<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
(AMENDMENT NO. 7)
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. 7 (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
------- -----------
<C> <S>
40 Text of press release dated July 28, 1997 issued by the
Company
41 Published advertisement of the Company dated July 29, 1997
42 Letter to stockholders of the Company dated July 29, 1997
</TABLE>
<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: July 29, 1997 By: /s/ James L. Pate
James L. Pate
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
40 Text of press release dated July 28, 1997 issued by
the Company
41 Published advertisement of the Company dated
July 29, 1997
42 Letter to stockholders of the Company dated July 29,
1997
</TABLE>
<PAGE> 1
EXHIBIT 40
[PENNZOIL LETTERHEAD]
FOR IMMEDIATE RELEASE CONTACT: GREG PANAGOS
713/546-8914
PENNZOIL'S SECOND QUARTER RECURRING INCOME UP 44 PERCENT,
FIRST HALF RECURRING INCOME UP 118 PERCENT,
FIRST HALF OPERATING CASH FLOW RISES 26 PERCENT
HOUSTON (July 28,1997) -- Pennzoil Company (NYSE:PZL) today reported
second quarter and first half 1997 results, emphasizing the following
highlights:
<TABLE>
<S> <C>
o first half recurring income was up 118 percent to $2.04 per share;
o first half operating cash flow was up 26 percent, to $5.95 per share;
o second quarter recurring income was up 44 percent to 76 cents per share;
o second quarter operating cash flow was up 12 percent to $2.82 per share;
o oil and gas production volumes during the second quarter increased 18 percent over the first quarter of
1997;
o Pennzoil was the successful bidder on two producing blocks in Venezuela during the second quarter;
o two recently completed refining projects are starting to add significantly to operating income for the
motor oil and refined products segment; and
o Pennzoil and Conoco Inc. formed a joint venture called Penreco combining portions of their specialty
petroleum products businesses.
</TABLE>
Recurring second quarter net income increased 44 percent to $35.6
million, or 76 cents per share, compared to last year's $24.8 million, or 54
cents per share. Second quarter after-tax nonrecurring items totaled $11.7
million, including charges associated with the sale of PennUnion (a natural gas
marketing subsidiary), the early retirement of debt and costs incurred in
connection with Union Pacific Resources' unsolicited tender offer.
-1-
<PAGE> 2
Net income for the second quarter totaled $23.9 million, or 51 cents
per share after nonrecurring charges, compared to net income of $24.5 million,
or 53 cents per share, for the same period in 1996.
Cash flow from operations, before changes in operating assets and
liabilities, during the second quarter increased 12 percent to $132.4 million,
or $2.82 per share, compared to $118.3 million, or $2.55 per share, for the
same period in 1996.
For the first half of 1997, net income more than doubled, increasing
to $81.4 million, or $1.74 per share, compared to $40.3 million, or 87 cents
per share, last year. On a recurring basis, the first half earnings
improvement was even more impressive, with net income increasing 118 percent to
$95.7 million, or $2.04 per share, versus $43.8 million, or 95 cents per share,
in 1996.
For the first half, cash flow from operations increased 26 percent to
$279 million, or $5.95 per share, compared to $221.5 million, or $4.77 per
share, for the same period in 1996.
James L. Pate, chairman and chief executive officer, said, "Pennzoil
has now had seven consecutive quarters of year-over-year increases in recurring
earnings. This continuing improvement reflects the transformation of Pennzoil
to an operationally focused company and the success of our strategic plan."
Pate added, "Pennzoil has accomplished a great deal since the
strategic plan was first approved in 1994. We have streamlined operations to
achieve strong financial and operating improvements over the past two years.
By following our strategic plan, Pennzoil will continue to grow and create
substantial shareholder value."
-2-
<PAGE> 3
Each of Pennzoil's business segments reported strong year-over-year
operating income improvements for the second quarter. Oil and gas had a 5
percent increase, motor oil and refined products reported a 63 percent
increase, and franchise operations had a 19 percent increase.
The oil and gas segment reported second quarter operating income of
$69.1 million, a 5 percent increase over last year's $65.5 million. The
increase in operating income was primarily due to higher realized natural gas
prices and lower general and administrative expenses and taxes, partially
offset by lower production volumes and higher depreciation rates and operating
expenses.
Excluding the effect of producing property sales, second quarter 1997
oil and gas production increased approximately 5 percent compared to last year.
In July of last year, Pennzoil sold noncore Canadian properties with daily
production of approximately 11,200 barrels of oil equivalent (boe). As a
result, second quarter daily production volumes were approximately 4,200 boe
lower than last year's.
Compared to the first quarter of 1997, daily natural gas and liquids
production volumes increased nearly 25,000 boe, or 18 percent, reflecting new
production from the company's two wells on the West Cameron 580 block in the
Gulf of Mexico. Gross natural gas production from the block is currently about
170 million cubic feet per day (MMcf/d), or about 119 MMcf/d net to Pennzoil.
In addition, the two wells currently produce about 7,600 barrels per day (b/d)
of condensate, or about 5,300 b/d net to Pennzoil.
During the second quarter, Pennzoil was the successful bidder for
blocks B2X-68/79 and B2X-70/80 in Lake Maracaibo, Venezuela. The company will
sign the operating agreements with Lagoven, an affiliate of Petroleos de
Venezuela SA (PDVSA), for the two new blocks today.
-3-
<PAGE> 4
Pennzoil plans to drill a total of five international exploration
wells this year. In Azerbaijan, Pennzoil and its partners, LUKoil and AGIP,
plan to spud the first exploration well on the Karabakh structure offshore Baku
in August. In Qatar, Pennzoil will drill two exploration wells on Block 8 (100
percent Pennzoil) during the second half of this year. Also during the second
half, Pennzoil will drill an exploration well in southwestern Australia on the
Whicher Range concession (44 percent Pennzoil). In Egypt, Pennzoil and Repsol
drilled an unsuccessful exploration well on the Southeast Gulf of Suez block
(50 percent Pennzoil) during the second quarter. Pennzoil's share of the dry
hole expense associated with the well totaled $3 million pretax. Pennzoil and
Repsol are currently evaluating three additional drill locations on the
Southeast Gulf of Suez block.
The motor oil and refined products segment reported second quarter
operating income of $25.8 million, a 63 percent increase over last year's $15.8
million. The increase in operating income was primarily due to higher margins
resulting from the upgrade of Pennzoil's Shreveport refinery and higher income
from the Excel Paralubes lube base oil plant joint venture. With the two
refining projects coming onstream during the second quarter, refinery input
increased nearly 14,500 barrels per day.
Pate added, "With Excel Paralubes and the Shreveport refinery upgrade
complete, we have accomplished one of our principal strategic goals of becoming
a low-cost, efficient refiner of petroleum products."
During the second quarter, Pennzoil and Conoco announced the formation
of Penreco, a 50/50 joint venture combining portions of the two companies'
specialty petroleum products businesses. Penreco will have estimated annual
sales of about $200 million worldwide.
-4-
<PAGE> 5
Pennzoil continues as the leading marketer of motor oil in the U.S.,
with a market share of over 21 percent.
The franchise operations segment, Jiffy Lube International, Inc.,
reported second quarter operating income of $6.3 million, a 19 percent increase
over last year's $5.3 million. The year-on-year improvement was primarily due
to lower expenses at company-operated stores.
Jiffy Lube has added 157 new fast oil change centers since the second
quarter last year, an increase of 12 percent. Most of the new stores are part
of the company's alliance with Sears Automotive Centers. Jiffy Lube now has a
total of 1,441 stores. Jiffy Lube is the largest fast oil change provider in
the U.S. with over 25 percent of the market.
Pennzoil Company explores for and produces crude oil and natural gas,
manufactures and markets premium quality lubricants, including America's top
selling motor oil for the past 11 years, and is the parent company of Jiffy
Lube International, the world's largest franchiser of fast oil change centers.
- ----------------------
This release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1984, as amended, which are intended to
be covered by the safe harbors created thereby. In particular, statements
concerning growth, shareholder value, increases in cash flow and wells expected
to be drilled contain forward-looking information. Factors that could cause
actual results or events to differ materially from those anticipated are
discussed in detail in Pennzoil's Annual Report on Form 10-K for the year ended
December 31, 1996.
-5-
<PAGE> 6
The following are the unaudited results of operations for the quarter and six
months ended June 30, 1997 compared with the same periods in 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Oil and Gas $204,274 $204,218 $431,015 $379,300
Motor Oil & Refined Products 453,095 438,517 886,048 831,666
Franchise Operations 83,647 76,576 158,797 147,991
Other (2,460) 13,330 9,009 35,288
Intersegment sales (90,199) (96,061) (187,512) (170,324)
------- -------- --------- ---------
Total revenues $648,357 $636,580 $1,297,357 $1,223,921
======== ======== ========== ==========
OPERATING INCOME
Oil and Gas $69,107 $65,484 $176,286 $114,807
Motor Oil & Refined Products 25,802 15,780 38,851 30,208
Franchise Operations 6,316 5,311 10,812 9,836
Other (3,181) 10,315 12,484 25,802
------ ------ ------ ------
Total operating income 98,044 96,890 238,433 180,653
Corporate administrative expenses 19,905 13,351 32,987 26,082
Interest charges, net 41,161 46,804 78,280 94,367
------ ------ ------ ------
Income before income tax 36,978 36,735 127,166 60,204
Income tax provision 13,101 12,192 45,738 19,892
------ ------ ------ ------
NET INCOME $23,877 $24,543 $81,428 $40,312
======= ======= ======= =======
EARNINGS PER SHARE $0.51 $0.53 $1.74 $0.87
===== ===== ===== =====
AVERAGE SHARES OUTSTANDING 46,971 46,447 46,888 46,420
====== ====== ====== ======
END OF PERIOD SHARES OUTSTANDING 47,031 46,466 47,031 46,466
====== ====== ====== ======
</TABLE>
-6-
<PAGE> 7
PENNZOIL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- ------------
(Expressed in Thousands)
<S> <C> <<C>
ASSETS
Current assets
Cash and cash equivalents $ 43,885 $ 34,383
Receivables 212,054 250,328
Inventories
Crude oil, natural gas and sulphur 20,419 24,365
Motor oil and refined products 178,543 147,554
Deferred income taxes 16,484 20,834
Other current assets 55,771 60,128
---------- ----------
Total current assets 527,156 537,592
Net, property, plant, and equipment 2,438,910 2,318,084
Marketable securities and other investments 953,181 955,182
Other assets 305,572 313,396
---------- ----------
TOTAL ASSETS $4,224,819 $4,124,254
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,182 $ 1,181
Accounts payable and accrued liabilities 275,498 274,618
Interest accrued 30,051 30,827
Other current liabilities 77,206 86,321
------ ------
Total current liabilities 384,937 392,947
Long-term debt 2,241,594 2,217,806
Deferred income taxes 265,477 241,791
Other liabilities 287,352 302,635
------- -------
TOTAL LIABILITIES 3,179,360 3,155,179
========= =========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 1,045,459 969,075
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,224,819 $4,124,254
========== ==========
</TABLE>
-7-
<PAGE> 8
PENNZOIL COMPANY
CASH FLOW FROM OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1997 1996 1997 1996
(Expressed in thousands except per share amounts)
<S> <C> <C> <C> <C>
Description
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $23,877 $ 24,543 $81,428 $40,312
Adjustments to not income
Depreciation, depletion and amortization 74,784 73,009 137,351 138,999
Dry holes and impairments 6,815 3,599 9,231 5,173
Deferred income tax 9,112 13,031 28,681 19,402
Non-cash items and other non-operating items 17,773 4,103 22,270 17,590
NET CASH FROM OPERATING ACTIVITIES BEFORE CHANGES
IN OPERATING ASSETS
AND LIABILITIES $132,361 $118,285 $278,961 $221,476
CASH FLOW FROM OPERATIONS PER SHARE $ 2.82 $ 2.55 $ 5.95 $ 4.77
-------- -------- -------- --------
Other exploration expense 5,464 8,264 13,089 16,535
-------- -------- -------- --------
CASH FLOW FROM OPERATIONS ADJUSTED
FOR TOTAL EXPLORATION EXPENSE $137,825 $126,549 $292,050 $238,011
======== ======== ======== ========
CASH FLOW FROM OPERATIONS PER SHARE
ADJUSTED FOR TOTAL EXPLORATION
EXPENSE $ 2.93 $ 2.72 $ 6.23 $ 5.13
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 46,971 46,447 46,888 46,420
</TABLE>
-8-
<PAGE> 9
PENNZOIL COMPANY
OPERATING HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1997 1996 1997 1996
<S> <C> <C> <<C> <C>
OPERATING DATA
OIL AND GAS
Net production
Crude oil, condensate and natural gas
liquids (barrels per day) 62,781 65,009 58,232 62,706
Natural gas produced for sale (Mcf per 616,360 628,472 570,111 594,123
day)
Weighted average prices
Crude oil, condensate and natural gas
liquids (per barrel) $ 15.66 $ 15.51 $ 17.40 $ 14.86
Natural gas (per Mcf) $ 1.98 $ 1.83 $ 2.34 $ 1.81
Costs and expenses ($/BOE)
Operating expense excl. COS $ 2.92 $ 2.65 $ 2.99 $ 2.77
Costs of sales 0.07 0.09 0.09 0.09
General and administrative expense 0.79 1.00 0.87 0.95
Other taxes 0.53 0.65 0.62 0.67
----------- ----------- ----------- -----------
Total ($/BOE) $ 4.31 $ 4.39 $ 4.57 $ 4.48
DD&A expense ($/BOE) $ 3.85 $ 3.82 $ 3.80 $ 3.77
MOTOR OIL & REFINED PRODUCTS
Sales (barrels per day)
Gasoline and naphtha 20,696 21,177 19,120 20,898
Distillates and gas oils 24,943 26,527 27,702 27,078
Lubricating oil and other specialty products 31,378 24,807 28,662 23,328
Residual fuel oils 1,114 4,095 2,307 4,068
----------- ----------- ----------- -----------
Total sales (barrels per day) 78,131 76,606 77,791 75,372
=========== =========== =========== ===========
Raw materials processed (barrels per day) (1) 56,285 54,148 54,652 52,782
Refining capacity (barrels per day) (1) 62,700 62,700 62,700 62,700
FRANCHISE OPERATIONS
Domestic systemwide sales (in thousands) $ 194,859 $ 178,596 $ 373,564 $ 343,414
Same center sales (in thousands) $ 177,970 $ 177,800 $ 341,100 $ 341,149
Centers open (U.S.) 1,441 1,275 1,441 1,275
</TABLE>
(1) Excludes Excel Paralubes
-9-
<PAGE> 1
EXHIBIT 41
[Chart: Pennzoil Company recurring earnings per share - trailing four quarters;
4th quarter 1994 ($0.61) through 4th quarter 1997 ($3.49); 3rd and 4th quarter
1997 noted as estimates per First Call; notation on chart: "Now that Pennzoil
has done the hard work, our shareholders are just beginning to reap the
rewards"]
<TABLE>
<S> <C>
- ----------------------------------------------
PENNZOIL S FIRST AND SECOND QUARTER Pennzoil Company has successfully cut costs, shed nonessential
1997 RESULTS CONTINUE THE TREND: businesses and put in place a strategy for the future. First and
second quarter 1997 results clearly demonstrate the effectiveness
o First half recurring earnings up 118% to of these moves.
$2.04 per share
o First half operating cash flow up 26% to And this is only the beginning:
$5.95 per share
o Gulf of Mexico exploration program offers high potential
o Seven consecutive quarters of year on year o International exploration projected to double reserves
recurring earnings improvement have
created total growth of 536%--9 consecutive o Recent downstream projects will significantly enhance
quarters by year end operating performance
o Production volumes up 18% over first o Powerful consumer brands will create further growth
quarter opportunities
- -----------------------------------------------
Our shareholders are now beginning to enjoy the rewards of all
our hard work.
</TABLE>
[Pennzoil Logo] PENNZOIL COMPANY
This contains forward-looking statements
regarding future results and events. Actual
results and events could differ materially
for the reasons explained in Pennzoil's 1996
Form 10-K.
<PAGE> 1
EXHIBIT 42
[ON PENNZOIL LETTERHEAD]
July 29, 1997
Dear Shareholdcr:
On July 28, 1997, Pennzoil Company announced its second quarter
results. The second quarter was very strong, with improvement in virtually
every aspect of our business. Recurring earnings reached $35.6 million, or 76
cents per share, a 44 percent increase over last year. This result exceeded
the Wall Street consensus estimate by 10 percent and was the seventh
consecutive quarter of year-over-year improvement in recurring income.
For your review, I have enclosed a copy of Pennzoil's second quarter
earnings press release. I have also enclosed a July 29, 1997 newspaper
advertisement emphasizing the positive trend in Pennzoil's financial and
operating performance.
Your Board of Directors believes Pennzoil's consistent improvement
over the past seven quarters reflects the success of Pennzoil's long-term
strategic plan which was implemented in 1994. While I am personally very
pleased with our second quarter performance, I believe there is still much
improvement to come as a result of our pending initiatives, which include oil
and gas projects in Azerbaijan, Egypt, Venezuela, Qatar and the Gulf of Mexico
and our recently completed base oil and refining projects.
As you know, on June 23, 1997, Union Pacific Resources Group Inc.
(UPR) announced a two-tiered, partial tender offer for just over half of
Pennzoil's shares at a price of $84 per share in cash on the front-end. UPR
also announced that it would seek to negotiate a merger in which remaining
Pennzoil shares would be converted into UPR common stock. Your Board of
Directors has determined that the UPR proposal is inadequate and not in the
best interests of Pennzoil's shareholders and believes that pursuit of
Pennzoil's strategic plan will produce greater long-term value than the UPR
proposal.
So far, 1997 has been a successful year. With your continued support,
the rest of the year and beyond will be even more successful.
Sincerely,
/s/ JAMES L. PATE
