UNIMAR COMPANY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1.Financial Statements
Condensed Consolidated Statements of Earnings
for the Three Months and Six Months ended
June 30, 1998 and June 30, 1997 1
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and
June 30, 1997 3
Notes to Condensed Consolidated Financial Statements
as of June 30, 1998 4
ITEM 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
ITEM 5.Other Events 9
ITEM 6.Exhibits and Reports on Form 8-K 9
SIGNATURE 10
PART I. FINANCIAL INFORMATION
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Oil and gas production
Revenues $31,298 $50,042 $74,582 $116,325
Production costs 5,029 6,524 9,646 12,400
Depletion, depreciation and
amortization 8,598 9,893 19,322 21,513
Exploration costs including
dry holes 290 64 924 312
----- ------ ------ ------
Operating profit 17,381 33,561 44,690 82,100
General and administrative
expenses 12 234 262 544
Other income (54) (87) (115) (203)
----- ------- ------ -----
Earnings before income taxes 17,423 33,414 44,543 81,759
Income tax expense (benefit)
Current 11,810 23,992 31,196 56,842
Deferred (674) (1,932) (2,159) (3,863)
------- ------- ------ -----
11,136 22,060 29,037 52,979
------- ------- ------ -----
Net earnings $6,287 $11,354 $15,506 $28,780
====== ======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,908 $ 4,454
Accounts receivable 9,102 8,670
Inventories 7,849 8,275
Other current assets 2,712 1,999
-------- -------
Total current assets 27,571 23,398
Property, plant and equipment, at cost:
Oil and gas properties (successful
efforts method) 1,109,624 1,097,568
Other 2,417 2,348
---------- ------
1,112,041 1,099,916
Less: accumulated depreciation
and depletion 782,558 763,151
-------- --------
Net property, plant and equipment 329,483 336,765
Other assets 2,199 3,191
-------- --------
$359,253 $363,354
======== ========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Accounts payable $ 125 $ 752
Advances from joint venture partners 3,923 2,637
Accrued liabilities 11,535 14,138
Income and other taxes 6,796 14,035
-------- -------
Total current liabilities 22,379 31,562
Deferred income taxes 145,975 148,135
Other liabilities 16,643 16,107
Partners' capital 254,256 247,550
Less: demand notes receivable 80,000 80,000
-------- -------
174,256 167,550
-------- -------
Commitments and Contingencies
$359,253 $363,354
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
<S> <C> <C>
Operating activities:
Net earnings $15,506 $28,780
Adjustments to reconcile to net cash
provided by operating activities:
Depletion, depreciation and amortization 19,407 21,637
Deferred income taxes (2,159) (3,863)
Exploratory dry hole costs 11 --
Changes in working capital and other (9,661) (3,961)
Net cash provided by operating activities 23,104 42,593
-------- -------
Investment activities:
Capital expenditures (12,136) (12,679)
-------- -------
Net cash used in investing activities (12,136) (12,679)
-------- -------
Financing activities:
Capital contributions 9,000 11,200
Capital distributions (17,800) (39,600)
-------- --------
Net cash used in financing activities (8,800) (28,400)
------- -------
Increase in advances from joint venture
partners 1,286 368
------- ------
Net increase in cash and cash equivalents 3,454 1,882
Cash and cash equivalents at beginning of
period 4,454 3,274
------- -------
Cash and cash equivalents at end of period $7,908 $5,156
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
- ---------------------------------
IPU distributions paid $9,162 $14,336
====== =======
Income taxes paid $38,435 $65,479
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements.
UNIMAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(1) Unimar Company (the Company) is a general partnership
organized under the Texas Uniform Partnership Act. The
Company's partners are Unistar, Inc., a Delaware corporation
and a direct subsidiary of Union Texas Petroleum Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of
Atlantic Richfield Company, and LASMO (Ustar) Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of LASMO
plc, a public limited company organized under the laws of
England. Each partner shares equally in the Company's net
earnings, distributions and capital contributions. See Part
II. Other Information - Item 5. Other Events.
(2) These condensed consolidated financial statements should be
read in the context of the consolidated financial statements
and notes thereto included in the Company's 1997 annual report
on Form 10-K. In the opinion of management, the accompanying
financial statements contain all adjustments of a normal
recurring nature necessary for a fair presentation. Interim
results are not necessarily indicative of results on an
annualized basis.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(3) The table below outlines the calculation of the Indonesian
Participating Unit (IPU) participation payment for the second
quarter of 1998.
<TABLE>
<CAPTION>
1998
Second Quarter
----------------------------
(Thousands of dollars)
<S> <C>
Positive cash flow:
Gas receipts $23,542
Oil and condensate receipts 8,284
Other non-revenue cash receipts from the
Joint Venture 1,378
------
Total positive cash flow 33,204
------
Cash outflows:
Expenditures to the Joint Venture 14,008
Indonesian income taxes 10,713
------
Total cash outflows 24,721
Net positive cash flow from 23.125% interest
in the Joint Venture $ 8,483
Net cash flow for the benefit of the IPU
holders* $ 2,078
Participation Payment per IPU* $0.19
</TABLE>
* Each IPU is entitled to 1/14,077,747 of 32% of net positive
cash flow until September 25, 1999 at which time the Units
will expire with no residual value. As of June 30, 1998,
there were 10,778,590 IPUs issued and outstanding.
UNIMAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
(4) In June 1997, the Financial Accounting Standards Board
(?FASB?) issued Statement of Financial Accounting Standards
(?SFAS?) No. 130, ?Reporting Comprehensive Income.? This
statement establishes standards for reporting and display of
comprehensive income and its components in a full set of
financial statements. The Company adopted SFAS No. 130 in the
first quarter of 1998. The Company?s comprehensive income for
the first six months of 1998 is as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
------ -----
<S> <C> <C>
Net income $15,506 $28,780
Other comprehensive income:
Minimum pension liability adjustment -- 109
------ -------
Comprehensive income $15,506 $28,889
======= ========
</TABLE>
Adoption of SFAS No. 130 had no impact on Partners? Capital in
the first six months of 1998.
(5) In June 1997, the FASB also issued SFAS No. 131,
?Disclosures about Segments of an Enterprise and Related
Information.? This statement establishes standards for
reporting information about operating segments in annual
financial statements and requires that enterprises report
selected information about operating segments in interim
reports. The Company will adopt the provisions of SFAS No.
131 during 1998. As SFAS No. 131 establishes standards for
reporting and display, the Company does not expect the
adoption of this statement to have a material impact on its
financial condition or results of operations.
(6) In June 1998, the FASB also issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This
statement establishes standards of accounting for and disclosures
of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The
Company has not yet determined the impact of this statement on
the Company's financial condition or results of operations.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT?S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the business section, consolidated financial statements, notes,
and management's discussion contained in the Company's 1997
annual report on Form 10-K, and condensed consolidated financial
statements and notes contained in this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations amounted to $23 million for the six
months ended June 30, 1998, as compared to $43 million for the
same period in 1997. The decrease primarily resulted from lower
sales prices and lower LNG volumes. Capital expenditures of $12
million were spent primarily on continued development activities
in the Indonesian Joint Venture (IJV). Net distributions to the
partners for the first six months of 1998 were $9 million (six
months 1997, $28 million).
The Company's ability to generate cash is primarily dependent
on the prices it receives for the sale of liquefied natural gas
(LNG) and, to a lesser extent, the sale of crude oil and
liquefied petroleum gas (LPG). LNG and LPG are primarily sold
under long term contracts whose prices are derived from a basket
of Indonesian crudes. In the event cash generated from
operations is not sufficient to meet capital investment and other
requirements, the partners will fund any shortfall through
additional cash contributions. The Company cannot predict with
any degree of certainty the prices it will receive in future
periods for its crude oil, LNG and LPG. The Company's financial
condition, operating results and liquidity will be materially
affected by any significant fluctuations in its sales prices.
The economic and political events in Southeast Asia since the
middle of 1997 have not significantly affected the Company, and
the IJV's production operations have continued without
interruption. LNG revenue is protected by U.S. dollar
denominated, long-term, take-or-pay contracts, which are
administered through a U.S. based trustee. The Company, through
the Operator of the IJV, is closely monitoring the situation both
in Indonesia and throughout the Asia Pacific region to measure
the effect of these events on its operating and financial
condition.
See Part II. Other Information - Item 5. Other Events.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30,
1997
Net earnings were $6 million for the second quarter of 1998,
as compared to $11 million for the second quarter 1997. In
comparing the respective quarters, the combination of a $19
million decrease in revenues and a $12 million decrease in
current taxes, resulted in a net decrease of $7 million in after-
tax revenues. Of this net revenue decrease, 59 percent was due to
lower sales volumes and 41 percent resulted from lower realized
prices.
The weighted average crude oil basket price used to determine
LNG prices was $12.99 per barrel for the second quarter of this
year, or $6.08 per barrel lower than in the corresponding 1997
quarter. As a result, the average price received for LNG during
the second quarter of 1998 decreased $0.95 per million BTUs to
$2.10 per million BTUs. The average realized crude oil price in
the second quarter of 1998 was $13.95 per barrel, as compared to
$18.88 per barrel in the corresponding 1997 quarter. The prices
received by the Company for its products have reflected the
declining trend in world wide crude oil prices which has occurred
during this year.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT?S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONT'D)
The IJV's share of LNG sold during the second quarter of 1998
was 50 trillion BTUs (16.9 net equivalent cargoes), or 26 percent
lower than the 1997 second quarter volumes of 68 trillion BTUs
(23.3 net equivalent cargoes). Crude oil volumes net to the
Company increased by 207 thousand barrels to 618 thousand
barrels. The increase in oil volumes enabled the IJV to cost
recover certain expenditures at a reduced oil price.
Production costs for the second quarter of 1998 decreased by
approximately $2 million as compared to the corresponding quarter
in 1997 primarily due to favorable exchange rates on IJV
expenditures denominated in the Indonesian currency and non-
recurring prior year costs associated with the Operator's
business process reengineering plan. Depletion, depreciation and
amortization charges decreased by approximately $1 million as
compared to the second quarter of 1997 because of the lower
overall level of production. General and administrative expenses
were lower in the second quarter of 1997 as compared to the
corresponding quarter in 1996 due to the reversal of a provision
not required.
Income taxes were $11 million for the second quarter of 1998,
as compared to $22 million for the same quarter in 1997. This
decrease was primarily due to lower taxable revenues. The
effective tax rates for the second quarters of 1998 and 1997 were
64 percent and 66 percent, respectively. These rates are the
aggregate of Indonesian source income taxed at a 56 percent rate,
and certain expenses attributable to the Company's activities
which are not deductible in the partnership for Indonesian tax
purposes.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE
30, 1997
Net earnings were $16 million for the first six months of
1998, as compared to $29 million for the first six months of
1997. The current year's first half results included a $42
million decrease in revenues and a $26 million decrease in
current taxes, resulting in a $16 million net decrease in after-
tax revenues as compared to last year's first half.
Approximately 45 percent of this decrease was volume-related and
55 percent was due to lower sales prices.
The weighted average crude oil basket price used to determine
LNG prices was $14.09 per barrel for the first six months of this
year, or $6.81 per barrel lower than in the corresponding 1997
period. As a result, the average price received for LNG during
the first half of 1998 decreased $1.05 per million BTUs to $2.28
per million BTUs. The average realized crude oil price in the
first half of 1998 was $14.19 per barrel, as compared to $20.44
per barrel in the corresponding 1997 period. The prices received
by the Company for its products have reflected the declining
trend in world wide crude oil prices which has occurred during
this year.
The IJV's share of LNG sold during the first half of 1998 was
117 trillion BTUs (39.8 net equivalent cargoes), or 17 percent
lower than the 1997 first half volumes of 143 trillion BTUs (48.8
net equivalent cargoes). Crude oil volumes net to the Company
increased by 281 thousand barrels to 1.1 million barrels. The
increase in oil volumes enabled the IJV to cost recover certain
expenditures at a reduced oil price.
The IJV?s share of LNG shipments for 1998 is expected to
decline by about 20 percent as compared to 1997. The primary
reasons for this decline are the phase-out of the original 1973
LNG Sales Contract in which the IJV had a higher participation
interest, a reduction in IJV equity percentages under terms of
the Indonesian Production Sharing Contract which become effective
August 8, 1998, and revisions to the LNG deliveries planned for
the year. With regard to planned LNG deliveries for the year,
meetings between PERTAMINA, the state petroleum enterprise of
Indonesia, and Korea Gas Corporation (KGC), a LNG customer, were
held in late March of this year. As a result of these meetings,
the effect on the IJV will be the
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENT?S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONT'D)
deferral of four gross cargo commitments from 1998 until the year
2000 and an additional four gross cargo reduction from KGC?s
exercise of a downward flexibility provision in its contracts.
The effect of this eight-cargo reduction will not have a material
impact on the Company's profit or cash flow for the year.
Subsequent to the meetings in March, a request for additional
cargo relief was made by KGC but rejected by PERTAMINA.
Production costs for the first half of 1998 decreased by
approximately $3 million as compared to the corresponding period
in 1997 primarily due to favorable exchange rates on IJV
expenditures denominated in the Indonesian currency and non-
recurring prior year costs associated with the Operator's
business process reengineering plan. Depletion, depreciation and
amortization charges decreased by approximately $2 million as
compared to the first half of 1997, due to the lower overall
level of production. General and administrative expenses were
lower in the first half of 1997 as compared to the corresponding
six months in 1996 due to the reversal of a provision not
required.
Income taxes were $29 million for the first half of 1998, as
compared to $53 million for the same period in 1997. This
decrease was primarily due to lower taxable revenues. The
effective tax rate was 65 percent for both of the six-month
periods. This rate is the aggregate of Indonesian source income
taxed at a 56 percent rate, and certain expenses attributable to
the Company's activities, which are not deductible in the
partnership for Indonesian tax purposes.
The discussion of the Company's business and operations in
this report includes in several instances forward-looking
statements, which are based upon management's good faith
assumptions relating to the financial, market, operating,
political and other relevant environments that will exist and
affect the Company's business and operations in the future. No
assurance can be made that the assumptions upon which management
based its forward-looking statements will prove to be correct, or
that the Company's business and operations will not be affected
in any substantial manner by other factors not currently
foreseeable by management or beyond the Company's control. All
forward-looking statements involve risks and uncertainty,
including those described in this report, and such statements
shall be deemed in the future to be modified in their entirety by
the Company's public pronouncements, including those contained in
all future reports and other documents filed by the Company with
the Securities and Exchange Commission.
Year 2000
The year 2000 issue relates to computer programs being written
with two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 instead of 2000. In 1997, the
Company successfully installed an accounting system, its only
significant processing system, which is year 2000 compliant.
Also in 1997, VICO, as Operator, completed an assessment of its
year 2000 issues. VICO is in the process of converting to
systems which are year 2000 compliant and has initiated formal
communications with all of its significant suppliers, vendors and
customers in Indonesia to determine their year 2000 readiness.
While VICO expects to resolve its year 2000 issues substantially
through the replacement and upgrades of software, there can be no
guarantee that the systems of other companies on which VICO
depends will be timely converted or that the failure of another
company to convert, or a conversion which is not compatible with
the VICO system, would not have a material adverse effect on VICO
and, therefore, the Company.
UNIMAR COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 5. Other Events
------------
On June 29, 1998, Atlantic Richfield Company (ARCO)
announced the completion of the merger of a subsidiary
of ARCO into Union Texas Petroleum Holdings, Inc. (Union
Texas). Pursuant to this merger, Union Texas is now a
wholly-owned subsidiary of ARCO.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(27)-1- Financial Data Schedule for the six months
ended June 30, 1998.
(b) Reports on Form 8-K
None.
UNIMAR COMPANY AND SUBSIDIARIES
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.
UNIMAR COMPANY
By: /S/ Linda A. Kubecka
---------------------------
Linda A. Kubecka
(Principal financial officer
and the officer duly
authorized to sign on behalf
of the registrant.)
DATE: August 12, 1998
---------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,908
<SECURITIES> 0
<RECEIVABLES> 9,102
<ALLOWANCES> 0
<INVENTORY> 7,849
<CURRENT-ASSETS> 27,571
<PP&E> 1,112,041
<DEPRECIATION> 782,558
<TOTAL-ASSETS> 359,253
<CURRENT-LIABILITIES> 22,379
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 359,253
<SALES> 74,582
<TOTAL-REVENUES> 74,582
<CGS> 28,968
<TOTAL-COSTS> 29,892
<OTHER-EXPENSES> 262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 44,543
<INCOME-TAX> 29,037
<INCOME-CONTINUING> 15,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,506
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
