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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-1
(Amendment No. 25)
Tender Offer Statement
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
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Pennzoil Company
(Name of Subject Company)
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Union Pacific Resources Group Inc.
Resources Newco, Inc.
(Bidders)
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Common Stock, par value $0.83 1/3 per Share
(Including the Associated Preferred Stock Purchase Rights)
(Title of Class of Securities)
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709903 10 8
(CUSIP Number of Class of Securities)
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Joseph A. LaSala, Jr., Esq.
Vice President, General Counsel and Secretary
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102
Telephone: (817) 877-6000
(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications on Behalf of Bidders)
Copies To:
Howard L. Shecter, Esq. Paul T. Schnell, Esq.
Morgan, Lewis & Bockius LLP Skadden, Arps, Slate, Meagher & Flom LLP
101 Park Avenue 919 Third Avenue
New York, NY 10178-0060 New York, NY 10022-3897
Telephone: (212) 309-6384 Telephone: (212) 735-3000
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This Amendment No. 25 amends the Tender Offer Statement on Schedule
14D-1 filed on June 23, 1997 (the 'Schedule 14D-1') by Union Pacific Resources
Group Inc., a Utah corporation ('UPR'), and Resources Newco, Inc., a Delaware
corporation and a wholly owned subsidiary of UPR (the 'Purchaser', and together
with UPR, the 'Bidders'), with respect to Purchaser's offer to purchase up to
25,094,200 shares of Common Stock, par value $0.83 1/3 per share (the 'Shares'),
of Pennzoil Company, a Delaware corporation ('Pennzoil'), or such greater number
of Shares as equals 50.1% of the Shares outstanding on a fully-diluted basis, in
each case together with the associated Preferred Stock Purchase Rights, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
June 23, 1997 (the 'Offer to Purchase'), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the 'Offer'), which were filed as Exhibits (a)(1) and (a)(2) to the
Schedule 14D-1, respectively. Unless otherwise defined herein, all capitalized
terms used herein shall have the respective meanings given such terms in the
Offer to Purchase.
Item 11. Material to be Filed as Exhibits.
Item 11 is hereby amended to add the following:
(a)(25) Press release, dated September 17, 1997, relating to UPR record
of performance.
(g)(15) Form of letter to certain analysts and UPR shareholders.
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SIGNATURES
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
UNION PACIFIC RESOURCES GROUP INC.
By: /s/ JOSEPH A. LASALA, JR.
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Name: Joseph A. LaSala, Jr.
Title: Vice President, General Counsel
and Secretary
RESOURCES NEWCO, INC.
By: /s/ JOSEPH A. LASALA, JR.
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Name: Joseph A. LaSala, Jr.
Title: Vice President, General Counsel
and Secretary
Dated: September 17, 1997
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EXHIBIT INDEX
Exhibit No. Description Page No.
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(a)(25) Press release, dated September 17, 1997, relating to
UPR record of performance.
(g)(15) Form of letter to certain analysts and UPR shareholders.
Union Pacific Resources Group Inc.
NEWS RELEASE UPR
UPR DETAILS STRONG RECORD OF CONSISTENT PERFORMANCE
UPR Tells Shareholders Pennzoil is Taking UPR Disclosures Out of Context in an
Effort to Divert Attention from Whether Pennzoil Can Match UPR's Offer
Fort Worth, TX - Sept. 17, 1997 - Union Pacific Resources Group Inc. (NYSE: UPR)
today released a letter from UPR CEO Jack L. Messman to UPR institutional
shareholders and investment analysts. The letter addressed recent disclosures by
UPR that Pennzoil Company has used in an attempt to divert attention from
Pennzoil's failure to answer whether or how Pennzoil can match the value of
UPR's $84 per share tender offer.
"Pennzoil has taken these disclosures out of context and continues to use them
as a diversionary tactic to obscure Pennzoil's failure to justify its opposition
to our offer," Mr. Messman said in releasing the letter today. "We are sending
this letter to shareholders to set the record straight."
To correct misleading statements that Pennzoil has made regarding UPR, Mr.
Messman detailed in his letter UPR's strong performance regarding production
growth and reserve replacement. "Our sales volumes have grown at a compounded
rate of 10% per year since 1987," Mr. Messman wrote. "Volumes in the first half
of 1997 were 12% higher than in the same period in 1996. UPR will produce
approximately 100 MMBOE in 1997. In 1996, we replaced 141% of our production,
and we have a three year average reserve replacement of 154%. Our track record
shows we can grow reserves while increasing production and we are confident we
will keep our successful track record intact."
"These results support our belief that UPR can continue to meet its 10% volume
growth objective without an acquisition the size of Pennzoil .... In
management's opinion, our future has never been brighter than it is today."
Attached is a full text of the letter.
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Media Contact: Investor Relations Contact:
Walter Montgomery Michael Liebschwager
212-484-6721 817-877-6531
801 Cherry Street
Fort Worth, Texas 76102-6803
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UPR Union Pacific Resources
Jack L. Messman
Chairman & CEO
September 17, 1997
Dear Shareholders and Analysts:
You are all aware that UPR is engaged in an unsolicited tender offer
for Pennzoil. Recently, we have seen the inevitable attacks by the target
company on the acquiror. The public has been bombarded by letters, ads and
filings from Pennzoil attacking UPR and its ability to sustain its outstanding
record of production growth.
Last week, UPR voluntarily filed additional information with the SEC
and publicly released certain documents in connectin with lititgation in U.S.
District Court for the Northern District of Texas. We took these actions to
eliminate Pennzoil's diversionary smokescreen, so that everyone involved in this
situation could focus on the central issue: exactly how does Pennzoil's Board
think Pennzoil can deliver value in excess of UPR's $84 per share tender offer?
Unfortunately, Pennzoil has taken these disclosures out of context and
continues to use them as a diversionary tactic. The purpose of this letter is to
set the record straight.
Let me first remind you of UPR's performance regarding production
growth and reserve replacement. Our sales volumes have grown at a compounded
rate of 10% per year since 1987. Volumes in the first half of 1997 were 12%
higher than in the same period in 1996. UPR will produce approximately 100 MMBOE
in 1997. In 1996, we replaced 141% of our production, and we have a three year
average reserve replacement of 154%. Our track record shows we can grow reserves
while increasing production and we are confident we will keep our successful
track record intact.
We have said that our volume growth objective is an average of 10% per
year. We have delivered! And we believe we can continue to meet this growth
objective, with or without Pennzoil.
Prior to the spin-off from Union Pacific Corporation (UPC), UPR used
four sources of drillsites to meet its 10% per year objective. They were:
1. Current inventory - UPR has approximately ten million domestic
undeveloped acres.
2. Exploration - UPR explores in areas which will lead to additional
drilling oportunities.
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3. Farm-Ins/Joint Ventures - Other companies allow their acreage to be
drilled by UPR because we have the technology, cost structure and people to do
it more economically than they can.
4. Producing Property Purchases - Others in the industry sell producing
properties and related undrilled acreage.
In June 1996, UPC and UPR sent a letter to the Internal Revenue Service
in connection with seeking a tax-free ruling for the spin-off of UPR. UPC cited,
as a business reason for receiving the ruling, the ability of UPR, following a
spin-off, to use its common stock to make strategic acquisitions. This would
constitute a new, fifth, source of drillsites.
The submission set forth the reasons for our belief, at that time, that
strategic acquisitions were needed to achieve UPR's objective of growing volumes
by an average of 10% per year. At the time of this filing, in mid-1996, UPR's
estimate of its drillsite inventory, as set forth in its 1996 Long Range Plan
for the years 1997-2001 (1996 Plan), led us to believe that strategic
acquisitions were essential to achieve our growth objectives, given declines in
production from existing wells, which are relatively steep in the Austin Chalk.
(Incidentally, the Austin Chalk is not unique in this regard. Decline rates in
the Gulf of Mexico are very similar to those in the Austin Chalk.) Without
acquisitions, the 1996 Plan showed growth in the first two years, a slight
decline in the third year and substantial declines in years four and five.
Within UPR, the risk of an E&P company experiencing a drop in
production was referred to as the "Valley of Despair," a term coined by me. As
those who follow the industry know, this risk - which every E&P company faces -
is caused by the inevitable decline in producing properties. UPR has never been
in the proverbial "Valley of Despair." It is just a risk that all E&P companies
share, but it is the actions companies take that determine whether they succumb
to or overcome that risk.
At the time of the IRS submission, UPR's Austin Chalk production had
grown from about 12,000 net BOED in 1990 to 98,000 net BOED. The Austin Chalk,
our Amax acquisition in 1994, and infill drilling in East Texas and the Land
Grant were the major sources of production growth in the first half of the
1990s.
As a result of our concern about future growth, as evidenced in the
1996 Plan, UPR intensified its leasing program and leased extensive acreage in
exploratory extension plays in the Austin Chalk, such as the Deep Giddings in
Washington County, Texas, the shallow play in Milam and Robertson Counties,
Texas and the extension of the Chalk into Louisiana. We initiated new 3-D
programs on the Gulf Coast and intensified our horizontal drilling program in
West Texas on the acreage acquired from Amax. We also stepped-up our efforts to
acquire producing properties.
As we pursued these projects, we did not know how well the would work
since they were predominantly exploration oriented. Rather than risk not meeting
our objectives, we felt it was essential to add strategic acquisitions to our
traditional sources of drillsites.
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Since the time of the IRS submission and receipt of the ruling in
September 1996, we have successfully developed drillsites through our
traditional four sources, as set forth below:
a) Current Inventory
o Austin Chalk
-- The Austin Chalk exploration extension play has been successful in three
areas. This success has set up extensive development projects in:
the Deep Giddings area in Washington County, Texas; the Shalow Giddings
area in Robertson and Milam Counties, Texas and the Masters Creek area of
Louisiana.
-- Volumes from these three Austin Chalk areas increased by 59% from mid-1996
to mid-1997. We currently have 19 drilling rigs operating in these areas,
and have leased 865,000 net acres.
-- The wells completed in the last six months include the best wells ever
drilled in the Austin Chalk, including what was at the time the largest
producing onshore horizontal well in the United States. We have completed
numerous other wells in these areas, six of which each had initial net
production rates of over 35 million cubic feet of gas equivalents per day.
-- Some of the wells in the Deep Giddings and Masters Creek areas, in
addition to having higher initial production rates and greater reserves,
are experiencing slower production declines than historical Austin Chalk
wells.
-- As a result, total year-to-date Austin Chalk production through August
increased by 9.5% versus the same period in 1996. Production in 1997 is
expected to be 11% greater than was anticipated in the 1996 Plan. Forecast
reserve additions for 1997 through 1999 are now 32% higher than was
estimated in the 1996 Plan.
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o West Texas
-- In 1996, UPR accelerated its horizontal drilling program in the Ozona
Field. We currently have a four rig horizontal program in West Texas
and have accumulated an additional 150,000 acres outside of the Ozona
Field for this program.
-- Current net production from this program is about 16 MMCFD.
o Land Grant
-- In 1996, UPR expanded its drilling program on a 1,200 square mile 3-D
seismic survey on its Land Grant in Wyoming. This program has resulted in
nine successful exploration wells (50% success rate), with at least eight
additional exploration wells planned.
-- We recently completed the first horizontal well into the Phosphoria
Formation in the Brady Field, which tested 2,600 BPD and 18 MMCFD (50% UPR
working interest). This well set up development and exploration plays in
the area.
b) Exploration
o UPR has accumulated a significant acreage position in the Cotton Valley
Reef play in East Texas. UPR now has about 332,000 net acres and recently
completed the Bearcat #1 which tested at a rate of 26 MMCFD. UPR is
involved in 11 3-D seismic surveys in this play and is drilling the
King Cobra #1, which appears to be a "look-alike" to the Bearcat. We expect
the 3-D surveys to create drilling programs for 1998 and beyond.
o UPR's Gulf Coast Business Unit is focused on 3-D exploration. UPR is
pursuing 18 onshore projects with net unrisked potential reserves of 1.2
TCF. UPR's drillsite inventory in the Gulf Coast increased 91% to 187
drillsites from mid-1996. Production volume in the second quarter of 1997
was up 19% compared to the second quarter in 1996.
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o UPR established a 100% owned, 100,000 acre deep water acreage position in
the Gulf of Mexico and is currently drilling the Gomez prospect, which has
a 70 million barrel potential.
c) Farm-ins/Joint Ventures
o UPR and Amoco formed a joint venture covering 400,000 acres in the Austin
Chalk trend in central Louisiana. In August 1997, a successful discovery
well tested 4600 BPD and 8.1 MMCFD.
o UPR and Mobil entered into a joint venture covering 200,000 acres in South
Louisiana. The project includes over 700 square miles of new and existing
3-D seismic data. This joint venture is included in the Gulf Coast projects
described above.
o In West Texas, UPR entered into two farm-ins which provided a total of 95
drillsites.
d) Producing Property Purchases
o UPR intensified its program to acquire drillsites through the purchase
of producing properties.
o Since June 1996, we have completed $177 million of property acquisitions
and a $180 million gas value chain transaction.
o These transactions added 83 MMCFD of production from 444 wells and provided
about 190 additional drillsites.
o We expect producing property purchases in 1997 to exceed $250 million.
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As a result of these and other programs:
o Capital spending in 1996 and 1997 will substantially exceed the estimates
in the 1996 Plan:
Capital Spending
1996 Plan Actual/Estimate Increase
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1996 $668 MM $ 880 MM 32%
1997 $836 MM $1,516 MM 81%
o Exploration spending in 1997 will be about $342 million, which is $232
million (211%) higher than was budgeted for 1996.
o UPR has added about 600,000 net undeveloped acres to its inventory since
mid-1996.
o UPR is currently operating 59 drilling rigs, up from 35 in mid-1996.
UPR's ability to perceive the "Valley of Despair" risk, then execute a
growth plan in the face of it, is what makes it a successful company. UPR's
understanding of this risk in 1996 led the Company to work aggressively and
successfully to increase its drilling opportunities from all four of its
traditional sources. In addition to the four sources of drillsites UPR has
historically used, our plans include use of the strategic acquisition option to
help us grow our drillsites, as it is preferable not to rely too heavily on any
particular source of drillsites.
These results support our belief that UPR can continue to meet its
10% volume growth objective without an acquisition the size of Pennzoil.
Performance in production and reserve replacement has been substantially better
than was anticipated in 1996. In management's opinion, our future has never been
brighter than it is today.
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As a result of our efforts, UPR has continued to be the #1 driller in
the U.S., continued to meet our 10% growth in volume objective and continued to
add drillsites. Again, we have delivered and we will continue to do so - despite
what Pennzoil may be trying to say. Just look at the results.
Pennzoil would have you believe that UPR is a company in trouble, as
they asserted in their September 16 full page newspaper advertisement. I think
our actions show you why UPR is a company with a bright future and that
management has delivered on its promises.
Another issue raised by Pennzoil is the matter of disclosure. Should
UPR have disclosed its mid-1996 concerns about future drilling opportunities?
For everyone in the oil and gas business, this is a constant worry, even today.
We live in a depleting asset industry and our shareholders understand that
production goes down if we stop drilling. These facts are well known and we have
been forthcoming on this subject going all the way back to our October 1995 IPO
prospectus.
Pennzoil also would have you place great importance on an internal memo
by a UPR employee which described our chances of success as "nil" in certain
litigation, and our ability to "blur" the market for Pennzoil stock. The memo
was not discussed or reviewed by others at UPR or its advisors. It does not
represent the Company's views of the litigation it is currently pursuing. In
fact, the memo refers in part to litigation which was never filed and was never
intended to be filed. UPR had no intention to "blur" market perceptions - not
that it's possible to do that in a sophisticated and educated marketplace
anyway.
Pennzoil states that our financial advisor places a higher value on
Pennzoil stock than our $84 offer. UPR's financial advisors derived a range of
break up values ($77-87) based upon the best and worst performing Pennzoil peer
companies. Our $84 offer lies near the top of that range of values. In a
preliminary estimate done in
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January 1997, the range had been higher at $82-95, but was reduced when
Pennzoil's actual 1996 numbers were released and their performance was worse
than expected. Most important, the market's current valuation of Pennzoil shows
that UPR has not undervalued Pennzoil.
We hope this letter helps you understand that UPR remains strong and
has a very positive outlook on the future. We believe you will continue to hear
things from Pennzoil, in their attempt to divert attention from their own failed
performance, which are taken out of context and which are intended to mislead
you. We also believe that it is time that Pennzoil stop trying to divert
attention from their own lack of performance, and from the fundamental question
before them: how can they possibly exceed the value provided in UPR's $84 per
share tender offer?
Please don't hesitate to contact me or our Manager of Investor
Relations, Mike Liebschwager, at 817/877-6531, if you have questions now or
later.
Sincerely,
/s/ Jack L. Messman
Jack L. Messman
This letter, other than historical financial information, contains forward
looking statements that involve risks and uncertainties including planned
construction and drilling activity, expected production efforts and volumes and
budgeted capital expenditures and other risks and uncertainties detailed in the
Company's SEC reports, including the report on Form 10-Q for the Quarter ended
June 30, 1997. Actual results may vary materially.
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