. D. DICKSON
Vice President-Finance and Treasurer
(Principal Financial Officer
and Authorized Signatory)
13
<PAGE> 14
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
4.1 Second Indenture Supplement,
between the Company and
U.S. Trust Company of Texas,
N.A. as Trustee, relating to
$100,000,000 of the
Company's 7 1/4% Senior
Debentures Due 2097 dated as
of August 1, 1997
27.1 Financial Data Schedule
<PAGE> 1
NOBLE AFFILIATES, INC.
as Issuer
TO
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
Second Indenture Supplement
Dated as of August 1, 1997
to
INDENTURE
Dated as of April 1, 1997
$100,000,000
7 1/4% Senior Debentures Due 2097
<PAGE> 2
SECOND INDENTURE SUPPLEMENT
SECOND INDENTURE SUPPLEMENT (the "Second Indenture Supplement"), dated
as of August 1, 1997, between NOBLE AFFILIATES, INC., a Delaware corporation
(together with its successors and assigns as provided in the Indenture referred
to below, the "Company"), and U.S. TRUST COMPANY OF TEXAS, N.A., a national
banking association (together with its successors in trust thereunder as
provided in the Indenture referred to below, the "Trustee"), as trustee under
an Indenture, dated as of April 1, 1997, between the Company and the Trustee
(the "Indenture").
RECITALS
The Company has issued its 7 1/4% Senior Debentures Due 2097 in the
form attached hereto in the aggregate principal amount of $100,000,000 (the
"Senior Debentures") that may be authenticated and delivered pursuant to the
Indenture and this Second Indenture Supplement.
The Company may issue in the future additional senior debt securities
pursuant to the Indenture (the "Senior Debt Securities").
Section 301 of the Indenture provides, among other things, that the
Company, when authorized by its Board of Directors, and the Trustee may at any
time and from time to time enter into an indenture supplemental to the
Indenture for the purpose of authorizing a series of Senior Debt Securities and
to specify certain terms of such series of Senior Debt Securities. The Board
of Directors of the Company has duly authorized the creation of the Senior
Debentures, and the Company and the Trustee, pursuant to Section 301 of the
Indenture, are executing and delivering this Second Indenture Supplement in
order to provide for the Senior Debentures.
The Company has duly authorized the execution and delivery of this
Second Indenture Supplement, the conditions set forth in the Indenture for the
execution and delivery of this Second Indenture Supplement have been complied
with and all things necessary to make this Second Indenture Supplement a valid
amendment of, and supplement to, the Indenture have been done by the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the Company agrees with the Trustee that the Indenture is
supplemented and amended, solely to the extent and for the purposes expressed
herein, for the equal and proportionate benefit of all holders of the Senior
Debentures (the "Holders"), as follows:
1
<PAGE> 3
ARTICLE I
DEFINITIONS
SECTION 1.1. Unless the context otherwise requires, the terms defined
in the Indenture shall, for all purposes of this Second Indenture Supplement,
have the meanings therein defined.
SECTION 1.2. Unless the context otherwise requires, the terms defined
in this Second Indenture Supplement (including the preamble hereof) shall, for
all purposes of the Indenture as supplemented and amended by this Second
Indenture Supplement, have the meanings herein defined.
ARTICLE II
APPLICABILITY OF CERTAIN PROVISIONS
SECTION 2.1. In accordance with Article Eleven of the Indenture,
prior to maturity the Senior Debentures shall be redeemable in whole at any
time or in part from time to time, at the option of the Company, at a
redemption price equal to the greater of (i) 100% of the principal amount of
the Senior Debentures to be redeemed and (ii) the sum of the present values of
the Remaining Scheduled Payments (as defined herein) thereon, discounted to the
redemption date on a semiannual basis at the Treasury Rate (as defined herein)
plus 15 basis points, together in either case with the accrued interest on the
principal amount being redeemed to the date of redemption.
In the event that the Company elects to exercise its right to redeem
Senior Debentures, the Company shall mail a notice of such redemption to each
Holder of record of the Senior Debentures by first-class mail at least 30 and
not more than 60 days prior to the date fixed for redemption. Unless the
Company defaults in payment of the redemption price, on and after the
redemption date interest will cease to accrue on the Senior Debentures.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker (as defined below) as having a
maturity comparable to the remaining term of the Senior Debentures or, if no
such security exists, a security that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the Senior Debentures. "Independent Investment Banker" means Morgan
Stanley & Co. Incorporated or, if such firm is not willing or able to select
the Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the Trustee.
2
<PAGE> 4
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such Business Day, (A) the
average of the Reference Treasury Dealer Quotations (as defined below) for such
redemption date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer (as defined below), and any redemption date, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer as of 3:30
p.m., New York City time, on the third Business Day preceding such redemption
date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, any other primary U.S. Government securities dealer in New York
City (a "Primary Treasury Dealer") so designated by the Trustee, and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a Primary Treasury Dealer, the Company shall substitute therefor
another nationally recognized investment banking firm that is a Primary
Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to any Senior
Debenture, the remaining scheduled payments of the principal thereof to be
redeemed and interest thereon that would be due after the related redemption
date but for such redemption; provided, however, that, if such redemption date
is not an Interest Payment Date, the amount of the next succeeding scheduled
interest payment on the Senior Debentures to be redeemed shall be reduced by
the amount of interest accrued thereon to such redemption date.
SECTION 2.2. Upon the occurrence of a Tax Event (as defined herein),
the Company shall have the right, without the consent of the Holders of the
Senior Debentures, to advance the maturity date of the Senior Debentures to the
extent required, in the written opinion of a nationally recognized independent
tax counsel experienced in such matters, such that after advancing the maturity
date, interest paid on the Senior Debentures will be deductible for United
States Federal income tax purposes.
In the event that the Company elects to exercise its right to advance
the Stated Maturity of the Senior Debentures on the occurrence of a Tax Event,
the Company shall mail a notice of the advanced Stated Maturity to each Holder
of record of the Senior Debentures by first-class mail not more than 60 days
after the occurrence of such Tax Event, stating the new Stated Maturity of the
Senior Debentures, and will cause the Senior Debentures to be amended
accordingly. Such notice shall be effective immediately upon mailing.
3
<PAGE> 5
"Tax Event" means that the Company shall have received the written
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that, on or after the date of the original issuance of
the Senior Debentures, as a result of (i) any amendment to, clarification of,
or change (including any announced prospective change) in laws, or any
proposed, temporary or final regulations thereunder, of the United States, (ii)
any judicial decision, official administrative pronouncement, authorization,
ruling, regulatory procedure, notice or announcement, including any notice or
announcement of proposal to adopt such procedures or regulations (an
"Administrative Action"), or (iii) any amendment to, clarification of, or
change in the official position or the interpretation of such Administrative
Action or judicial decision that differs from the theretofore generally
accepted position, in each case on or after the date of the original issuance
of the Senior Debentures, such change in tax laws or regulations creates a more
than insubstantial risk that interest paid by the Company on the Senior
Debentures is not, or will not be, deductible, in whole or in part, by the
Company for United States Federal income tax purposes.
SECTION 2.3. Notwithstanding Article Twelve of the Indenture, no
Sinking Fund will be established with respect to the Senior Debentures and the
Senior Debentures will not be subject to any Sinking Fund payments.
SECTION 2.4. Articles Ten and Thirteen of the Indenture shall be
applicable in their entirety to the Senior Debentures.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1. Nothing in this Second Indenture Supplement, express or
implied, is intended or shall be construed to confer upon, or to give to, any
person or corporation, other than the parties hereto, their successors and
assigns, and the Holders, any right, remedy or claim under or by reason of this
Second Indenture Supplement or any provision hereof; and the provisions of this
Second Indenture Supplement are for the exclusive benefit of the parties
hereto, their successors and assigns, and the Holders.
SECTION 3.2. This Second Indenture Supplement shall for all purposes
be deemed to be a contract made under, governed by and construed in accordance
with the laws of the State of New York.
In case any provision in this Second Indenture Supplement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
If any provision of this Second Indenture Supplement limits, qualifies
or conflicts with any other provision required to be included in this Second
Indenture Supplement or the Indenture by the Trust Indenture Act, such other
provision which is so required to be included shall control.
4
<PAGE> 6
SECTION 3.3. The recitals contained herein shall be taken as the
statements of the Company and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Second Indenture Supplement.
SECTION 3.4. The descriptive headings of the several Articles of this
Second Indenture Supplement are inserted for convenience only and shall not
affect the construction hereof.
SECTION 3.5. This Second Indenture Supplement may be simultaneously
executed in any number of counterparts, each of which when so executed and
delivered shall be an original; but such counterparts shall together constitute
but one and the same instrument.
SECTION 3.6. The Company represents and warrants that it is duly
authorized under all applicable laws to execute and deliver this Second
Indenture Supplement and that all corporate action on its part required for the
execution and delivery of this Second Indenture Supplement has been duly and
effectively taken.
[Remainder of page purposefully left blank.]
5
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Second Indenture Supplement to be duly executed by their respective officers
thereunto duly authorized and their respective seals duly attested to be
hereunto affixed all as of the day and year first above written.
NOBLE AFFILIATES, INC.
[SEAL]
By: /s/ ROBERT KELLEY
--------------------------------------
Robert Kelley,
Chairman, President and Chief Executive
Officer
ATTEST:
/s/ ORVILLE WALRAVEN
- ------------------------------------------------
Name: Orville Walraven
------------------------------------------
Title: Secretary
-----------------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
[SEAL] By: /s/ JOHN C. STOHLMANN
--------------------------------------
Name: John C. Stohlmann
----------------------------------
Title: Vice President
----------------------------------
ATTEST:
/s/ BRAD CARSON
- ------------------------------------------------
Name: Brad Carson
------------------------------------------
Title: Senior Vice President & Trust Officer
-----------------------------------------
<PAGE> 8
STATE OF OKLAHOMA )
)
COUNTY OF CARTER )
BEFORE ME, the undersigned authority, a Notary Public in and for said
state, on this day personally appeared Robert Kelley and Orville Walraven,
known to me to be the persons and officers whose names are subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said NOBLE AFFILIATES, INC., a Delaware corporation, and that they executed the
same as the act of said corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 5th day of August, 1997.
/s/ JOAN E. COLE
---------------------------------------
Notary Public in and for the State of
Oklahoma
My commission expires: Joan E. Cole
---------------------------------------
August 11, 2000 Printed Name of Notary Public
- ----------------------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a Notary Public in and for said
state, on this day personally appeared John C. Stohlmann and Brad Carson, known
to me to be the persons and officers whose names are subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
U.S. TRUST COMPANY OF TEXAS, N.A., a national banking association, and that they
executed the same as the act of said banking association for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of August, 1997.
/s/ PATRICIA A. ROBLES
---------------------------------------
Notary Public in and for the State of
Texas
My commission expires:
Patricia A. Robles
----------------------------------------
February 13, 1999 Printed Name of Notary Public
- ----------------------------------
7
<PAGE> 9
FORM OF DEBT SECURITIES
(DEBENTURE)
This Senior Debenture is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of the
Depositary or a nominee thereof. This Senior Debenture may not be transferred
to, or registered or exchanged for Securities registered in the name of, any
Person other than the Depositary or a nominee thereof and no such transfer may
be registered, except in the limited circumstances described in the Indenture.
Every Senior Debenture authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, this Senior Debenture shall be a
Global Security subject to the foregoing, except in such limited circumstances.
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to issuer or
its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
NOBLE AFFILIATES, INC.
REGISTERED PRINCIPAL AMOUNT
No: 1 $100,000,000
CUSIP: 654894AG9
7 1/4% SENIOR DEBENTURE DUE 2097
NOBLE AFFILIATES, INC., a corporation duly organized and existing
under the laws of Delaware (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ONE HUNDRED MILLION AND NO/100 DOLLARS on August 1, 2097
("Stated Maturity"), and to pay interest thereon from August 1, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on February 1 and August 1, in each year (each, an
"Interest Payment Date"), commencing February 1, 1998, at the rate of 7 1/4%
per annum, until the principal hereof is paid or made available for payment.
Interest on the Senior Debentures shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Senior
Debenture (or one or more Predecessor Senior Debentures) is registered at the
close of business on the Regular Record Date for such interest,
1
<PAGE> 10
which shall be the January 15 or July 15 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid or duly provided for will forthwith cease to be payable
to the Holder on such Regular Record Date and may either be paid to the Person
in whose name this Senior Debenture (or one or more Predecessor Senior
Debentures) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Senior Debentures not less than 10 days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Senior Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of and interest on this Senior Debenture will
be made at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. The Company, however, may pay principal and
interest by check payable in such money. At the option of the Company, payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register; provided, that,
notwithstanding anything else contained herein, if this Senior Debenture is a
Global Security and is held in book-entry form through the facilities of the
Depositary, payments on this Senior Debenture will be made to the Depositary or
its nominee in accordance with the arrangements then in effect between the
Trustee and the Depositary.
Upon the occurrence of a Tax Event (as defined herein), the Company
shall have the right to advance the Stated Maturity as provided herein.
Reference is hereby made to the further provisions of this Senior
Debenture set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth herein.
This is one of the Securities referred to in the within-mentioned
Indenture.
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
By:
------------------------------------
Name:
---------------------------------
Title:
---------------------------------
2
<PAGE> 11
NOBLE AFFILIATES, INC.
7 1/4% Senior Debenture Due 2097
This Senior Debenture is one of a duly authorized issue of Securities
of the Company designated as its 7 1/4% Senior Debentures Due 2097 (herein
called the "Senior Debentures"), limited in aggregate principal amount to
$100,000,000, issued under an Indenture, dated as of April 1, 1997 (herein
called the "Indenture"), between the Company and U.S. Trust Company of Texas,
N.A., as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Senior Debentures and of the terms upon
which the Senior Debentures are, and are to be, authenticated and delivered.
The Senior Debentures are redeemable prior to maturity in whole at any
time or in part from time to time, at the option of the Company, at a
redemption price equal to the greater of (i) 100% of the principal amount of
the Senior Debentures to be redeemed and (ii) the sum of the present values of
the Remaining Scheduled Payments (as defined below) thereon, discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined below) plus 15 basis
points, together in either case with accrued interest on the principal amount
being redeemed to the date of redemption. In the event that the Company elects
to exercise its right to redeem Senior Debentures, the Company shall mail a
notice of such redemption to each Holder of record of the Senior Debentures by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption. Unless the Company defaults in payment of the redemption
price, on and after the redemption date interest will cease to accrue on the
Senior Debentures.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker (as defined below) as having a
maturity comparable to the remaining term of the Senior Debentures or, if no
such security exists, a security that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the Senior Debentures. "Independent Investment Banker" means Morgan
Stanley & Co. Incorporated or, if such firm is not willing or able to select
the Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third Business Day preceding such redemption date, as
3
<PAGE> 12
set forth in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities" or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
Business Day, (A) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such Quotations. "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below), and any redemption date, the
average, as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such Reference Treasury
Dealer as of 3:30 p.m., New York City time, on the third Business Day preceding
such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, any other primary U.S. Government securities dealer in New York
City (a "Primary Treasury Dealer") so designated by the Trustee, and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a Primary Treasury Dealer, the Company shall substitute therefor
another nationally recognized investment banking firm that is a Primary
Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to any Senior
Debenture, the remaining scheduled payments of the principal thereof to be
redeemed and interest thereon that would be due after the related redemption
date but for such redemption; provided, however, that, if such redemption date
is not an Interest Payment Date, the amount of the next succeeding scheduled
interest payment on the Senior Debentures to be redeemed shall be reduced by
the amount of interest accrued thereon to such redemption date.
Upon the occurrence of a Tax Event (as defined below), the Company
shall have the right, without the consent of the Holders of the Senior
Debentures, to advance the Stated Maturity of the Senior Debentures to the
extent required, in the written opinion of a nationally recognized independent
tax counsel experienced in such matters, such that, after advancing the Stated
Maturity, interest paid on the Senior Debentures will be deductible for United
States Federal income tax purposes.
In the event that the Company elects to exercise its right to advance
the Stated Maturity of the Senior Debentures on the occurrence of a Tax Event,
the Company shall mail a notice of the advanced Stated Maturity to each Holder
of record of the Senior Debentures by first-class mail not more than 60 days
after the occurrence of such Tax Event, stating the new Stated Maturity of the
Senior Debentures, and will cause the Senior Debentures to be amended
accordingly. Such notice shall be effective immediately upon mailing.
"Tax Event" means that the Company shall have received the written
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that, on or after the date of the original issuance of
the Senior Debentures, as a result of (i) any amendment to, clarification of,
or change (including any announced prospective change) in laws,
4
<PAGE> 13
or any proposed, temporary or final regulations thereunder, of the United
States, (ii) any judicial decision, official administrative pronouncement,
authorization, ruling, regulatory procedure, notice or announcement, including
any notice or announcement of proposal to adopt such procedures or regulations
(an "Administrative Action"), or (iii) any amendment to, clarification of, or
change in the official position or the interpretation of such Administrative
Action or judicial decision that differs from the theretofore generally
accepted position, in each case on or after the date of the original issuance
of the Senior Debentures, such change in tax laws or regulations creates a more
than insubstantial risk that interest paid by the Company on the Senior
Debentures is not, or will not be, deductible, in whole or in part, by the
Company for United States Federal income tax purposes.
Notwithstanding Article Twelve of the Indenture, no Sinking Fund will
be established with respect to the Senior Debentures and the Senior Debentures
shall not be subject to any Sinking Fund payments.
Articles Ten and Thirteen of the Indenture shall be applicable in
their entirety to the Senior Debentures.
If an Event of Default with respect to the Senior Debentures shall
occur and be continuing, the principal of the Senior Debentures may be declared
due and payable in the manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (A)
the entire indebtedness of the Senior Debentures or (B) certain restrictive
covenants and Events of Default with respect to the Senior Debentures, in each
case upon compliance with certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Senior Debentures under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Senior Debentures at
the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Senior
Debentures at the time Outstanding, on behalf of the Holders of all the Senior
Debentures, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Senior Debenture shall be
conclusive and binding upon such Holder and upon all future Holders of this
Senior Debenture and of any Senior Debenture issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Senior Debenture.
The Indenture provides that no Holder of any Senior Debenture may
enforce any remedy under the Indenture except in the case of failure of the
Trustee to act after notice of default and after request by the Holders of not
less than 25 percent in principal amount of the Outstanding
5
<PAGE> 14
Senior Debentures and the offer and, if requested, provision to the Trustee of
reasonable indemnity satisfactory to the Trustee; provided, however, that such
provision shall not prevent the Holder hereof from enforcing payment of the
principal of or interest on this Senior Debenture after the same shall have
become due.
No reference herein to the Indenture and no provision of this Senior
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Senior Debenture at the times, place and rate, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Senior Debenture is registrable in the
Security Register, upon surrender of this Senior Debenture for registration of
transfer at the office or agency of the Company in the Borough of Manhattan,
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar and
duly executed by, the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Senior Debentures, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Senior Debentures are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Senior Debentures are exchangeable for a like aggregate principal amount of
Senior Debentures of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made to the Holder for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Senior Debenture for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Senior Debenture is registered as the
owner hereof for all purposes, whether or not this Senior Debenture be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
This Senior Debenture and the rights of the Holder hereof shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: August 6, 1997 NOBLE AFFILIATES, INC.
Attest:
By:
--------------------------------
Robert Kelley, Chairman,
President and Chief Executive
Officer
- -------------------------------------------
Name:
----------------------------
Title:
------------------------------------
6
<PAGE> 15
ASSIGNMENT
FOR VALUE RECEIVED
---------------------------------------------------
hereby sell(s), assign(s) and transfer(s) unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
the within Senior Debenture, hereby irrevocably constituting and appointing
attorney
to transfer the said Senior Debenture on the books of the Company, with full
power of substitution in the premises.
Date:
------------------------------------- -----------------------------
-----------------------------
Signature(s)
Note: The signature(s) to
this assignment must
correspond with the name as
it appears upon the face of
- ------------------------------- the within Senior Debenture
Signature Guarantee in every particular, without
alteration, or enlargement
or any change whatever.
Note: Signature(s) must be guaranteed by an eligible guarantor institution
meeting the requirements of the Trustee, which requirements will
include membership or participation in STAMP or such other "signature
guarantee program" as may be determined by the Trustee in addition to,
or in substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.
7
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000072207
<NAME> NOBLE AFFILIATES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 79,060
<SECURITIES> 0
<RECEIVABLES> 140,832
<ALLOWANCES> 0
<INVENTORY> 2,763
<CURRENT-ASSETS> 231,821
<PP&E> 2,680,095
<DEPRECIATION> (1,142,349)
<TOTAL-ASSETS> 1,841,477
<CURRENT-LIABILITIES> 179,705
<BONDS> 706,384
0
0
<COMMON> 194,652
<OTHER-SE> 574,272
<TOTAL-LIABILITY-AND-EQUITY> 1,841,477
<SALES> 384,982
<TOTAL-REVENUES> 559,122
<CGS> 0
<TOTAL-COSTS> 291,758
<OTHER-EXPENSES> 158,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,467
<INCOME-PRETAX> 81,803
<INCOME-TAX> 30,288
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,515
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
