UNIMAR COMPANY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1.Financial Statements
Condensed Consolidated Statements of Earnings
for the Three Months ended March 31, 1999 and
March 31, 1998 1
Condensed Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and
March 31, 1998 3
Notes to Condensed Consolidated Financial Statements
as of March 31, 1999 4
ITEM 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
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 MARCH 31,
------------------------------
1999 1998
----- -----
<S> <C> <C>
Gas revenues $24,370 $38,679
Oil and condensate revenues 8,481 9,253
Less: IPU cost (3,269) (4,648)
Total revenues 29,582 43,284
Production costs 5,900 4,617
Depletion, depreciation and
amortization 11,141 10,724
Exploration costs including dry holes 55 634
------ -------
Total cost of sales 17,096 15,975
------ -------
Operating profit 12,486 27,309
General and administrative expenses 211 196
Other income (13) (7)
------- -------
Earnings before income taxes 12,288 27,120
Income tax expense (benefit)
Current 8,798 19,386
Deferred 472 (1,485)
------- -------
9,270 17,901
------- -------
Net earnings $3,018 $9,219
====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
UNIMAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------- -------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,861 $ 9,122
Accounts receivable 7,658 7,887
Inventories 10,540 9,239
Other current assets 4,950 2,810
-------- --------
Total current assets 31,009 29,058
Property, plant and equipment, at cost:
Oil and gas properties (successful
efforts method) 1,124,708 1,120,150
Other 2,060 1,965
-------- --------
1,126,768 1,122,115
Less: accumulated depreciation and
depletion 813,128 801,984
-------- --------
Net property, plant and equipment 313,640 320,131
Other assets 2,245 2,227
-------- --------
$346,894 $351,416
======== ========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Accounts payable $ 230 $ 929
Advances from joint venture partners 2,655 4,556
Accrued liabilities 13,353 11,712
Income and other taxes 5,354 8,866
------- -------
Total current liabilities 21,592 26,063
Deferred income taxes 124,731 124,259
Other liabilities 13,551 12,692
Partners' capital 268,346 269,728
Less: accumulated other comprehensive
income 1,326 1,326
-------- --------
267,020 268,402
Less: demand notes receivable 80,000 80,000
-------- --------
187,020 188,402
-------- --------
Commitments and Contingencies
$346,894 $351,416
======= ========
</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>
THREE MONTHS ENDED
MARCH 31,
----------------
1999 1998
----- -----
<S> <C> <C>
Operating activities:
Net earnings $3,018 $9,219
Adjustments to reconcile to net cash provided
by operating activities:
Depletion, depreciation and amortization 11,144 10,769
Deferred income taxes 472 (1,485)
Exploratory dry hole costs (8) 9
Changes in working capital and other (4,941) (5,623)
------ ------
Net cash provided by operating activities 9,685 12,889
------ ------
Investment activities:
Capital expenditures (4,645) (5,181)
------ ------
Net cash used in investing activities (4,645) (5,181)
------ ------
Financing activities:
Capital contributions - 7,000
Capital distributions (4,400) (13,000)
------ ------
Net cash used in financing activities (4,400) (6,000)
------ ------
Decrease in advances from joint venture
partners (1,901) (1,239)
------ ------
Net (decrease) increase in cash and cash
equivalents (1,261) 469
Cash and cash equivalents at beginning of
period 9,122 4,454
------ ------
Cash and cash equivalents at end of period $7,861 $4,923
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
- ----------------------------------
IPU distributions paid $3,126 $4,419
====== ======
Income taxes paid $12,311 $24,516
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
UNIMAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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 wholly-owned subsidiary of Atlantic Richfield
Company, and LASMO Oil & Gas, 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 1998 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 first quarter of 1999.
<TABLE>
<CAPTION>
1999 First Quarter
---------------------------
(Thousands of dollars)
<S> <C>
Positive cash flow:
Gas receipts $26,337
Oil and condensate receipts 6,182
Other non-revenue cash receipts from the
Joint Venture 1,657
-----
Total positive cash flow 34,176
------
Cash outflows:
Expenditures to the Joint Venture 12,782
Indonesian income taxes 12,546
------
Total cash outflows 25,328
------
Net positive cash flow from 23.125% interest
in the Joint Venture $8,848
======
Net cash flow for the benefit of the IPU
holders* $2,156
======
Participation Payment per IPU* $0.20
======
</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 March 31, 1999, there were 10,778,590 IPUs issued and
outstanding.
(4) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Standard establishes standards of
accounting for and disclosures of derivative instruments and hedging
activities. This Standard is effective for fiscal years beginning after June
15, 1999. The Company believes that the adoption of this Standard will not
have a material impact on the Company's financial condition or results of
operations.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENTS'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 1998 annual report on Form 10-K, and condensed
consolidated financial statements and notes contained in this report.
EXPIRATION OF INDONESIAN PARTICIPATING UNITS (IPUS)
There are three quarterly periods in 1999 for which IPU holders are entitled
to receive participation payments prior to the expiration of the IPUs on
September 25, 1999. The following table outlines the dates for the remaining
quarterly distributions:
<TABLE>
<CAPTION>
Quarterly Period Record Date Payment Date
---------------- ----------- ------------
<S> <C> <C>
Jan. 1 - Mar. 31, 1999 May 14, 1999 Jun. 1, 1999
Apr. 1 - Jun. 30, 1999 Aug. 13, 1999 Aug. 30, 1999
Jul. 1 - Sep. 25, 1999 Sep. 24, 1999 Nov. 24, 1999
The Indenture between the Company and its transfer agent as trustee provides
that the last quarterly period will run from July 1, 1999 through September 25,
1999. With respect to the last quarterly period, the month of September's net
cash flow will be calculated for the entire month and prorated for 25 days. The
Indenture also provides that the last quarterly period's record date will be its
expiration date. Because September 25, 1999 is a Saturday, the record date for
the last quarterly distribution will be Friday, September 24, 1999.
The IPUs will be delisted by the American Stock Exchange in connection with
their expiration. While the Company will continue to hold a 23.125% interest in
the Joint Venture after the expiration of the IPUs, it is anticipated that the
Company will not continue as a reporting company under the Securities Exchange
Act of 1934 after the IPUs are delisted by the American Stock Exchange.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations for the three months ended March 31, 1999 amounted
to $10 million, as compared to $13 million for the same period in 1998. The
decrease primarily resulted from lower sales prices and lower LNG volumes.
Capital expenditures of $5 million were spent on continued development
activities in the Indonesian Joint Venture (IJV). Net distributions to the
partners for the first three months of 1999 were $4 million (three months 1998,
$6 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 is 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 have not significantly
affected the Company, and the IJV's production operations have continued without
interruption. LNG revenue is supported by U.S. dollar-denominated, long-term
take-or pay contracts, which are administered through a U.S. based trustee. The
effects of the Asian economic crisis have impacted the ability of certain
customers to take (or
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
pay for) their contracted commitments. During the latter part of 1998, Chinese
Petroleum Corporation (CPC) advised that it would be unable to take delivery of
some of its contractual 1999 volumes under the Badak VI sales contract. A
tentative agreement was reached in April of this year between CPC and Pertamina
for volumes that will not be taken this year. Pursuant to the tentative
settlement, CPC has agreed that these volumes will be deferred, along with
compensation through additional volume purchases, to the years 2003 through
2008. The impact to the IJV in 1999 of the volumes not taken by CPC is
estimated at 4.7 billion BTUs. The total effect of the volume reduction by CPC
is not expected to have a significant impact on the Company's earnings. The
Company, through the Operator of the IJV, continues to closely monitor 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 March 31, 1999 compared to Quarter Ended March 31, 1998
- ---------------------------------------------------------------------
Net earnings were $3 million for the first quarter of 1999, as compared to $9
million for the first quarter of 1998. In comparing the quarters, the $6
million decrease in net earnings resulted from a $14 million decrease in total
revenues, a $1 million increase in operating expenses, and a $9 million decrease
in income taxes.
Revenues of $30 million for the first quarter of 1999 represented a $14
million decrease as compared to the first quarter of 1998. Of the overall
decrease in revenues, approximately 58 percent resulted from lower realized
prices and the remainder resulted from lower gas volumes. The weighted average
crude oil basket price used to determine LNG prices was $10.80 per barrel for
the first quarter of this year, or $4.40 per barrel lower than in the
corresponding 1998 quarter. As a result, the average price received for LNG
during the first quarter of 1999 decreased to $2.15 per million BTUs from $2.43
per million BTUs. The average realized crude oil price in the first quarter of
1999 was $12.09 per barrel, as compared to $14.50 per barrel in the
corresponding 1998 quarter. The prices received by the Company for its products
reflect the low trend in crude oil prices experienced over the last year.
The IJV's share of LNG sold during the first quarter of 1999 was 53 trillion
BTUs (18.1 net equivalent cargoes), approximately 21 percent lower than the 1998
first quarter volumes of 68 trillion BTUs (23.0 net equivalent cargoes). The
IJV's total share of LNG shipments in 1999 is expected to decrease by
approximately 8 percent as compared to 1998. This decline is principally due to
the reduced equity terms under the amended and extended PSC, which became
effective on August 8, 1998, as well as lower cost-recoverable expenditures
which reduce the volumes to the IJV that are taken in kind.
Crude oil volumes net to the Company increased from 484 thousand barrels in
the first quarter of 1998 to 681 thousand barrels in the first quarter of 1999,
due primarily to the timing of crude oil liftings in the current year.
Cost of sales for the first quarter of 1999 increased by $1 million as
compared to the corresponding quarter in 1998, primarily due to higher operating
and depletion expenses, which were partially offset by lower seismic
expenditures.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income taxes decreased by approximately $9 million due to lower taxable
revenues as well as the reduction in the Indonesian tax rate under the amended
and extended PSC, which became effective on August 8, 1998.
YEAR 2000 ISSUE
The year 2000 issue (Y2K) relates to computer programs and embedded
computer chips having two digits rather than four to define the applicable year.
Computer programs or equipment having date-sensitive software may recognize a
date using "00" as the year 1900 instead of 2000. The Company's most
significant Y2K risk is through its subsidiary VICO, as operator of the Joint
Venture. VICO has a comprehensive Y2K Program that was initiated in May of 1997
and has appointed a special task force (the Y2K Team) to identify, assess and
develop remediation plans for both internal and external Y2K problems. The Y2K
Team reports regularly to VICO's Board of Directors and has the authority and
resources to carry out its directive.
The Y2K Team completed its evaluation of all internal date-sensitive
systems and equipment critical to the organization in December 1998. The
assessment phase of the Program included ranking those items considered to be of
low, medium and high importance according to their individual impact on the
Joint Venture's business, safety, and the environment. Both information
technology and embedded processors (East Kalimantan field control facilities,
etc.) were analyzed. Special emphasis was given to control systems at the East
Kalimantan field facilities. For all those items identified with Y2K problems,
remedial action plans have been developed. The remedial planning phase of the
Project was also completed in December 1998.
The remediation implementation phase is approximately 50 percent complete.
The majority of remediation work will be completed by the end of June 1999.
There are a few exceptions that will be completed by October 1999.
With the assistance of an outside consulting firm, VICO has nearly
completed the conversion of its finance and accounting systems to a year 2000
compliant system. The conversion is divided into 4 "go live" phases. The
first two phases have been successfully accomplished. Discussions with vendors
of pre-packaged software critical to payroll, human resources and seismic
applications have resulted in written assurances from most vendors that year
2000 compliant replacement software will be provided, if necessary, before the
end of June 1999. The Y2K Team will monitor each of these situations.
The Y2K Team is assessing third-party risk to VICO (and the Joint Venture)
and preparing the appropriate contingency plans for high-risk third parties.
This phase is approximately 70 percent complete. Third-party risk can be
segregated into two areas - the Production Chain and Other Services. The
Production Chain includes the Bontang LNG plant, the Santan oil terminal
(operated by UNOCAL Indonesia Company), the vessels taking deliveries of oil and
gas, and the buyers' receiving terminals. VICO has assisted in several reviews
of the Y2K program at the Bontang LNG plant and has provided additional
instrumentation experts to the plant to assist in its remediation plans.
PERTAMINA is assisting VICO and other PSCs in verifying the Y2K compliance of
all vessels and receiving terminals. Other Services include various third-party
service providers and suppliers. The Y2K Team has currently completed a list
that identifies all other critical third parties related to the Jakarta office
and has begun this process for the East Kalimantan Field locations.
UNIMAR COMPANY AND SUBSIDIARIES
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Y2K Team has begun to prepare a detailed contingency plan, which will be
completed by October 1999. This plan will include the following:
- Pre-year 2000 actions to mitigate the impact of Y2K problems, should they
appear;
- Daily plans for critical Y2K dates;
- Detailed business recovery plans for various Y2K failure scenarios; and
- Staff and other resources required for Y2K.
The costs to address Y2K are estimated to be approximately $7 million and
are funded out of Joint Venture operating cash flows. The Joint Venture is
entitled to cost recover these expenditures as incurred.
The Y2K Program is expected to significantly reduce the level of
uncertainties about the Year 2000 problems to the Company and the Joint Venture.
The Company believes the possibility of significant interruptions in normal
operations should be reduced with the implementation of new business systems and
the timely completion of the Y2K program. However, if any material Year 2000
problems are not properly corrected, particularly any for which the Company has
no control, there can be no assurance that this will not have a material impact
on the results of operation, liquidity and financial condition of the Company
and on the interests held by other partners in the Joint Venture.
FORWARD LOOKING STATEMENTS
The discussion of the Company's business and operations in this report, and
its discussion regarding the Year 2000 Issue, include 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. 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.
UNIMAR COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 5. Other Events
------------
On April 1, 1999, Atlantic Richfield Company (ARCO) and BP Amoco plc
(BP Amoco) announced that they had entered into an Agreement and Plan
of Merger, dated March 31, 1999, under which each share of ARCO common
stock will be converted into the right to receive 4.92 BP Amoco
ordinary shares. The all-share transaction is subject to various
conditions set forth in the Agreement, including regulatory approvals
and the consent of ARCO and BP Amoco shareholders.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(27)-1- Financial Data Schedule for the three months ended March 31,
1999.
(b) Reports on Form 8-K
None.
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
Member of the Management Board
(Principal financial officer and the
officer duly authorized to sign on behalf
of the registrant.)
DATE: May 13, 1999
------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,861
<SECURITIES> 0
<RECEIVABLES> 7,658
<ALLOWANCES> 0
<INVENTORY> 10,540
<CURRENT-ASSETS> 31,009
<PP&E> 1,126,768
<DEPRECIATION> 813,128
<TOTAL-ASSETS> 346,894
<CURRENT-LIABILITIES> 21,592
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 346,894
<SALES> 29,582
<TOTAL-REVENUES> 29,582
<CGS> 17,041
<TOTAL-COSTS> 17,096
<OTHER-EXPENSES> 262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 12,288
<INCOME-TAX> 9,270
<INCOME-CONTINUING> 3,018
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<CHANGES> 0
<NET-INCOME> 3,018
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</TABLE>
