<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
(AMENDMENT NO. 24)
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
PENNZOIL COMPANY
(Name of Subject Company)
PENNZOIL COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.83 1/3 PER SHARE
(including the associated Preferred Stock Purchase Rights)
(Title of Class of Securities)
709903 10 8
(CUSIP Number of Class of Securities)
LINDA F. CONDIT
CORPORATE SECRETARY
PENNZOIL COMPANY
PENNZOIL PLACE, P.O. BOX 2967
HOUSTON, TEXAS 77252-2967
(713) 546-8910
(Name, address and telephone number of person authorized
to receive notice and communications on behalf of the person(s) filing
statement)
Copies To:
<TABLE>
<S> <C>
Moulton Goodrum, Jr. Charles F. Richards, Jr.
Baker & Botts, L.L.P. Richards, Layton & Finger
One Shell Plaza One Rodney Square
Houston, Texas 77002-4995 P.O. Box 551
(713) 229-1234 Wilmington, Delaware 19899-0551
(302) 658-6541
</TABLE>
<PAGE> 2
This Amendment No. 24 (this "Amendment") amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9, as amended, originally
filed on July 1, 1997 by Pennzoil Company, a Delaware corporation (the
"Company"), relating to a tender offer commenced by Resources Newco, Inc., a
wholly owned subsidiary of Union Pacific Resources Group Inc., on June 23, 1997.
All capitalized terms used in this Amendment without definition have the
meanings attributed to them in the Schedule 14D-9.
The items of the Schedule 14D-9 set forth below are hereby amended by
adding the following:
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
72 Press Release of the Company dated September 18, 1997
73 Letter from James L. Pate to Jack L. Messman dated
September 18, 1997
74 Press Release of the Company dated September 18, 1997
75 Letter to directors of Union Pacific Resources Group
Inc. from James L. Pate dated September 18, 1997
76 Press Release of the Company dated September 19, 1997
</TABLE>
2
<PAGE> 3
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
PENNZOIL COMPANY
Dated: September 18, 1997 By: /s/ James L. Pate
James L. Pate
Chairman of the Board, President
and Chief Executive Officer
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
72 Press Release of the Company dated September 18, 1997
73 Letter from James L. Pate to Jack L. Messman dated
September 18, 1997
74 Press Release of the Company dated September 18, 1997
75 Letter to directors of Union Pacific Resources Group
Inc. from James L. Pate dated September 18, 1997
76 Press Release of the Company dated September 19, 1997
</TABLE>
<PAGE> 1
EXHIBIT 72
[PENNZOIL LETTERHEAD]
FOR IMMEDIATE RELEASE
Contacts:
Robert Harper Joele Frank/Jeff Kimball
Corporate Communications Abernathy MacGregor Group
713/546-8914 (212) 371-5999
PENNZOIL ANNOUNCES TRIAL SCHEDULED FOR
LAWSUIT ON TENDER OFFER COMMENCED BY UPR
Houston, TX, September 18, 1997 -- In a teleconference held today in the
Delaware Court of Chancery, Chancellor William B. Chandler scheduled a trial on
the claims of Union Pacific Resources Group Inc. and Resources Newco, Inc.
(NYSE: UPR) (collectively "UPR") that Pennzoil Company (NYSE: PZL) should be
required to redeem its shareholder rights plan and certain other structural
defenses in response to the tender offer commenced by UPR on June 23, 1997.
Trial is scheduled to begin on December 1, 1997.
Pennzoil Company explores for and produces crude oil and natural gas,
manufactures and markets premium quality lubricants, including America's top
selling motor oil, and is the parent company of Jiffy Lube International, the
world's largest franchiser of fast oil change centers.
# # #
<PAGE> 1
EXHIBIT 73
[PENNZOIL LETTERHEAD]
September 18, 1997
Mr. Jack L. Messman
Chairman & CEO
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, TX 76102-6803
Dear Jack:
I read with interest your nine-page letter of September 17, to shareholders and
analysts, where you have listed every new well and exploration initiative
undertaken by UPR over the last year. Frankly, it's not convincing and is, more
importantly, beside the point.
It has been obvious to us and is now obvious to everyone that UPR has a
problem. It is simply not credible that, since your sworn IRS submission one
year ago stating that UPR could not meet its publicly stated growth targets
without multi-billion dollar acquisitions of 750 million BOE of proved
reserves, you have somehow miraculously solved your problem in the "Valley of
Despair." Are you now saying that you have added 750 million BOE of proved
reserves without an acquisition? Either the IRS sworn statement was less than
forthright, or your public disclosures have serious shortcomings. We believe
it's the latter because we know that the Austin Chalk is, as you say, like
going "up the down escalator." If the need for acquisitions of 750 million BOE
of proved reserves is not "material" for disclosure purposes, then it is hard
to know what is deemed "material."
Jack, the facts are coming to light, and it's time to face up to them.
Sincerely
/s/ Jim
James L. Pate
Chairman of the Board
Chief Executive Officer
<PAGE> 1
EXHIBIT 74
[PENNZOIL LETTERHEAD]
FOR IMMEDIATE RELEASE
CONTACTS:
Robert Harper Joele Frank/Jeff Kimball
Corporate Communications Abernathy MacGregor Group
713/546-8914 212/371-5999
PENNZOIL CEO ASKS UPR'S CEO TO CLARIFY CONTRADICTORY STATEMENTS
RELATING TO SWORN SUBMISSION TO IRS
Houston, TX, September 18, 1997 -- James L. Pate, Chairman and Chief Executive
Officer of Pennzoil Company (NYSE: PZL) today sent a letter to Union Pacific
Resources Group Inc. (NYSE: UPR) (UPR) Chairman and Chief Executive Officer
Jack L. Messman. The full text of the letter to Mr. Messman follows:
September 18, 1997
Dear Jack:
I read with interest your nine-page letter of September 17, to shareholders and
analysts, where you have listed every new well and exploration initiative
undertaken by UPR over the last year. Frankly, it's not convincing and is, more
importantly, beside the point.
It has been obvious to us and is now obvious to everyone that UPR has a
problem. It is simply not credible that, since your sworn IRS submission one
year ago stating that UPR could not meet its publicly stated growth targets
without multi-billion dollar acquisitions of 750 million BOE of proved
reserves, you have somehow miraculously solved your problem in the "Valley of
Despair." Are you now saying that you have added 750 million BOE of proved
reserves without an acquisition? Either the IRS sworn statement was less than
forthright, or your public disclosures have serious shortcomings. We believe
it's the latter because we know that the Austin Chalk is, as you say, like
going "up the down escalator." If the need for acquisitions of 750 million BOE
of proved reserves is not "material" for disclosure purposes, then it is hard
to know what is deemed "material."
Jack, the facts are coming to light, and it's time to face up to them.
Sincerely,
/s/ Jim
James L. Pate
Chairman of the Board
Chief Executive Officer
Pennzoil Company explores for and produces crude oil and natural gas,
manufactures and markets premium quality lubricants, including America's top
selling motor oil, and is the parent company of Jiffy Lube International, the
world's largest franchiser of fast oil change centers.
<PAGE> 1
EXHIBIT 75
[PENNZOIL LETTERHEAD]
September 18, 1997
Mr. H. Jesse Arnelle Ms. Claudine B. Malone
Mrs. Lynne V. Cheney Mr. John W. Poduska, Sr., Ph.D.
Mr. Preston M. Geren III Mr. Michael E. Rossi
Mr. Lawrence M. Jones Mr. Samuel K. Skinner
Mr. Drew Lewis Mr. James R. Thompson
There have been some recent important disclosures that you, as a
director of UPR, need to know about because they have serious implications for
UPR. Last week, after three months of contentious litigation in two different
federal courts, UPR was forced to make public six internal UPR documents that
your management had desperately tried to withhold. After reading these
documents, we can certainly understand why.
The material in these documents is truly startling. Anyone who has
followed UPR's public statements in your assault on Pennzoil will find that
these until-now "secret" documents directly contradict UPR's public statements
concerning its own business, the premise of UPR's unsolicited offer for
Pennzoil and UPR's statements concerning the value of Pennzoil. I have enclosed
several examples from these documents for your consideration so you can be
assured that we have not taken the statements in them out of context.
Just over a year ago, in a sworn statement to the IRS, UPR management
made numerous statements about its long-range plan. In the IRS submission, UPR
said that its long-range plan model "reflects significant negative trends" for
UPR. UPR also took great care to point out the uncertainty of future Austin
Chalk production, the inability to maintain current levels of production, the
insufficiency of drill site inventories to avoid overall reserve and production
declines "in the near future" and the need to add 750 million barrels of oil
equivalent (or 4.5 trillion cubic feet equivalent of gas reserves) within five
years. UPR used the term "valley of despair" to refer to its trend of steep
declines in production. These statements contrast sharply with public statements
made by UPR since the attempt to take over Pennzoil was begun.
SIGNIFICANTLY, NO MENTION OF ANY OF THESE NEGATIVE TRENDS OR
UNCERTAINTIES HAS EVER BEEN MADE BY UPR PUBLICLY OR IN ANY SEC FILING,
INCLUDING IN ITS IPO PROSPECTUS AND SUBSEQUENT FILINGS BOTH BEFORE AND AFTER
THE SPIN-OFF.
<PAGE> 2
UPR appears not only to have misrepresented the condition and
prospects for its business, but also to have intentionally misled Pennzoil
shareholders about the performance and prospects of Pennzoil. UPR's formerly
"secret" internal documents are consistent with the facts: that Pennzoil is
successfully implementing our long-term strategy and producing continuing
significant increases in value for Pennzoil shareholders.
As this pattern of deceitful conduct is revealed to shareholders, to
the public markets and to industry observers, it will bring severe damage to the
credibility of UPR's management and Board, not just in this campaign against
Pennzoil, but in its future business dealings as well.
We do not know whether you, as an independent director, were aware of
these possible gross misrepresentations issued by management in UPR's name. They
exceed any possible boundary of acceptable corporate behavior, legally and
ethically. We now place this issue squarely before you so that UPR's Board will
have the opportunity to rectify this egregious situation. We hope that you will
act to ensure the integrity and reputation of UPR and to prevent these false
statements by UPR's management from causing further damage to both Pennzoil and
UPR.
Sincerely,
/s/ JAMES L. PATE
-------------------------------
James L. Pate
Chairman of the Board
Chief Executive Officer
Enclosures
cc: Mr. Jack L. Messman
<PAGE> 3
JOE LASALA
CONFIDENTIAL
OLYMPUS
PROJECT MERCURY
BRIEFING REPORT
5/3/97
<PAGE> 4
[UPR LOGO]
INTER-OFFICE CORRESPONDENCE
TO: Jack Messman OFFICE: FW
FROM: Karl Nesselrode DATE: 5/3/97
SUBJECT: Project Mercury
In preparation for your anticipated phone call with the Mercury CEO on May 5,
the Mercury Project Team has developed this briefing package. An Executive
Summary is on the next page.
The Mercury Project Team consists of:
- UPR (Olympus, Law, Finance and Tax)
- Smith Barney
- Morgan, Lewis & Bocklus LLP
- Skadden, Arps, Slate, Meagher & Flom LLP
- Robinson, Lerer & Montgomery (communications consultant)
Sections Included:
- -----------------
1 Recommended Deal Terms for the Initial Conversation
2 Overall Approach Strategy (with draft "bear hug" letter seeking for
force negotiations without commencing a tender offer)
3 Strategic Rationale for a Merger
4 Biographical and Compensation Summary of Mercury CEO
5 Role Playing Scenarios: Initial discussions between CEOs
6 Key Questions That May Be Asked (with suggested answers)
7 Preliminary Credit Rating Analysis
8 Summary of Requirements for an Unfriendly Tender Offer
9 Summary of Media and Analyst Coverage - by Robinson Lerer & Montgomery
10 Mercury Project Team Contact List
There are a number of works in progress which will be completed by Friday May 9.
- -------------------------------------------------------------------------------
- - 5-Year Financial Projection for Combined Company
- - Detailed Credit Analysis
- - Impact of Announcement on UPR Stock Price
- - Detailed Timetable for Friendly and Unfriendly Deals
HIGHLY CONFIDENTIAL
<PAGE> 5
EXECUTIVE SUMMARY
- -----------------
The recommended approach is to persistently, and with progressive pressure
tactics, convince their CEO to negotiate a friendly merger. A degree of
patience is required, and although initiating a hostile tender offer may be
necessary, there are several preliminary steps which should [sic] taken. Tab 2
contains an overview of the themes UPR should follow during negotiations and
execution of this merger. Tab 3 summarizes the strategic rationale for the
merger, which is the basis of UPR's proposal to Mercury.
May 5 Phone Call
- ----------------
The goal is to set up a face-to-face meeting to communicate UPR's proposal.
Initial Face-to-Face Meeting
- ----------------------------
The goal is to verbally communicate our proposal outlined in Tab 1 and get
their CEO's reaction. There are a number of possible scenarios which could
occur in this meeting ranging from complete acceptance to outright rejection.
Four likely scenarios are outlined in Tab 5 and include the suggested
responses. Prior to the initial meeting, Linda Robinson strongly recommends
that some "role playing" exercises be considered as a way to prepare for the
unexpected. She would volunteer to role play the Mercury CEO. Tab 6 reviews
some questions which are likely to be asked either in the meeting or the phone
call to set up the meeting, with the suggested responses.
Initial Proposal (Tab 1)
- ------------------------
We recommend going in offering a price in the "mid-$70s" ($75). At this time,
we could justify a top-end price in the mid-$80s ($85). After reviewing a
number of alternative deal structures, we recommend, for a friendly merger, a
cash tender for 40% of the shares, with an option on an additional 11%,
followed by a back-end merger using a stock-for-stock exchange for the remaining
shares.
Credit Rating Summary
- ---------------------
A preliminary summary of the credit rating post-merger is shown in Tab 7. UPR
will be able to maintain a BBB- to a BBB+ rating, depending on the cash
component (40% to 51%) and the purchase price ($75 to $85). The debt/book cap
ranges from 55% to 61% in these scenarios. If the Chevron stock is excluded
from the credit analysis, then debt/book cap stays below 50% in all scenarios.
Pressure Tactics Before Initiating an Unfriendly Tender Offer
- -------------------------------------------------------------
The non-public approaches to apply pressure to the Mercury board of directors
and CEO include: (1) refusal to sign a standstill agreement, (2) informal
contact with a director, (3) teddy bear hug letter as attached in Tab 2, (4)
establishing a toe-hold position in stock which could lead to (5) an HSR
filing.
The public approaches to apply pressure short of a tender offer include: (1)
communication with major constituencies and (2) press release of teddy bear hug
letter.
HIGHLY CONFIDENTIAL
<PAGE> 6
Unfriendly Tender Offer
- -----------------------
If UPR cannot make any progress on a confidential basis, then an unfriendly
tender offer should be seriously considered. Because of the strong defenses
Mercury has in place, a successful tender requires specific action by the board
to (1) redeem or amend the shareholder rights plan, and (2) support the merger
plan which removes the applicability of Section 203 of the Delaware General
Corporation Law (requiring 85% control of outstanding shares). The board will
only take this action voluntarily if sufficient pressure exists for them to do
so in execution of their fiduciary obligations. Their ultimate weapon in
defending their decision will be the Just Say No tactic, which has been used
successfully in several recent cases.
The recommended approach for an unfriendly tender offer is a cash tender in the
mid-$70s for 51% of the shares, followed by a back-end merger using a stock-for-
stock exchange for the remaining shares. This approach will be the most
successful at stimulating the tender of shares and attracting arbitrage players
who can exert pressure. This approach also has the possibility of a tax-free
structure for the stock-for-stock exchange of 49% of the shares.
The tender offer would be accompanied by litigation to remove the shareholder
rights plan and to declare Delaware 203 unconstitutional. The likelihood of
winning is nil, but the litigation applies pressure to Mercury, and provides
defense against an unfriendly venue if UPR gets sued.
Timing Considerations for an Unfriendly Tender Offer
- ----------------------------------------------------
The consensus of the Mercury Project Team is that a decision to go hostile
should be made and executed before November 1997, in order to have time to get
the shares tendered prior to the April 1998 shareholder meeting. It is at that
meeting that the first vote of shareholder could occur on any issue critical to
the merger. A decision could be made earlier, subject to completion of the
initial requirements outlined in Tab 8. We are a couple of weeks away from the
earliest possible time for commencing an unfriendly tender offer.
The primary benefits of waiting until November are to (1) use the 4/98
shareholder meeting as an additional pressure tactic, (2) establish a solid
track record of diligently pursuing this merger, which helps build the "last
resort" image of the resulting tender offer, and (3) the possibility of spending
less time and expense in the litigation and media tasks. The risks of waiting
until November are (1) a positive movement in stock price which diminishes the
perceived premium paid, the pressure on the board to act and the reaction of the
market to the offer, and (2) the time that Mercury will have to prepare their
reactions.
The Olympus team feels that there is considerable risk to waiting until November
if a hostile tender is required to motivate Mercury's board. There is more
likely good news than bad news for Mercury, and a rising stock price is
ultimately their best defense. An early strike would somewhat preserve the
perception of our large current premium. The existence of our offer would blur
the market's perception of any subsequent increase in stock price, for which we
would naturally take credit.
Market Reaction to Unfriendly Tender Offer
- ------------------------------------------
A detailed analysis is in progress by Smith Barney, and should be completed by
May 7. Preliminary thinking is that the Mercury shareholders would react very
positively. UPR stock will probably weaken somewhat in the short term, due to
the magnitude of the deal and the market's uncertainty about the implications
for UPR. We will need to do a thorough job of communicating the rationale and
the specifics of the merger. Once the market understands and gets comfortable
with the merger, UPR stock price should recover and appreciate.
HIGHLY CONFIDENTIAL
<PAGE> 7
HIGHLY CONFIDENTIAL
COPIES TO:
Union Pacific Resources
- -----------------------
Dick Eales
Joe LaSala
Sam Smith
Karl Nesselrode
Mike Auflick
Kerry Brittain
Mark Jones
Smith Barney
- ------------
Chad Weiss
Ralph Watts
Fred Pevow
Morgan, Lewis & Bocklus
- -----------------------
Howard Shecter
Skadden, Arps, Slate, Meagher & Flom
- ------------------------------------
Paul Schnell
Robinson, Lerer & Montgomery
- ------------------------------
Linda Robinson
Don Nathan
<PAGE> 8
[IVINS, PHILLIPS & BARKER LETTERHEAD]
June 3, 1996
SIXTH SUPPLEMENT
TO REQUEST FOR RULING
DATED OCTOBER 17, 1995
BY MESSENGER DELIVERY
Ms. Susan Edlavitch
CC:DOM:CORP:1
Room 4408
Internal Revenue Service
1111 Constitution Avenue, NW
Washington DC 20224
Re: Union Pacific Corporation
Union Pacific Resources Group Inc.
Sections 332, 351, 355 and 368(a)(1)(D)
Dear Ms. Edlavitch:
This is the Sixth Supplement to the request for ruling (the "Request")
filed on behalf of the taxpayers named above. The Request is dated october 17,
1995. First, Second, Third, Fourth and Fifth Supplements to the Request were
filed on December 20, 1995, and April 30, May 6, May 9 and May 14, 1996,
respectively. Additional information was provided by letters dated March 26,
April 2, April 10, and April 11, 1996.
Unless otherwise indicated, the defined terms used in the Request and
in the earlier supplements are used herein. A revised Schedule of Defined
Terms, reflecting the defined terms used in the Request and in all the
supplements to date, is attached.
The alphabetical sequence of exhibits, begun in the Request and
continued in the earlier supplements, is continued herein. A Schedule of
Exhibits is attached to the Request, and revised Schedules of Exhibits are
attached to the First and Fourth
HIGHLY CONFIDENTIAL
<PAGE> 9
Ms. Susan Edlavitch
June 3, 1996
Page 6
discussing acquisitions as elements of their businesses. Attached as Exhibit AA
are several news articles (from Oil & Gas Interests Newsletter and Bloomberg's
Business News), describing major corporate acquisitions in the oil and gas
industry during January through April 1996. This information supplements the
list of acquisitions contained in the Smith Barney Letter (Exhibit F). Although
we have not attempted to tabulate the acquisitions described in Exhibit AA, it
is apparent that many, if not most, of these acquisitions involve stock of the
acquiring company.
2. Controlled's Need for Acquisitions
Like other oil and gas companies, Controlled must complete
large, strategic acquisitions, in order to maintain and increase its production
levels. To understand this point, it is important to understand Controlled's
recently completed long range planning process and the strategic conclusions
derived therefrom.
Controlled's Long Range Plan represents a detailed compilation
of its most current forecasts for existing production and drill site inventory,
combined with projections for the quantity and timing of acquisitions necessary
to meet Controlled's publicly-stated objective for Controlled's production to
grow by an average of 10% per year.(8) Controlled recently completed its Long
Range Plan for 1997 through 2001.
The foundation of the Long Range Plan consists of two essential
components.
The first component is Controlled's base forecast that
production from its currently-producing properties will decline, until the
properties reach their economic limit and are plugged and abandoned. This
forecast is reviewed and updated at least quarterly and provides the basis for
calculating the value of reserves, as reported in Controlled's public filings.
The second component is a projection of how Controlled will use
its discretionary cash flow and manpower resources to exploit its drill site
inventory. A projection of the drill site inventory and how it will be
exploited is maintained on an ongoing basis for each of Controlled's core areas.
This drill site inventory includes both proven, undeveloped locations on
Controlled's acreage position and a risk-weighted estimate of possible and
probable locations which may exist on Controlled's acreage.
- ----------------
(8) Controlled's senior management has made public statements to more than
100 audiences (composed principally of investment bankers and analysts) as "road
shows" leading to the IPO to the effect that Controlled intends substantial
growth, and that acquisitions are part of the plan. Attached as Exhibit BB are
(1) three slides used in these road shows, showing a goal of 12% volume growth
and (2) a presentation made to Distributing's Board of Directors in February
1994, regarding Amas, stating Controlled's goal of 10% growth per year. See
also Controlled's 1995 Annual Report (Exhibit T) at page 7.
CONFIDENTIAL
<PAGE> 10
Ms. Susan Edlavitch
June 3, 1996
Page 7
The base Long Range Plan model (composed of these two components but
before the consideration of acquisitions) reflects significant negative trends
for Controlled. Over the past five years, Controlled's increased activity in
the Austin Chalk and the successful infill drilling of its tight sand gas
reservoirs in East Texas and the Rockies were largely responsible for
Controlled's production growth.(9) Now, however, there is significant
uncertainty as to how much further the Austin Chalk production can be
economically extended, and the vast majority of Controlled's tight sand gas
infill locations have been drilled. Consequently, management has concluded
that Controlled cannot maintain its current levels of production from existing
properties, and that acquisitions are necessary to do so.
Specifically, the current Long Range Plan projects that, for 1997-2001,
Controlled's production in the Austin Chalk will decline by an average of 12%
per year, and its production from both East Texas and the Rockies will decline
by an average of 2% per year. Due to the steep decline of the production
curve, Austin Chalk reserves are projected to drop by an average of 34% per
year, and East Texas reserves by an average of 12% per year during the same
period. Controlled anticipates that drilling its remaining marginal prospects
in the Rockies will help to keep the declines in the Rockies reserves to a
minimum or zero level. Modest increases in reserves and production are
projected for Controlled's smaller and less-exploited Plains/Canada and Gulf
Coast core areas, but these increases will not come close to offsetting the
declines in the Austin Chalk and East Texas. Quite simply, Controlled's
current drill site inventory is not sufficient to keep Controlled's overall
production and reserves from declining significantly in the near future.
The strategic implication is quite obvious and compelling. Controlled
must complete acquisitions, in order to offset the decline in its current
reserve base and to provide additional drill sites for continued growth in
production. (Controlled's management refers to the trend of steep declines in
production from existing properties as the "valley of despair," and to the
goal of 10% growth per year, in spite of such declines, as "walking up the down
escalator.") For Controlled to maintain average production growth of 10% per
year for 1997-2001, the Long Range Plan projects that Controlled will need to
add, through acquisitions during this period, approximately 750 million barrels
of oil equivalent ("MMBOE") or 4.5 trillion cubic feet equivalent ("TCFE") of
gas reserves -- an amount substantially greater than Controlled's current
proved reserves. Acquisitions of such an amount of reserves can be expected to
cost a total of $3-4 billion.
Controlled cannot meet this goal with small, cash-flow-funded tactical,
acquisitions. Such acquisitions are already part of Controlled's ongoing
strategy. Even assuming an average of $25 million per tactical acquisition (an
amount far in excess
- -----------------------------
(9) A map showing Controlled's core production areas is located in the
inside front cover of the IPO prospectus (Exhibit A1).
<PAGE> 11
Ms. Susan Edlavitch
June 3, 1996
Page 8
of the historical average for these acquisitions). Controlled would need to
complete 120-160 such transactions in five years to meet its production goals.
Controlled's historical average for tactical acquisitions (excluding Amax. a
strategic acquisition) is fewer than 10 per year and less than $100 million per
year invested. Moreover, Controlled's recent experience shows that existing
drill sites cannot be acquired at reasonable prices. Recently, for example.
Controlled bid on two packages of properties owned by one seller in Wyoming.
Based on its analysis, Controlled bid a total of $34.9 million. The winning
bids, however, totaled $87 million, even though there appears to have been no
appreciable difference between Controlled's reserve estimates and those of the
winning bidders.
Thus, Controlled is faced with a difficult combination of fundamental
business conditions -- a declining reserve base, a strategic objective to
increase production by 10% per year and a recognition that it is impractical to
make enough tactical acquisitions at reasonable prices. If Controlled is to
increase its drill site inventory and meet its goals for growth, it must make
large, strategic acquisitions. Specifically management has concluded that
Controlled needs to complete at least one such acquisition by the end of 1997
and two or more by the end of 2001.
3. Controlled's Current Acquisition Plans
After the IPO in October 1995. Controlled intensified its
preparations for future acquisitions. In addition to setting a $100 million
goal for tactical acquisitions in 1996. Controlled formed two other
acquisition teams:
a. The New Opportunity Team focuses on properties outside
Controlled's existing core areas where Controlled can use its
petrotechnical strengths (such as in horizontal drilling,
hydraulic fracturing and 3D seismic techniques) to establish new
core areas. (These acquisitions are expected to be relatively
small and generally are not the type of acquisiton that would
involve stock as acquisition currency.)
b. Project Olympus (previously called "NEBO" or "NEXBO," for the
"next big one") focuses on large (more than $500 million)
strategic transactions.
Project Olympus has absorbed a great deal of management time and
energy and continues to be a high priority item. Attached as Exhibit CC are
memoranda, items of correspondence, meeting agendas, etc., documenting the work
of Project Olympus and its predecessor working groups. As this material shows.
Controlled management has devoted considerable resources to analyzing the
prospects for both domestic acquisitions and international acquisitions
(principally in Canada), but the primary concentration has been on the domestic
side. Also included in Exhibit CC is a spreadsheet showing a "long list" of
acquisition prospects for Project Olympus
<PAGE> 1
EXHIBIT 76
[PENNZOIL LETTERHEAD]
FOR IMMEDIATE RELEASE
Contacts:
Robert Harper Joele Frank / Jeff Kimball
Corporate Communications Abernathy MacGregor Group
713/546-8536 212/371-5999
PENNZOIL CEO WRITES UPR BOARD TO INFORM THEM OF POSSIBLE GROSS
MISREPRESENTATIONS ISSUED BY UPR MANAGEMENT
Houston, TX, September 19, 1997 - Independent members of Union Pacific
Resources Group Inc.'s (NYSE: UPR) (UPR) Board of Directors today received a
letter from James L. Pate, Chairman and Chief Executive Officer of Pennzoil
Company (NYSE: PZL). The letter informs UPR's Board of the "possible gross
misrepresentations issued by management in UPR's name... [that] exceed any
possible boundary of acceptable corporate behavior, legally and ethically." The
full text of the letter follows:
September 18, 1997
Mr. H. Jesse Arnelle Ms. Claudine B. Malone
Mrs. Lynne V. Cheney Mr. John W. Poduska, Sr., Ph.D.
Mr. Preston M. Geren III Mr. Michael E. Rossi
Mr. Lawrence M. Jones Mr. Samuel K. Skinner
Mr. Drew Lewis Mr. James R. Thompson
There have been some recent important disclosures that you, as a
director of UPR, need to know about because they have serious implications for
UPR. Last week, after three months of contentious litigation in two different
federal courts, UPR was forced to make public six internal UPR documents that
your management had desperately tried to withhold. After reading these
documents, we can certainly understand why.
The material in these documents is truly startling. Anyone who has
followed UPR's public statements in your assault on Pennzoil will find that
these until-now "secret" documents directly contradict UPR's public statements
concerning its own business, the premise of UPR's unsolicited offer for
Pennzoil and UPR's statements concerning the value of Pennzoil. I have enclosed
several examples from these documents for your consideration so you can be
assured that we have not taken the statements in them out of context.
Just over a year ago, in a sworn statement to the IRS, UPR management
made numerous statements about its long-range plan. In the IRS submission, UPR
said that its long-range plan model "reflects significant negative trends" for
UPR. UPR also took great care to point out the uncertainty of future Austin
Chalk production, the inability to maintain current levels of production, the
insufficiency of drill site inventories to avoid overall reserve and production
declines "in the near future" and the need to add 750 million barrels
of oil equivalent (or 4.5 trillion cubic feet equivalent of gas reserves)
within five years. UPR used the term "valley of despair" to refer to its trend
of steep declines in production. These statements contrast sharply with public
statements made by UPR since the attempt to take over Pennzoil was begun.
SIGNIFICANTLY, NO MENTION OF ANY OF THESE NEGATIVE TRENDS OR
UNCERTAINTIES HAS EVER BEEN MADE BY UPR PUBLICLY OR IN ANY SEC FILING,
INCLUDING IN ITS IPO PROSPECTUS AND SUBSEQUENT FILINGS BOTH BEFORE AND AFTER
THE SPIN-OFF.
<PAGE> 2
UPR appears not only to have misrepresented the condition and
prospects for its business, but also to have intentionally misled Pennzoil
shareholders about the performance and prospects of Pennzoil. UPR's formerly
"secret" internal documents are consistent with the facts: that Pennzoil is
successfully implementing our long-term strategy and producing continuing
significant increases in value for Pennzoil shareholders.
As this pattern of deceitful conduct is revealed to shareholders,
to the public markets and to industry observers, it will bring severe damage to
the credibility of UPR's management and Board, not just in this campaign
against Pennzoil, but in its future business dealings as well.
We do not know whether you, as an independent director, were aware of
these possible gross misrepresentations issued by management in UPR's name. They
exceed any possible boundary of acceptable corporate behavior, legally and
ethically. We now place this issue squarely before you so that UPR's Board will
have the opportunity to rectify this egregious situation. We hope that you will
act to ensure the integrity and reputation of UPR and to prevent these false
statements by UPR's management from causing further damage to both Pennzoil and
UPR.
Sincerely
/s/ James L. Pate
--------------------------------------
James L. Pate
Chairman of the Board
Chief Executive Officer
cc: Mr. Jack L. Messman
Pennzoil Company explores for and produces crude oil and natural gas,
manufactures and markets premium quality lubricants, including America's top
selling motor oil, and is the parent company of Jiffy Lube International, the
world's largest franchiser of fast oil change centers.
