<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<CAPTION>
(MARK ONE)
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
<TABLE>
<C> <S>
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 1-9033
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SUN ENERGY PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2070723
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
123 ROBERT S. KERR AVENUE
OKLAHOMA, OK 73102
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code:
405-270-1313
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C>
Depositary Units New York Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The aggregate market value of the Depositary Units held by nonaffiliates of
the Registrant as of February 28, 1999, was approximately $30 million.
The total number of Partnership Units outstanding as of February 28, 1999,
was 421,170,459.
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<PAGE> 2
CERTAIN ABBREVIATIONS AND OTHER MATTERS
As used herein, the following terms have specific meanings:
<TABLE>
<C> <S>
m thousand
mm million
bbl barrel
mb thousand barrels
mmb million barrels
eb equivalent barrel
meb thousand equivalent barrels
mmeb million equivalent barrels
b/d barrels per day
bc/d barrels of condensate per
day
mcf thousand cubic feet
mmcf million cubic feet
bcf billion cubic feet
mmcf/d million cubic feet per day
mmcfe/d million cubic feet
equivalent per day
ED&A exploration, development
and acquisition*
FD&A finding, development and
acquisition per barrel
WTI West Texas Intermediate
spot price
HH Henry Hub spot price
</TABLE>
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* ED&A outlays represent capital expenditures and cash exploration costs,
excluding capitalized interest.
Natural gas equivalents are determined under the relative energy content
method by using the ratio of 6 mcf of natural gas to 1 bbl of crude oil,
condensate or natural gas liquids.
With respect to information quoted as to working interest, "net" is
determined by multiplying the whole numbers by Sun Energy Partners, L.P.'s
working interest.
FORWARD-LOOKING STATEMENTS
In the following report, Sun Energy Partners, L.P. has included certain
statements (other than statements of historical fact) that constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used
herein, the words "budget", "budgeted", "anticipate", "expects", "believes",
"seeks", "goals", "intends" or "projects" and similar expressions are intended
to identify forward-looking statements. It is important to note that Sun Energy
Partners, L.P.'s actual results could differ materially from those projected by
such forward-looking statements. Although Sun Energy Partners, L.P. believes the
expectations reflected in such forward-looking statements are reasonable and
such forward-looking statements are based upon the best data available at the
time this report is filed with the Securities and Exchange Commission, no
assurance can be given that such expectations will prove correct. Factors that
could cause Sun Energy Partners, L.P.'s results to differ materially from the
results discussed in such forward-looking statements include, but are not
limited to, the following: production variances from expectations, volatility of
oil and gas prices, the need to develop and replace its reserves, the
substantial capital expenditures required to fund its operations, exploration
uses, environmental risks, uncertainties about estimates of reserves,
competition, government regulation and political actions, and the ability of Sun
Energy Partners, L.P. to implement its business strategy. All such
forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph.
<PAGE> 3
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
Sun Energy Partners, L.P. (Sun Energy Partners) engages in the oil and gas
exploration and production business in the United States. Prior to February 26,
1999, Oryx Energy Company (Oryx) controlled Sun Energy Partners and was its
managing general partner. On that date, Kerr-McGee Corporation (Kerr-McGee)
became managing general partner following its merger with Oryx, and Kerr-McGee
now controls Sun Energy Partners. The Company refers to Oryx prior to February
26, 1999 and to Kerr-McGee since February 26, 1999. As of December 31, 1998, the
Company owned 98.2 percent of Sun Energy Partners. The remaining 1.8 percent
interest is comprised of limited partnership interests held by public
unitholders in the form of depositary units (Units). Eighty-five percent of the
Company's Board of Directors must approve any additional issuance, sale or
transfer of units that would reduce the Company's holdings below 85 percent of
the outstanding units.
On March 9, 1999, Kerr-McGee, as managing general partner, announced that
its Board of Directors had approved a plan to merge Sun Energy Partners with
Kerr-McGee Energy (an indirect wholly-owned subsidiary of Kerr-McGee). As part
of the transaction, each of the publicly held limited partnership units will be
converted solely into the right to receive $4.52 in cash, and as a result,
Kerr-McGee will own 100% of Sun Energy Partners. Detailed information regarding
this transaction will be distributed to all holders of limited partnership units
prior to the consummation of the transaction. The transaction is subject to the
expiration of the Hart-Scott-Rodino waiting period and other customary closing
conditions and regulatory approvals, and is expected to be completed by the end
of the third quarter, 1999.
Sun Energy Partners' business is conducted through Sun Operating Limited
Partnership, a Delaware limited partnership, and several other operating
partnerships (collectively, the Operating Partnerships). In all of the
partnerships which comprise the Operating Partnerships, Sun Energy Partners
holds a 99 percent interest as the sole limited partner, while the Company holds
a 1 percent interest as the managing general partner.
Sun Energy Partners and the Operating Partnerships (collectively, the
Partnership), are managed by the Company. The holders of limited partnership
units have no power to direct or participate in the control of the Partnership.
The Company makes all decisions regarding exploration, development, production
and marketing for properties belonging to the Partnership, all decisions
regarding the sale of less than substantially all of such properties or the
acquisition of properties by the Partnership and all other decisions regarding
the Partnership's business and operations.
The Partnership has no officers or employees. Officers and employees of the
Company perform all management functions required for Sun Energy Partners.
The Partnership's strategy is to target as future growth opportunities
those areas where its advanced technological capabilities will have the greatest
economic impact.
PROVED RESERVES
As of December 31, 1998, the Partnership's proved reserves were an
estimated 209 mmb of liquids and an estimated 1,084 bcf of natural gas, an
aggregate of 390 mmeb of reserves. More information on the estimated quantities
of proved oil and gas reserves and information on proved developed oil and gas
reserves, as well as information concerning the standardized measure of
discounted future net cash flows from estimated production of proved oil and gas
reserves (Standardized Measure), are presented in the "Consolidated Financial
Statements Supplementary Financial and Operating Information." The Partnership
files oil and gas reserve estimates with various governmental regulatory
authorities and agencies, the variability of which does not exceed 5 percent.
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The Partnership's production is exclusively in the United States and in
1998, the Partnership produced 42 mmeb. The Partnership seeks production
replacement through a balanced approach that combines exploration, development
and acquisition. In 1998, the Partnership replaced 88 percent of its production
at an FD&A cost of $11.02 per eb.
OFFSHORE
The Partnership has identified the Gulf of Mexico as the primary focus of
its growth strategy.
The Partnership has a significant presence in the Gulf of Mexico with an
interest in 210 blocks at December 31, 1998, in various stages of exploration,
development and production. The Partnership has an interest in 37 producing
platforms, 19 of which it operates. The Partnership also holds interests in
various offshore pipelines and facilities. In 1997, the Partnership achieved a 6
percent reduction in its offshore operating costs per equivalent barrel. In
1998, operating costs per equivalent barrel increased 12 percent compared to
1997.
Exploration
Of the Gulf of Mexico blocks in which the Partnership owns an interest, 167
are undeveloped. In 1998, the Partnership spent $62 million to acquire interests
in 25 blocks.
In May 1997, the Partnership participated in an exploration discovery,
Garden Banks 215 #4 (Sun Energy Partners 25 percent), the Conger prospect, in
the flex trend. The well encountered approximately 300 feet of net pay thickness
both above and below salt formations. The Garden Banks 215 #4 well was drilled
to a total depth of 21,692 feet subsurface in about 1,500 feet of water depth.
It is adjacent to the Garden Banks 260 Unit (Baldpate), which includes Blocks
215 South, 216, 259 and 260.
In early 1998, the Partnership participated in a successful Conger
appraisal well, Garden Banks 215 #5, which encountered about 300 feet of net pay
sands approximately one and a half miles from the discovery well. Development
will be by a sub-sea tie-back to a host facility on a neighboring block.
Development drilling is scheduled to begin in the second quarter of 1999. First
production from the Conger Field is scheduled for the fourth quarter of the year
2000.
In late 1997, the Partnership participated in a subsalt discovery at its
Penn State Deep prospect. The discovery is located at Garden Banks 216 block
(Sun Energy Partners 50 percent). The Penn State Deep discovery well (GB 216 #3)
encountered hydrocarbons at about 20,500 feet subsurface in 1,450 feet of water
depth. It lies below the GB 216 #2 discovery (Penn State Shallow) drilled in
1996, which encountered 214 net feet of pay in a shallower structure. The GB 216
#3 well found 123 net feet of subsalt pay. The Partnership is developing the
Penn State Shallow discovery as a sub-sea tie-back to the Baldpate facilities
and is evaluating the deeper discovery as another potential tie-back. The Penn
State wells are located approximately three miles to the northeast of the
Baldpate facility.
In late 1997, the Partnership participated in a discovery at High Island
A-553 (Sun Energy Partners 33 percent) on the continental shelf. The A-7 well
tested at a flow rate of 16 mmcf/d and 800 b/d. The HI A-553 A-7 well was
drilled to a total depth of about 13,000 feet in 260 feet of water depth. The
well encountered approximately 100 feet of net pay in 4 zones.
As of December 31, 1998, the Partnership was not drilling or participating
in the drilling of any offshore exploratory wells.
Production and Development
The Partnership owns a 99 percent interest in the four-block High Island
384 Unit which is located approximately 112 miles off the Texas coast in water
depths averaging 360 feet. This development (Patton) was originally discovered
in October 1993, began production in January 1995 and in September 1995 achieved
the expected peak production of 20 meb/d.
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Late in 1995, the Partnership confirmed the presence of natural gas
reserves in a previously untested area of the High Island 384 Unit. The High
Island 385 #3 well encountered 158 feet of net gas pay. Two subsequent
delineation wells found the same pay interval in nearby fault blocks. In the
second phase of Patton, the Partnership installed the "D" platform in 360 feet
of water and developed the new gas reservoir. First production occurred in the
fourth quarter of 1996 with gross production of 35 mmcf/d. In addition, two
wells were drilled and the "E" platform was installed to develop a previously
discovered reservoir on High Island 379. These wells came on stream during the
fourth quarter of 1996 at 24 mmcfe/d.
In 1995, the Partnership approved a plan for the development of Viosca
Knoll 826 (Sun Energy Partners 50 percent and operator) which lies 80 miles off
the Alabama coast in water depths of 1,500 to 2,500 feet. The Neptune
development utilizes a new type of floating production facility called a spar.
The spar is a cylindrical-shaped vessel anchored vertically to the sea floor.
First production occurred in March 1997 and in late 1997 expected peak
production of 30 meb/d was achieved. The second phase of drilling was commenced
in 1998 and a second, higher peak of about 35 meb/d is expected.
The Partnership began production at its Baldpate platform in the Gulf of
Mexico flex trend in September 1998. Production is expected to increase to a
peak of 75meb/d. The nearby Penn State Shallow reservoir is currently being
developed as a sub-sea tie-back to Baldpate. The Company also has a discovery at
Penn State Deep in the same area. The Baldpate facilities have a rated daily
throughput capacity of 60,000 barrels of oil and 200 million cubic feet of gas.
Production levels from Baldpate are expected to increase as a total of 7
pre-drilled wells are brought on line. Development of the Baldpate facility
utilized leading-edge technology by employing an articulated compliant tower
design. At a height of 1,902 feet to the top of the flare boom, it sets a record
as the world's tallest free-standing structure. The Partnership has a 50 percent
working interest in the project.
To facilitate the orderly execution of its deep water strategy, in early
1998, the Partnership secured drilling commitments for a substantial portion of
its deep water drilling plans. The Partnership along with two partners, has
entered into a five-year contract for a deep water semi-submersible drilling
rig, capable of drilling in water depths of up to 6,000 feet. The term of the
contract is five years, plus options to extend, with rig delivery currently
scheduled for the second quarter of 1999. The Partnership has rights to
one-third of the term. The Partnership has entered into a five-year contract for
50-percent of the use of a drill ship. The newly-built vessel will have the
capacity to drill in water depths of up to 7,500 feet and will become available
in the fourth quarter of 1999.
As of December 31, 1998, the Partnership was drilling or participating in
the drilling of 6 gross (2 net) offshore development wells.
ONSHORE
The onshore area has been a major contributor of production volumes and
cash flow with relatively modest reinvestment needs. This is important for the
funding of the Partnership's plans in other strategic areas. In 1995, the
Partnership initiated significant cost-reduction measures at its operated
fields. The Partnership achieved a 4 percent reduction in onshore operating
costs per equivalent barrel in 1997. In 1998, onshore operating costs per
equivalent barrel increased 14 percent compared to 1997 costs. The Partnership
has interests in 60 major onshore fields in five states and operates about 75
percent of its production. In addition, the Partnership has increased its
drilling activity to more rapidly exploit its onshore asset portfolio.
The Partnership is applying 3-D technology to create opportunities in new
fault blocks and deeper pool horizons which provide new volumes and reserves.
The Partnership will continue to exploit its waterflood operations. The onshore
will be managed for maximum cash flow generation.
Exploration
In 1997, the Partnership drilled 2 exploration wells (Sun Energy Partners
99 percent and operator) at the Seabreeze field in southeast Texas that tested a
total of 33 mmcf/d and 1,160 b/d. The wells were drilled into new fault blocks
as a result of a continuing 3-D seismic program around the Partnership's larger
onshore fields.
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At December 31, 1998, the Partnership was not drilling or participating in
the drilling of any onshore exploratory wells.
Production and Development
In 1997, the Partnership increased production at the Northwest Chitwood
Unit, (Sun Energy Partners 69 percent and operator) located in south-central
Oklahoma, through an ongoing reservoir waterflood program. In 1997, daily oil
production increased from about 1,700 barrels to 5,400. In 1998, the NW Chitwood
18-2 and 26-2 wells tested at 2,838 and 840 barrels per day.
As of December 31, 1998, the Partnership was drilling or participating in
the drilling of 5 gross (3 net) development wells onshore.
TABULAR INFORMATION
The following table sets forth the Partnership's undeveloped and developed
oil and gas acreage (in thousands) held at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
GROSS NET
------------- -------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Undeveloped Acreage
Onshore................................................. 904 908 499 503
Offshore................................................ 927 889 512 521
----- ----- ----- -----
Total................................................ 1,831 1,797 1,011 1,024
===== ===== ===== =====
Developed Acreage
Onshore................................................. 948 982 539 552
Offshore................................................ 225 248 106 116
----- ----- ----- -----
Total................................................ 1,173 1,230 645 668
===== ===== ===== =====
</TABLE>
The following table sets forth the Partnership's net exploratory and
development oil and gas wells drilled in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
EXPLORATORY WELLS DEVELOPMENT WELLS
------------------ ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Oil
Onshore........................................... -- -- -- 11 29 43
Offshore.......................................... 2 1 -- 4 4 9
--- --- --- --- --- ---
2 1 -- 15 33 52
--- --- --- --- --- ---
Gas
Onshore........................................... -- 3 -- 23 39 50
Offshore.......................................... -- -- 1 2 4 8
--- --- --- --- --- ---
-- 3 1 25 43 58
--- --- --- --- --- ---
Dry
Onshore........................................... 2 -- -- 7 4 10
Offshore.......................................... 2 3 2 -- 2 2
--- --- --- --- --- ---
4 3 2 7 6 12
--- --- --- --- --- ---
Total.......................................... 6 7 3 47 82 122
=== === === === === ===
</TABLE>
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The following table sets forth the Partnership's gross and net producing
oil and gas wells at December 31, 1998:
<TABLE>
<CAPTION>
GROSS* NET
------------- -----------
OIL GAS OIL GAS
----- ----- ----- ---
<S> <C> <C> <C> <C>
Onshore................................................. 2,403 810 1,179 481
Offshore................................................ 86 161 51 87
----- ----- ----- ---
Total.............................................. 2,489 971 1,230 568
===== ===== ===== ===
</TABLE>
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* Gross producing wells include 104 multiple completion wells (more than one
formation producing into the same well bore).
The following table sets forth the Partnership's average daily net
production for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Crude and Condensate (mb):
Onshore................................................... 24 27 28
Offshore.................................................. 20 19 15
--- --- ---
44 46 43
Processed Natural Gas (mb):................................. 7 7 7
--- --- ---
51 53 50
=== === ===
Natural Gas (mmcf):
Onshore................................................... 211 286 299
Offshore.................................................. 160 199 187
--- --- ---
371 485 486
=== === ===
</TABLE>
The following table sets forth the Partnership's average revenues and
production costs per unit of oil and gas production for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Crude oil and condensate (per bbl)....................... $13.58 $18.75 $20.43
Natural gas (per mcf).................................... $ 2.10 $ 2.40 $ 2.14
Average production cost per unit of oil and gas
production (per eb):*
Offshore
Operating cost........................................ $ 3.37 $ 3.01 $ 3.20
====== ====== ======
Onshore
Operating cost........................................ $ 3.19 $ 2.81 $ 2.94
Production taxes...................................... 1.05 1.48 1.32
------ ------ ------
Total production costs.............................. $ 4.24 $ 4.29 $ 4.26
====== ====== ======
Total Company operating cost............................. $ 3.28 $ 2.99 $ 3.14
Production taxes...................................... .59 .87 .87
------ ------ ------
Total production costs.............................. $ 3.87 $ 3.86 $ 4.01
====== ====== ======
</TABLE>
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* Excludes natural gas liquids production.
ASSET DISPOSALS
Assets are managed on a portfolio basis. The Partnership will continue to
buy and sell assets with the intention of upgrading its asset base.
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RECOVERY METHODS
During 1998, the Partnership obtained 61 and 39 percent of its crude
production from primary and secondary recovery methods. This compares to 63 and
37 percent of its crude oil production in 1997. At December 31, 1998, the
Partnership was participating in no major tertiary oil recovery programs.
The terms "secondary recovery" and "tertiary recovery" relate to those
methods used to increase the quantity of crude oil and condensate and natural
gas that can be recovered in excess of the quantity recoverable using the
primary energy found in a reservoir. Secondary recovery methods include pressure
maintenance by waterflooding or natural gas injection.
MARKETING OF OIL AND GAS
Distribution
Crude oil, condensate and natural gas are distributed through pipelines
and/or trucks or barges to traders, end users, gatherers and transportation
companies. Sufficient distribution systems exist and are readily available in
the areas of the Partnership's production to enable the Partnership to
effectively market its oil and gas. In some instances, the Partnership owns an
interest in these systems.
Crude Oil and Condensate
During 1998, sales to Sun Company, Inc. and Amoco Production Company
totaled approximately 12 and 16 percent of the Partnership's sales of crude oil
and condensate. No other customer purchased more than 10 percent of the
Partnership's sales of crude oil and condensate.
Since most of the Partnership's crude oil and condensate is produced in
areas where there are other buyers offering to purchase at market prices, the
Partnership believes that the loss of any major purchaser would not have a
material adverse effect on the Partnership's business. In 1998, the 10 largest
customers accounted for approximately 82 percent of such sales.
Currently, approximately 55 percent of sales are made pursuant to
arrangements that are cancelable upon 30 days' written notice by the Partnership
or the purchaser, with substantially all of the remainder of the production
being sold pursuant to contracts of varying terms of up to six years in length.
Natural Gas
The Partnership sold approximately 50 percent of its natural gas production
in 1998 to Producers Energy Marketing Company, LLC (ProEnergy). ProEnergy has
exclusive marketing rights to gas production owned or controlled by the
Partnership for up to 10 years. The Partnership has the option to terminate the
marketing agreement after six years. ProEnergy purchases the majority of its
members' gas at index prices. No other customer purchased more than 10 percent
of the Partnership's natural gas. Approximately 34 percent of the Partnership's
natural gas was purchased by various local distribution companies, end users and
processors of natural gas under term contracts predating the formation of
ProEnergy. Most of these agreements will come to term within three years.
Hedging
Because of the volatility of oil and gas prices, the Partnership
periodically has entered into crude oil and natural gas hedging activities.
Effective with the Kerr-McGee/Oryx merger, the Partnership has elected to
eliminate the hedging program and all contracts have been closed.
REGULATION
General
The oil and gas industry is subject to regulation by national, state and
local governments relating to such matters as the award of exploration and
production interests, the imposition of specific drilling obligations,
environmental protection controls and control over the development and
abandonment of a field (including
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restrictions on production and abandonment of production facilities). The
industry is also subject to the payment of royalties and taxes, which tend to be
high compared to those levied on other commercial activities. The Partnership
cannot predict the impact of future regulatory, taxation and royalty
initiatives.
Natural Gas
The domestic gas industry remains under federal regulation pursuant to the
Natural Gas Act and the Natural Gas Policy Act.
Environmental Matters
The Partnership is subject to, and makes every effort to comply with,
various environmental quality control regulations of national and local
governments. Although environmental requirements can have a substantial impact
upon the energy industry, generally these requirements do not appear to affect
the Partnership any differently or to any greater or lesser extent than other
exploration and production companies.
The Partnership has been named as a potentially responsible party (PRP) at
four sites pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended. At two of these sites, the Partnership
has been named as a de minimis party and therefore expects its liability to be
small. At a third site, the Partnership is reviewing its options and anticipates
that it will participate in steering committee activities with the Environmental
Protection Agency (EPA). At the fourth and largest site, the Operating
Industries, Inc. site in California, the Partnership has participated in a
steering committee consisting of 139 companies. The steering committee and other
PRPs previously entered into two partial consent decrees with the EPA providing
for remedial actions which have been or are to be completed. The steering
committee has recently successfully negotiated a third partial consent decree
which provides for the following remedial actions: a clay cover, methane
capturing wells and leachate destruction facilities. The remaining work at the
site involves groundwater evaluation and long-term operation and maintenance.
Based on the facts outlined above and the Partnership's ongoing analyses of
the actions where it has been identified as a PRP, the Partnership believes that
it has accrued sufficient reserves to absorb the ultimate cost of such actions
and that such costs will not have a material impact on the Partnership's
financial condition. While liability at superfund sites is typically joint and
several, the Partnership has no reason to believe that defaults by other PRPs
will result in liability of the Partnership materially larger than expected.
COMPETITION
The oil and gas industry is highly competitive. Integrated companies,
independent companies and individual producers and operators are active bidders
for desirable oil and gas properties, as well as for the equipment and labor
required to operate and develop such properties. Although these competitors may
have financial resources substantially greater than those of the Partnership,
management of the Company believes that the Partnership is in a position to
compete effectively.
The availability of a ready market for the Partnership's oil and gas
production depends on numerous factors beyond its control, including the level
of prices and consumer demand, the extent of worldwide oil and gas production,
the cost and availability of alternative fuels, the cost and proximity of
pipelines and other transportation facilities, regulation by national and local
authorities and the cost of compliance with applicable environmental
regulations.
TECHNOLOGY
The Partnership's exploration, development and production activities depend
upon the use of applied technology. In support of this in 1998, the Partnership,
through the managing general partner, had 35 engineers, geoscientists,
technicians and support personnel focusing on the technology used in the
exploration for, and development and production of, energy resources. The
Partnership's expenditures on technology activities, including its share of the
managing general partner's employee-related costs, were $11 million, $9 million
and $8 million for the years 1998, 1997 and 1996.
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<PAGE> 10
CONFLICTS OF INTEREST
Certain conflicts of interest may arise as a result of the relationships
between the Company and the Partnership. The Company has oil and gas interests
in the Gulf of Mexico in addition to such interests held through the
Partnership. The directors and officers of the Company have fiduciary duties to
manage the Company in the best interest of its stockholders. The Company, as
managing general partner of the Partnership, has a fiduciary duty to manage the
Partnership in a manner that is fair to the public unitholders. The duties of
the directors of the Company to its stockholders may therefore come into
conflict with the duties of the Company as managing general partner of the
Partnership.
A Committee of the Board of Directors of the Company, none of whose members
is affiliated with the Company except as Company directors or stockholders or as
holders of units, reviews policies and procedures regarding matters of potential
conflict of interest. The Committee also monitors the application of such
policies and procedures.
OTHER
The Partnership's financial condition and business operations are affected
from time to time by political developments and laws and regulations which
relate to such matters as production, taxes, property, imports, pricing and
environmental controls. The Company makes no representations as to future events
and developments which could affect the Partnership's operations and financial
condition. Oil and gas prices are subject to supply and demand. Political
developments (especially in the Middle East) and the decisions of OPEC can
particularly affect world oil supply and oil prices. Furthermore, the
Partnership's business and financial condition could be affected by, among other
things, competition, future price changes or controls, material and labor costs,
legislation, transportation regulations, tariffs, embargoes and armed conflicts.
ITEM 3. LEGAL PROCEEDINGS
The historical method used by the oil industry in the United States to
establish the price at which crude oil is bought and sold is being challenged.
Buyers and sellers have traditionally determined the market price of crude oil
by reference to "posted prices", which are prices published by certain crude oil
buyers such as crude oil refiners and transporters as the price at which they
are willing to buy. A number of suits have been brought alleging that posted
prices have been set consistently below market value, and that, as a result,
royalties have been underpaid.
The Partnership was named as a defendant in such a case filed in state
court in Starr County, Texas in April, 1995 and a co-defendant in cases filed in
state courts in Lee County, Texas and in Louisiana and Alabama and in federal
courts in Texas, Louisiana and Mississippi. All of these lawsuits seek
certification as class actions on behalf of royalty owners in specific
geographic areas, except the Texas and Alabama cases, which seek certification
of a nationwide class of royalty owners. These cases also allege that the
co-defendants have conspired and acted in concert to establish the price of
crude oil in violation of antitrust statutes. These suits are similar to those
brought in Texas by the Texas General Land Office, and in New Mexico, Oklahoma
and Florida by private royalty owners against major crude oil producers. Suits
are also being brought by natural gas royalty interest owners regarding royalty
valuation and deductions of post-production costs from royalty.
The Partnership holds and has held interests in a number of federal and
Indian oil and gas production leases. The Minerals Management Service (MMS) of
the United States Department of the Interior is challenging the prices on which
royalties were based for oil and gas produced from certain of these leases. The
MMS has claimed that a number of crude oil producers including the Partnership
underpaid royalties owed the federal government on California crude oil
production from 1980 to 1988 and has sent Orders to Pay to a number of producers
including the Partnership. Separately, numerous oil and gas producers, including
the managing general partners of certain of the Operating Partnerships, have
been named as defendants in lawsuits brought pursuant to the federal False
Claims Act in connection with royalty payments on production from federal and
Indian lands.
8
<PAGE> 11
While a number of claims and suits against the Partnership and other crude
oil and natural gas producers have already been brought by a variety of
governmental and private plaintiffs in a number of jurisdictions, the fact that
these suits challenge practices common to the industry suggests that additional
lawsuits against the Partnership may be filed. The suits filed to date, to
include the actions in which the Partnership is a party, are procedurally in the
preliminary stages, though settlement discussions have taken place with respect
to a number of claims. The Partnership believes it has meritorious defenses and,
if acceptable settlements cannot be reached, intends to defend these claims and
lawsuits vigorously.
The Partnership is involved in a number of other legal and administrative
proceedings arising in the ordinary course of its oil and gas business. Although
the ultimate outcome of these proceedings cannot be ascertained at this time, it
is reasonably possible that some of the proceedings could be resolved
unfavorably to the Partnership. Management of the Company believes that any
liabilities which may arise out of legal claims or proceedings would not be
material in relation to its financial position, results of operations or
liquidity at December 31, 1998. The Company intends to maintain liability and
other insurance for the Partnership of the type customary in the oil and gas
business with such coverage limits as the Company deems prudent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP
UNITS AND RELATED SECURITY HOLDER MATTERS
The depositary units of Sun Energy Partners, L.P. are traded on the New
York Stock Exchange, Inc. The following table sets forth the high and low sales
prices per unit, as reported on the New York Stock Exchange Composite
Transactions quotations, for the periods indicated:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter......................................... $4 3/4 $4 $5 5/8 $4 3/8
Second Quarter........................................ $4 1/2 $3 5/16 $5 3/8 $4 1/4
Third Quarter......................................... $3 15/16 $2 9/16 $6 1/16 $5 1/8
Fourth Quarter........................................ $4 1/16 $2 3/4 $5 5/8 $4 1/4
</TABLE>
The Partnership had approximately 1,445 holders of record of depositary
units as of February 23, 1999.
For the years 1998 and 1997, the quarterly cash distributions per unit paid
to unitholders were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
First Quarter............................................... $.02 $.15
Second Quarter.............................................. -- .08
Third Quarter............................................... -- .02
Fourth Quarter.............................................. -- --
---- ----
Total.................................................. $.02 $.25
==== ====
</TABLE>
Any future quarterly cash distributions to unitholders are expected to be
paid on or about the 10th day of March, June, September and December in each
year. Distributions will fluctuate due to oil and gas prices, production
volumes, operating costs and the timing and amount of capital expenditures and
divestment proceeds. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Cash Distribution Policy.")
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(MILLIONS OF DOLLARS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
For the Period
Revenues......................................... $ 523 $ 728 $ 686 $ 552 $ 613
Income (loss) before cumulative effect of
accounting change(1).......................... $ (44) $ 239 $ 248 $ 99 $ 100
Net income (loss)(1)............................. $ (44) $ 239 $ 248 $ 99 $ (477)
Net income (loss) per unit before cumulative
effect of accounting change(1)................ $ (.10) $ .57 $ .59 $ .24 $ .24
Net income (loss) per unit(1).................... $ (.10) $ .57 $ .59 $ .24 $(1.13)
Cash distributions paid to unitholders........... $ 8 $ 105 $ 67 $ 194 $ 114
Cash distributions paid per unit................. $ .02 $ .25 $ .16 $ .46 $ .27
Weighted average units outstanding (in
thousands).................................... 421.2 421.2 421.2 421.2 421.2
Capital expenditures............................. $ 367 $ 410 $ 314 $ 206 $ 166
At End of Period
Total assets..................................... $1,374 $1,468 $1,299 $1,143 $1,181
Long-term debt (2)............................... $ 24 $ 38 $ 52 $ 62 $ 74
Partners' capital................................ $1,102 $1,154 $1,020 $ 839 $ 934
Book value per unit.............................. $ 2.62 $ 2.74 $ 2.42 $ 1.99 $ 2.22
</TABLE>
- ------------------------------
(1) Effective January 1, 1994, the Partnership adopted a new policy for
determining the ceiling test for its oil and gas properties. A one-time
non-cash charge of $577 million for the cumulative effect of the change was
recognized in the earnings for 1994. As a result of an impairment test
related to the application of Statement of Financial Accounting Standards
No. 121, the Partnership reported a non-cash write-down of assets of $75
million in the fourth quarter of 1998.
(2) Includes $24 million, $38 million, $51 million, $62 million and $72 million
of long-term debt due to the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of the Partnership's financial
condition and results of operations which follow should be read in conjunction
with the Consolidated Financial Statements and Selected Financial Data included
in this report.
RESULTS OF OPERATIONS
The Partnership reported a net loss in 1998 of $44 million. The realized
oil price in 1998 decreased 28 percent to $13.58 per barrel and the realized
natural gas price decreased 13 percent to $2.10 per mcf. Exploration costs
increased 57 percent primarily from increased offshore dry hole costs and
increased geological and geophysical expense due to increased activity.
Depreciation, depletion and amortization expense increased 29 percent primarily
due to a non-cash write down of assets (see Note 6 to the Consolidated Financial
Statements).
Net income in 1997 was $239 million. Production volumes increased 2 percent
in 1997 compared to 1996 primarily due to offshore development. The realized oil
price in 1997 decreased 8 percent to $18.75 per barrel. The realized gas price
in 1997 increased 12 percent to $2.40 per mcf. Exploration costs increased 45
percent primarily from increased offshore dry hole costs and increased
geological and geophysical expense due to increased activity. Depreciation,
depletion and amortization expense increased 19 percent primarily because of
additional development and higher production volumes.
Net income in 1996 was $248 million. The realized oil price in 1996
increased 24 percent to $20.43 per barrel. The increase in 1996 followed a 12
percent increase in 1995 compared to 1994. The Partnership's
10
<PAGE> 13
realized gas price in 1996 increased 24 percent to $2.14 per mcf. Total costs
and expenses decreased 3 percent to $438 million in 1996. Operating costs
decreased 14 percent in 1996 due to cost efficiency measures. Production taxes
increased 27 percent in 1996 due to higher prices.
LIQUIDITY AND CAPITAL RESOURCES
ED&A outlays were $398 million in 1998, $427 million in 1997 and $317
million in 1996. In 1998, 61 percent of the Partnership's total ED&A investment
was for development and acquisition and 39 percent was for exploration. In 1999,
in the absence of the planned merger of the Partnership, total ED&A outlays
would have been expected to be approximately $220 million of which 77 percent
was targeted for development and 23 percent for exploration. In 1998, the
Partnership replaced 88 percent of its production at an FD&A cost of $11.02 per
eb.
In 1998, cash flow from operating activities decreased $240 million
compared to 1997 primarily due to lower oil and gas prices and lower production
volumes. Cash flow from investing activities used $273 million in 1998 compared
to $421 million in 1997. Proceeds from divestments were $113 million higher in
1998 while capital expenditures were $43 million lower. Cash flow from financing
activities used $21 million in 1998 compared to a use of $117 million in 1997
primarily due to reduced distributions to unitholders in 1998.
In 1997, cash flow from operating activities increased $143 million
compared to 1996 primarily due to favorable increases in cash flow working
capital components. Cash flow from investing activities used $421 million in
1997 compared to $323 million in 1996. Capital expenditures were $96 million
higher in 1997 while proceeds from divestments were $7 million lower. Cash flow
from financing activities used $117 million in 1997 compared to a use of $78
million in 1996. Cash distributions paid to unitholders were $38 million higher
in 1997 than 1996.
In 1996, cash flow from operating activities increased $58 million from
1995 primarily due to higher oil and gas prices and lower costs and expenses
partially offset by lower production volumes. Cash flow from investing
activities used $323 million in 1996 compared to $144 million in 1995. Proceeds
from divestments were $67 million lower in 1996 while capital expenditures
increased by $108 million. Cash flow used for financing activities decreased by
$127 million in 1996 primarily because of the reduced distributions to
unitholders.
The Partnership adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" effective January 1, 1998. Total
comprehensive income and net loss are identical for the year ended December 31,
1998. Additionally, in January 1998, the Partnership adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," resulting
in the restatement of selected operating information in years prior to 1998.
In December 1997, the Partnership adopted SFAS No. 128, "Earnings per
Share" and SFAS No. 129, "Disclosure of Information about Capital Structure,"
resulting in no material change.
The Partnership's investing levels will be governed by its cash flow from
operating activities which will continue to be affected by prevailing oil and
gas prices, cost levels and production volumes. Volatility in oil and gas prices
experienced over the past several years is expected to continue. Any shortfall
in expected cash flow from operating activities may require adjustment of the
business plans. Options include deferral of discretionary ED&A outlays and the
sale of Partnership units. The Partnership's long-term cash generation
capability is ultimately tied to the value of proved reserves.
RESERVE REPLACEMENT
The ability to sustain cash flow is dependent, among other things, on the
level of the Partnership's oil and gas reserves, oil and gas prices and cost
containment. Replacement of proved reserves through extensions and discoveries,
improved recovery, purchases and revisions to prior reserve estimates in 1998
was 100 percent of liquids production and 78 percent of gas production. Reserve
replacement rates of liquids and gas were 185 and 119 percent in 1997 and 122
and 49 percent in 1996.
11
<PAGE> 14
HEDGING ARRANGEMENTS
The Partnership from time to time has entered into commodity futures
contracts to manage its crude oil and natural gas price risk and to maintain
specified margins. Effective with the merger of Oryx into Kerr-McGee, the
Partnership has elected to eliminate the hedging program and all contracts have
been closed.
YEAR 2000 READINESS
In 1996, the Company established a formal Year 2000 Program (Program) to
assess and correct Year 2000 problems in both information technology and
non-informational technology systems. The Program is organized into two major
areas: business systems and facilities integrity. Business systems include
replacement and upgrade of computer hardware and software, including major
business applications, such as purchasing, inventory, engineering, financial,
human resources, etc. Facilities integrity encompasses telecommunications, plant
process controls, instrumentation and embedded chip systems as well as an
assessment of third party Year 2000 readiness.
As a result of the merger of Oryx with Kerr-McGee, the Company is
undertaking steps to minimize Year 2000 problems that might adversely impact the
Partnership.
To date, activities associated with business systems have included:
- inventory and assessment
- remediation and testing of legacy systems and hardware
- communication with critical business partners
Future activities will include:
- conversion of data from Oryx's financial, human resources, production,
technical and other systems into Year 2000 compliant systems utilized
by the Partnership
- remediating and testing certain Oryx legacy systems that will be
retained and utilized by the Partnership
- replacement of hardware and operating systems with Kerr-McGee Year
2000 compliant systems
- Year 2000 integration testing of converted and remediated systems to
ensure proper functionality beyond 2000.
These activities are scheduled to be complete near the end of third
quarter, 1999. Costs expended to date by the Partnership are approximately $1.4
million. Total forecasted costs are approximately $3.6 million, but are being
re-evaluated by the Company as a result of the merger. However, management
believes that the costs are not material to the Partnership's results of
operations, financial position or cash flow.
To date, major activities associated with facilities integrity have
included:
- inventory and assessment
- remediation
- testing and verification
Inventory and assessment activities are essentially complete with
remediation and testing and verification scheduled for completion in third
quarter, 1999. Additional activities will be incorporated and include
communication with third party vendors, suppliers and partners, and development
of contingency plans. These activities are expected to be completed in late
third quarter or early fourth quarter, 1999.
Costs expended to date have been minor for facilities associated with the
Partnership. Forecasted costs to complete these activities are approximately
$300,000, but are being re-evaluated by the Company as a result of the merger.
Management believes that the Program is comprehensive and reduces Year 2000
risks associated with internal systems to a manageable level. Regardless of
management's efforts to assess and verify readiness there can be no assurance
that all entities affecting the Company will be Year 2000 ready. To address
these
12
<PAGE> 15
concerns, contingency plans will be developed. However, failure by a third party
to remediate their Year 2000 issues in a timely manner could have a material
effect to the Partnership's result of operations and cash flows in a particular
quarter or annual period. Failure of a critical operating or safety component,
or failure by a key third party supplier or customer are believed to be the most
reasonably likely worst case scenarios that could impact the Partnership.
ENVIRONMENTAL
The Partnership's oil and gas operations are subject to stringent
environmental regulations. The Company is dedicated to the preservation of the
environment and has committed significant resources to comply with such
regulations. Although the Partnership has been named as a potentially
responsible party at sites related to past operations, the Company believes the
Partnership is in general compliance with applicable governmental regulations
and that the potential costs to it, in the aggregate, are not material to its
financial condition. However, risks of substantial costs and liabilities are
inherent in the oil and gas business. Should other developments occur, such as
increasingly strict environmental laws, regulations and enforcement policies or
claims for damages resulting from the Partnership's operations, they could
result in additional costs and liabilities in the future. (See Note 12 to the
Consolidated Financial Statements.)
CASH DISTRIBUTION POLICY
The Partnership funds its capital outlays from internally generated funds,
including cash proceeds from asset sales and makes distributions of only that
cash remaining after such outlays.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL
AND OPERATING INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 14
Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996....................... 15
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... 17
Notes to Consolidated Financial Statements................ 18
Supplementary Financial and Operating
Information -- (Unaudited):
Oil and Gas Data.......................................... 30
Quarterly Financial Information........................... 33
Quarterly Operating Information........................... 34
</TABLE>
13
<PAGE> 16
SUN ENERGY PARTNERS, L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sun Energy Partners, L.P. and the Board of Directors of
Oryx Energy Company:
In our opinion, the accompanying consolidated balance sheets of Sun Energy
Partners, L.P. and its Subsidiaries and the related consolidated statements of
income and cash flows present fairly, in all material respects, the consolidated
financial position of Sun Energy Partners, L.P. and its Subsidiaries as of
December 31, 1998 and 1997 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Oryx Energy Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 22, 1999, except for Note 14 as to which
the date is March 9, 1999
14
<PAGE> 17
SUN ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS OF DOLLARS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues
Oil and gas............................................... $ 501 $ 738 $ 700
Other -- net (Notes 3 and 4).............................. 22 (10) (14)
------ ------ ------
523 728 686
------ ------ ------
Costs and Expenses
Operating costs........................................... 126 138 139
Production taxes (Note 5)................................. 26 39 38
Exploration costs......................................... 96 61 42
Depreciation, depletion and amortization.................. 271 210 177
General and administrative expense (Note 3)............... 40 41 41
Interest and debt expense (Note 3)........................ 20 15 17
Interest capitalized...................................... (12) (15) (16)
------ ------ ------
567 489 438
------ ------ ------
Net Income (Loss)........................................... $ (44) $ 239 $ 248
====== ====== ======
Net Income (Loss) Per Unit.................................. $ (.10) $ .57 $ .59
====== ====== ======
Cash Distributions Paid to Unitholders...................... $ 8 $ 105 $ 67
====== ====== ======
Cash Distributions Paid Per Unit............................ $ .02 $ .25 $ .16
====== ====== ======
Weighted Average Units Outstanding (In Millions)............ 421.2 421.2 421.2
====== ====== ======
</TABLE>
(See Accompanying Notes)
15
<PAGE> 18
SUN ENERGY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 6 $ 2
Accounts receivable and other current assets.............. 65 124
------ ------
Total Current Assets........................................ 71 126
Properties, Plants and Equipment (Note 6)................... 1,221 1,254
Investment in Affiliate (Note 1)............................ 82 88
------ ------
Total Assets................................................ $1,374 $1,468
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Advances from affiliate (Note 3).......................... $ 88 $ 49
Accounts payable.......................................... 58 80
Accrued liabilities (Note 7).............................. 50 84
Current portion of long-term debt due affiliate (Note
8)..................................................... 14 13
Current portion of long-term debt (Note 8)................ 1 1
------ ------
Total Current Liabilities................................... 211 227
Long-Term Debt Due Affiliate (Note 8)....................... 24 38
Deferred Credits and Other Liabilities (Note 12)............ 37 49
Commitments and Contingent Liabilities (Note 9)
Partners' Capital (Notes 10 and 11)
Limited partnership interests............................. 338 354
General partnership interests............................. 764 800
------ ------
Partners' Capital........................................... 1,102 1,154
------ ------
Total Liabilities and Partners' Capital..................... $1,374 $1,468
====== ======
</TABLE>
- ------------------------------
The successful efforts method of accounting is followed.
(See Accompanying Notes)
16
<PAGE> 19
SUN ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Cash and Cash Equivalents From Operating Activities
Net Income (Loss)........................................... $ (44) $ 239 $ 248
Adjustments to reconcile net income (loss) to net cash
from operating activities
Depreciation, depletion and amortization............... 271 210 177
Dry hole costs and leasehold impairment................ 52 27 19
Loss (gain) on sale of assets.......................... (21) 5 2
Other.................................................. (2) 5 15
----- ----- -----
256 486 461
Changes in working capital:
Accounts receivable and other current assets........... 59 12 (40)
Accounts payable, accrued liabilities and advances from
affiliate............................................. (17) 40 (26)
----- ----- -----
Net Cash Flow Provided From Operating Activities............ 298 538 395
----- ----- -----
Cash and Cash Equivalents From Investing Activities
Capital expenditures...................................... (367) (410) (314)
Proceeds from divestments................................. 114 1 8
Other..................................................... (20) (12) (17)
----- ----- -----
Net Cash Flow Used For Investing Activities................. (273) (421) (323)
----- ----- -----
Cash and Cash Equivalents From Financing Activities
Proceeds from borrowings.................................. -- -- 2
Repayments of long-term debt.............................. (13) (12) (13)
Cash distributions paid to unitholders.................... (8) (105) (67)
----- ----- -----
Net Cash Flow Used For Financing Activities................. (21) (117) (78)
----- ----- -----
Changes in Cash and Cash Equivalents........................ 4 -- (6)
Cash and Cash Equivalents at Beginning of Year.............. 2 2 8
----- ----- -----
Cash and Cash Equivalents at End of Year.................... $ 6 $ 2 $ 2
===== ===== =====
</TABLE>
(See Accompanying Notes)
17
<PAGE> 20
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Control
Sun Energy Partners, L.P. (Sun Energy Partners) engages in the oil and gas
exploration and production business in the United States. Prior to February 26,
1999, Oryx Energy Company (Oryx) controlled Sun Energy Partners and was its
managing general partner. On that date, Kerr-McGee Corporation (Kerr-McGee)
became managing general partner following its merger with Oryx, and Kerr-McGee
now controls Sun Energy Partners. The Company refers to Oryx prior to February
26, 1999 and to Kerr-McGee since February 26, 1999. As of December 31, 1998, the
Company owned 98.2 percent of Sun Energy Partners. The remaining 1.8 percent
interest is comprised of limited partnership interests held by public
unitholders in the form of depositary units (Units).
Sun Energy Partners operates through Sun Operating Limited Partnership, a
Delaware limited partnership, and several other operating partnerships
(collectively, the Operating Partnerships). In all of the partnerships which
comprise the Operating Partnerships, Sun Energy Partners holds a 99 percent
interest as the sole limited partner, while the Company holds a 1 percent
interest as the managing general partner.
Sun Energy Partners and the Operating Partnerships (collectively, the
Partnership) have no officers or employees. The officers and employees of the
Company perform all management functions.
Basis of Presentation
The Partnership's consolidated financial statements have been prepared
using the proportionate method of consolidation for Sun Energy Partners and its
99 percent interest in the Operating Partnerships. Such financial statements are
prepared in accordance with generally accepted accounting principles which is
different from the basis used for reporting taxable income or loss to
unitholders.
Cash Equivalents
The Partnership considers highly liquid investments with original
maturities of less than 3 months to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
Properties, Plants and Equipment
The successful efforts method of accounting is followed for costs incurred
in oil and gas operations.
Capitalization Policy. Acquisition costs are capitalized when
incurred. Costs of unproved properties are transferred to proved properties
when proved reserves are added. Exploration costs, including geological and
geophysical costs and costs of carrying unproved properties, are charged
against income as incurred. Exploratory drilling costs are capitalized
initially; however, if it is determined that an exploratory well did not
find proved reserves, such capitalized costs are charged to expense, as dry
hole costs, at that time. Development costs are capitalized. Costs incurred
to operate and maintain wells and equipment are expensed.
Leasehold Impairment and Depreciation, Depletion and
Amortization. Periodic valuation provisions for impairment of capitalized
costs of unproved properties are expensed. The acquisition costs of proved
properties are depleted by the unit-of-production method based on proved
reserves by field. Capitalized exploratory drilling costs which result in
the addition of proved reserves and development costs are amortized by the
unit-of-production method based on proved developed reserves by field. In
addition, unamortized capital costs at a field level are reduced to fair
value if the sum of expected undiscounted future cash flows is less than
net book value.
18
<PAGE> 21
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Dismantlement, Restoration and Abandonment Costs. Such costs are
estimated and accrued as a component of depreciation, depletion and
amortization expense; actual costs are charged to the accrual.
Retirements. Gains and losses on the disposals of fixed assets are
generally reflected in income. For certain property groups, the cost less
salvage value of property sold or abandoned is charged to accumulated
depreciation, depletion and amortization except that gains and losses for
these groups are taken into income for unusual retirements or retirements
involving an entire property group.
Investment in Affiliate
Effective in 1988, Oryx Energy Company issued three million shares of its
$1 par value common stock to an operating partnership of the Partnership in
exchange for certain assets. These shares were converted into 1,107,000 shares
of Kerr-McGee common stock consistent with the terms of the Kerr-McGee/Oryx
merger agreement (Note 14) and continue to be non-voting and legally restricted
from disposition. The Partnership accounts for this investment under the cost
method, whereby investment income is recognized by the Partnership if and when
common dividends are received from the Company.
Capitalized Interest
The Partnership capitalizes interest costs incurred as a result of the
acquisition and installation of significant assets.
Income Taxes
The Operating Partnerships and Sun Energy Partners are treated as
partnerships for income tax purposes and, as a result, income or loss of the
Partnership is includable in the tax returns of the individual unitholders.
Accordingly, no recognition has been given to income taxes in the financial
statements.
At December 31, 1998, 1997 and 1996, the Partnership's financial reporting
bases of assets and liabilities exceeded the tax bases of its assets and
liabilities (net temporary differences) by $654 million, $758 million and $596
million.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes
cash, highly liquid investments with remaining maturities of less than 3 months
(see "Cash Equivalents", above) and advances to affiliate.
Interest paid totaled $20 million, $15 million and $17 million in 1998,
1997 and 1996.
Sales of Oil and Gas
Sales of oil and gas are recorded on the entitlement method. Differences
between actual production and entitlements result in a receivable when
underproduction occurs and a payable when overproduction occurs.
During 1998, 1997 and 1996, sales of oil to the Partnership's top purchaser
totaled approximately 16 percent, 18 percent and 8 percent, and sales of natural
gas to the Partnership's top purchaser totaled 50 percent, 52 percent and 51
percent. The Partnership believes that the loss of any major purchaser would not
have a material adverse effect on its business.
19
<PAGE> 22
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and Gas Price Hedging Activity
The Partnership, from time to time, enters into arrangements to hedge the
impact of price fluctuations on anticipated crude oil and natural gas sales.
Gains or losses on hedging activities are recognized in oil and gas revenues in
the period in which the hedged production is sold (Note 2).
Environmental Costs
The Partnership establishes reserves for environmental liabilities as
incurred (Note 12).
Statement Presentation
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.
The Partnership adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" effective January 1, 1998. Total
comprehensive income and net loss are identical for the year ended December 31,
1998. Additionally, in January 1998, the Partnership adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," resulting
in the restatement of selected operating information in years prior to 1998. In
December 1997, the Partnership adopted SFAS No. 128, "Earnings per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure," resulting in
no material change.
2) FINANCIAL INSTRUMENTS
Derivatives
As discussed in Note 1, the Partnership enters into hedging arrangements
for crude oil and natural gas prices with major financial institutions. The
Partnership does not enter into derivative transactions for trading purposes.
At December 31, 1998, the Partnership was a party to crude oil collar
contracts to hedge about 7 percent of its estimated 1999 crude oil production at
an average floor price of $15.85 per barrel and an average ceiling price of
$17.35 per barrel. Approximately 31 percent of its estimated 1999 natural gas
production was hedged at an average floor price of $2.29 per mmbtu and an
average ceiling price of $2.47 per mmbtu. At December 31, 1997, the Partnership
was a party to crude oil and natural gas contracts to hedge about 9 percent of
its estimated 1998 crude oil production at an average floor price of $20.17 per
barrel and an average ceiling price of $21.24 per barrel and 20 percent of its
estimated 1998 natural gas production at an average floor price of $2.19 per
mmbtu and an average ceiling price of $2.40 per mmbtu. These arrangements serve
to reduce the volatility associated with prices of crude oil and natural gas.
The aggregate carrying values of these assets at December 31, 1998 and 1997 were
$7 million and $2 million and the aggregate fair values, subject to daily
fluctuation, based on quotes from brokers, were approximately $18 million and $5
million.
The above mentioned derivative contracts expose the Partnership to credit
risk. The Partnership has established controls to manage this risk and closely
monitors the creditworthiness of its counterparties which are major financial
institutions. In the normal course of business, collateral is not required for
financial instruments with credit risk. The Partnership believes that losses
from nonperformance are unlikely to occur.
20
<PAGE> 23
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2) FINANCIAL INSTRUMENTS (CONTINUED)
Other Financial Instruments
At December 31, 1998 and 1997, the carrying values of the Partnership's
long-term debt, including amounts due within one year, were $39 million and $52
million (Note 8). At December 31, 1998 and 1997, the aggregate fair values of
the Partnership's long-term debt were approximately $41 million and $55 million,
estimated primarily based on current rates offered to the Partnership for debt
of the same remaining maturities.
3) RELATED PARTY TRANSACTIONS
Advances to/from Affiliate
The Company has served as the Partnership's lender and borrower of funds
and a clearing-house for the settlement of intercompany receivables and
payables. Deposits earn interest at a rate equal to the rate paid by a major
money market fund. Demand loans bear interest at a rate based on the prime rate.
Long-Term Debt Due Affiliate
The Partnership is indebted to the Company under a 9.75% note due 1999-2001
(Note 8).
Sales of Natural Gas
During the fourth quarter of 1995, the Partnership, Apache Corporation and
Parker & Parsley Petroleum Company formed Producers Energy Marketing Company,
LLC (ProEnergy) to jointly market natural gas. Full operations commenced in
April 1996. In 1997, Pioneer Natural Resources Company (formerly Parker &
Parsley Petroleum Company) terminated its relationship with ProEnergy. As of
December 31, 1997 the Partnership had an ownership interest of 40 percent in
ProEnergy; however, ownership varied based on the Partnership's share of natural
gas throughput for the preceding quarter. The Partnership accounted for its
investment in ProEnergy using the equity method, and as of December 31, 1997 had
an investment in ProEnergy of $4 million. The Partnership sold substantially all
of its natural gas production to ProEnergy at index prices. On June 18, 1998,
the Partnership sold its interest in ProEnergy at a gain of $15 million and
entered into an agreement with the purchaser whereby the purchaser would market
the Partnership's gas production for up to ten years through ProEnergy. Natural
gas sales to ProEnergy totaled $82 million for the six months ended June 30,
1998, $219 million for the year ended December 31, 1997 and $193 million for the
nine months ended December 31, 1996. At December 31, 1997, the Partnership had
an outstanding receivable balance of $22 million from ProEnergy. On June 30,
1998, the Partnership had an outstanding receivable balance of $19 million from
ProEnergy which was subsequently collected.
Direct and Indirect Cost
The Company is reimbursed by the Partnership for all direct costs incurred
in performing management functions and indirect costs (including payroll and
payroll related costs and the cost of postemployment benefits and management
incentive plans) allocable to the Partnership. The full cost of direct and
indirect costs incurred on behalf of the Partnership by the Company is allocated
to the Partnership based on services rendered and extent of use. Such costs,
which are charged principally to production cost, exploration cost and general
and administrative expense, totaled $57 million, $61 million and $61 million for
the years 1998, 1997 and 1996. The Company does not receive any carried
interests, promotions, back-ins or other similar compensation as the general
partner of the Partnership.
21
<PAGE> 24
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3) RELATED PARTY TRANSACTIONS (CONTINUED)
Interest Income
Interest income received from the Company, which is reflected in
"Other-net" in the Consolidated Statements of Income, was earned on advances to
the Company and totaled $3 million, $4 million and $4 million during the years
1998, 1997 and 1996.
Interest Cost
Interest cost paid to the Company, which is included in "Interest and debt
expense" in the Consolidated Statements of Income, was primarily incurred on
long-term debt and advances due the Company and totaled $20 million, $14 million
and $16 million during the years 1998, 1997 and 1996 (Note 8).
4) OTHER-NET
Other-net consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Interest income............................................. $ 3 $ 4 $ 4
Gain (loss) on sale of assets............................... 21 (5) (2)
Miscellaneous............................................... (2) (9) (16)
--- ---- ----
$22 $(10) $(14)
=== ==== ====
</TABLE>
5) PRODUCTION TAXES
Production taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Severance................................................... $15 $28 $29
Property taxes.............................................. 11 11 9
--- --- ---
$26 $39 $38
=== === ===
</TABLE>
22
<PAGE> 25
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6) PROPERTIES, PLANTS AND EQUIPMENT
At December 31, the Partnership's properties, plants and equipment and
accumulated depreciation, depletion and amortization were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Gross Investment
Proved properties......................................... $3,716 $3,840
Unproved properties....................................... 126 75
Other..................................................... 11 8
------ ------
3,853 3,923
------ ------
Less Accumulated Depreciation, Depletion and Amortization
Proved properties*........................................ 2,628 2,666
Other..................................................... 4 3
------ ------
2,632 2,669
------ ------
Net Investment.............................................. $1,221 $1,254
====== ======
</TABLE>
- ------------------------------
* Includes $28 million for dismantlement, restoration and abandonment at
December 31, 1998 and 1997.
As a result of an impairment test related to the application of SFAS No.
121, the Partnership reported a non-cash write-down of assets of $75 million in
1998. The Partnership deemed that certain of its oil and gas fields, primarily
offshore, were impaired because the assets were no longer expected to recover
their net book value through future estimated cash flows. The lower estimated
cash flows result primarily from continued weakness in oil and gas prices. In
addition, minor downward reserve revisions were deemed necessary for certain oil
and gas fields. The prices used in performing the impairment analysis of future
cash flows are the Partnership's investment guideline prices, developed
internally giving consideration to currently available price forecasts for 1999
of $13.00 to $17.50 per barrel and $1.80 to $2.40 per mmbtu as published by
various energy industry consultants and investment banks. The Partnership used
crude oil prices of $14.50 per barrel in 1999 escalating to $18.50 per barrel in
2001 and increased by $.50 per barrel annually thereafter and natural gas prices
of $2.10 per mmbtu in 1999 escalating to $2.20 per mmbtu in 2000 and increased
by $.05 per mmbtu annually thereafter. A discount rate of 10% based on the
Partnership's approximate weighted-average cost of capital was used. The
Partnership used proven reserves and probable reserves when justified by actual
drilling results and planned additional drilling. The impairment loss is
included in "Depreciation, depletion and amortization" in the Consolidated
Statements of Income. The impairment represents about 6% of the Partnership's
oil and gas assets.
7) ACCRUED LIABILITIES
At December 31, the Partnership's accrued liabilities were comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Drilling and operating costs................................ $46 $62
Taxes payable............................................... 4 13
Other....................................................... -- 9
--- ---
$50 $84
=== ===
</TABLE>
23
<PAGE> 26
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) LONG-TERM DEBT
At December 31, the Partnership's long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C>
9.75% note payable to affiliate, due 1999-2001, payable in
quarterly installments.................................... $38 $51
Capitalized lease obligations due 1999...................... 1 1
--- ---
39 52
Less: Current portion of note payable to affiliate.......... 14 13
Current portion of capitalized lease obligations...... 1 1
--- ---
$24 $38
=== ===
</TABLE>
Repayment obligations under the Partnership's long-term debt due affiliate
are $14 million, $16 million, and $8 million in 1999, 2000 and 2001.
9) COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership has operating leases for office space and other property
and equipment. Total rental expense for such leases for the years 1998, 1997 and
1996 was $13 million, $12 million and $15 million. Under contracts existing as
of December 31, 1998, future minimum annual rentals applicable to noncancellable
operating leases that have initial or remaining lease terms in excess of 1 year
were as follows (in millions of dollars):
<TABLE>
<S> <C>
Year Ending December 31:
1999...................................................... $ 3
2000...................................................... 2
2001...................................................... 2
2002...................................................... 1
---
Total minimum payments required........................ $ 8
===
</TABLE>
Several legal and administrative proceedings are pending against the
Partnership. Although the ultimate outcome of these proceedings cannot be
ascertained at this time, and it is reasonably possible that some of them could
be resolved unfavorably to the Partnership, management of the Company believes
that any liabilities which may arise would not be material to the Partnership's
financial position, results of operations or liquidity.
24
<PAGE> 27
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------------- -----------------
ORYX ENERGY ORYX ENERGY
PUBLIC COMPANY TOTAL COMPANY TOTAL
--------------- ----------------- ----------------- ----------------- -----------------
UNITS DOLLARS UNITS DOLLARS UNITS DOLLARS UNITS DOLLARS UNITS DOLLARS
----- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, UNITS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995............... 7,543 $14 121,628 $243 129,171 $257 292,000 $582 421,171 $ 839
Cash distributions............ -- (1) -- (20) -- (21) -- (46) -- (67)
Net income.................... -- 5 -- 72 -- 77 -- 171 -- 248
----- --- ------- ---- ------- ---- ------- ---- ------- ------
December 31, 1996............... 7,543 18 121,628 295 129,171 313 292,000 707 421,171 1,020
Cash distributions............ -- (2) -- (30) -- (32) -- (73) -- (105)
Net income.................... -- 4 -- 69 -- 73 -- 166 -- 239
----- --- ------- ---- ------- ---- ------- ---- ------- ------
December 31, 1997............... 7,543 20 121,628 334 129,171 354 292,000 800 421,171 1,154
Cash distributions............ -- -- -- (2) -- (2) -- (6) -- (8)
Net loss...................... -- (1) -- (13) -- (14) -- (30) -- (44)
----- --- ------- ---- ------- ---- ------- ---- ------- ------
December 31, 1998............... 7,543 $19 121,628 $319 129,171 $338 292,000 $764 421,171 $1,102
===== === ======= ==== ======= ==== ======= ==== ======= ======
</TABLE>
11) CASH DISTRIBUTIONS
Distributable cash is defined as revenues (including interest income) less
operating costs; seismic, geological and geophysical costs (including related
costs); payments of principal of and interest on debt; general and
administrative expenses including reimbursements to the Company as managing
general partner; capital expenditures (net of proceeds from divestments); and
cash exploration costs. No deduction is made for depreciation, depletion and
amortization.
Sun Energy Partners' quarterly cash distributions per unit for the years
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
First Quarter............................................... $.02 $.15 $.02
Second Quarter.............................................. -- .08 .07
Third Quarter............................................... -- .02 .06
Fourth Quarter.............................................. -- -- .01
---- ---- ----
Total.................................................. $.02 $.25 $.16
==== ==== ====
</TABLE>
12) DEFERRED CREDITS AND OTHER LIABILITIES
At December 31, the Partnership's deferred credits and other liabilities
were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accrued environmental cleanup costs......................... $14 $15
Other....................................................... 23 34
--- ---
$37 $49
=== ===
</TABLE>
Environmental cleanup costs have been accrued in response to the
identification of several sites that require cleanup based on environmental
pollution, some of which have been designated as superfund sites by the
Environmental Protection Agency (EPA). The Partnership has been named as a
Potentially Responsible Party (PRP) at four sites pursuant to the Comprehensive
Environmental Response, Compensation, and
25
<PAGE> 28
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12) DEFERRED CREDITS AND OTHER LIABILITIES (CONTINUED)
Liability Act of 1980, as amended. At two of these sites, the Partnership has
been named as a de minimis party and therefore expects its liability to be
small. At a third site, the Partnership is reviewing its options and anticipates
that it will participate in steering committee activities with the EPA. At the
fourth and largest site, the Operating Industries, Inc. site in California, the
Partnership has participated in a steering committee consisting of 139
companies. The steering committee and other PRPs previously entered into two
partial consent decrees with the EPA providing for remedial actions which have
been or are to be completed. The steering committee has successfully negotiated
a third partial consent decree which provides for the following remedial
actions: a clay cover, methane capturing wells and leachate destruction
facilities. The remaining work at the site involves groundwater evaluation and
long-term operation and maintenance. The Partnership is a member of the group
that is responsible for carrying out the first phase of the work, which is
expected to take 5 to 8 years. Completion of all phases is estimated to take up
to 30 years. The maximum liability of the group, which is joint and several for
each member of the group, is expected to range from approximately $450 million
to $600 million, of which the Partnership's share is expected to be
approximately $10 million. Cleanup costs are payable over the period that the
work is completed.
Based on the facts outlined above and the Partnership's ongoing analyses of
the actions where it has been identified as a PRP, the Partnership believes that
it has accrued sufficient reserves to absorb the ultimate cost of such actions
and that such costs therefore will not have a material impact on the
Partnership's liquidity, capital resources or financial condition. While
liability at superfund sites is typically joint and several, the Partnership has
no reason to believe that defaults by other PRPs will result in liability of the
Partnership materially larger than expected.
In October 1996, Statement of Position (SOP) 96-1, "Environmental
Remediation Liabilities," was issued. It required companies to recognize the
costs of environmental remediation on an accrual basis. The Partnership has and
continues to recognize the costs required by the SOP, therefore, adoption in
1997 had no material impact on its financial position or results of operations.
13) GEOGRAPHIC SEGMENT INFORMATION
Sales of oil to the Partnership's top purchaser in 1998, 1997 and 1996
totaled approximately 16, 18 and 8 percent of oil revenue. Sales of gas to the
Partnership's top purchaser in 1998, 1997 and 1996 totaled approximately 50, 52
and 51 percent of gas revenue. The Partnership believes that the loss of any
major purchaser would not have a material adverse effect on the Partnership's
business.
26
<PAGE> 29
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
Financial information by segment, as utilized by management of the Company
for making operating decisions, for the years ended December 31, 1998, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
ONSHORE OFFSHORE TOTAL
------- -------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
December 31, 1998
Revenues
Oil and gas......................................... $283 $ 218 $ 501
Gain on sale of assets.............................. 21 -- 21
Other............................................... (2) -- (2)
---- ----- ------
Total Revenues......................................... 302 218 520
---- ----- ------
Operating Expenses
Operating costs..................................... 69 57 126
Production taxes.................................... 26 -- 26
Exploration costs................................... 26 70 96
Depreciation, depletion and amortization............ 78 193 271
---- ----- ------
Total Operating Expenses............................... 199 320 519
---- ----- ------
Operating Profit (Loss)................................ $103 $(102) 1
==== =====
General and administrative expense.................. (40)
Interest, net....................................... (5)
------
Net Loss............................................... $ (44)
======
Capital Expenditures................................... $ 70 $ 297* $ 367
==== ===== ======
Total Assets........................................... $654 $ 720 $1,374
==== ===== ======
</TABLE>
- ------------------------------
* Includes capitalized interest of $12 million.
27
<PAGE> 30
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ONSHORE OFFSHORE TOTAL
------- -------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
December 31, 1997
Revenues
Oil and gas......................................... $440 $ 298 $ 738
Loss on sale of assets.............................. (5) -- (5)
Other............................................... (9) -- (9)
---- ----- ------
Total Revenues......................................... 426 298 724
---- ----- ------
Operating Expenses
Operating costs..................................... 79 59 138
Production taxes.................................... 39 -- 39
Exploration costs................................... 13 48 61
Depreciation, depletion and amortization............ 90 120 210
---- ----- ------
Total Operating Expenses............................... 221 227 448
---- ----- ------
Operating Profit....................................... $205 $ 71 276
==== =====
General and administrative expense.................. (41)
Interest, net....................................... 4
------
Net Income............................................. $ 239
======
Capital Expenditures................................... $126 $ 284* $ 410
==== ===== ======
Total Assets........................................... $788 $ 680 $1,468
==== ===== ======
</TABLE>
- ------------------------------
* Includes capitalized interest of $15 million.
28
<PAGE> 31
SUN ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ONSHORE OFFSHORE TOTAL
------- -------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
December 31, 1996
Revenues
Oil and gas......................................... $440 $ 260 $ 700
Loss on sale of assets.............................. (2) -- (2)
Other............................................... (16) -- (16)
---- ----- ------
Total Revenues......................................... 422 260 682
---- ----- ------
Operating Expenses
Operating costs..................................... 82 57 139
Production taxes.................................... 38 -- 38
Exploration costs................................... 9 33 42
Depreciation, depletion and amortization............ 99 78 177
---- ----- ------
Total Operating Expenses............................... 228 168 396
---- ----- ------
Operating Profit....................................... $194 $ 92 286
==== =====
General and administrative expense.................. (41)
Interest, net....................................... 3
------
Net Income............................................. $ 248
======
Capital Expenditures................................... $ 86 $ 228* $ 314
==== ===== ======
Total Assets........................................... $792 $ 507 $1,299
==== ===== ======
</TABLE>
- ------------------------------
* Includes capitalized interest of $16 million.
14) SUBSEQUENT EVENTS
Effective February 26, 1999, Oryx merged into Kerr-McGee.
On March 9, 1999, Kerr-McGee, as managing general partner, announced that
its Board of Directors had approved a plan to merge Sun Energy Partners with
Kerr-McGee Energy (an indirect wholly-owned subsidiary of Kerr-McGee). As part
of the transaction, each of the publicly held limited partnership units will be
converted solely into the right to receive $4.52 in cash, and as a result,
Kerr-McGee will own 100% of Sun Energy Partners. The transaction is subject to
the expiration of the Hart-Scott-Rodino waiting period and other customary
closing conditions and regulatory approvals, and is expected to be completed by
the end of the third quarter, 1999.
29
<PAGE> 32
SUN ENERGY PARTNERS, L.P.
SUPPLEMENTARY FINANCIAL
AND OPERATING INFORMATION (UNAUDITED)
OIL AND GAS DATA
CAPITALIZED COSTS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
--------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Onshore:
Proved properties......................................... $1,881 $2,218
Unproved properties....................................... 2 4
------ ------
Total capitalized costs................................... 1,883 2,222
Less accumulated depreciation, depletion and
amortization........................................... 1,450 1,680
------ ------
Net capitalized costs..................................... $ 433 $ 542
====== ======
Offshore:
Proved properties......................................... $1,835 $1,622
Unproved properties....................................... 124 71
------ ------
Total capitalized costs................................... 1,959 1,693
Less accumulated depreciation, depletion and
amortization........................................... 1,178 986
------ ------
Net capitalized costs..................................... $ 781 $ 707
====== ======
</TABLE>
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Onshore:
Property acquisition costs:
Proved................................................. $ -- $ 9 $ 6
Unproved............................................... -- 2 --
Exploration costs......................................... 23 13 12
Development costs......................................... 68 111 76
---- ---- ----
$ 91 $135 $ 94
==== ==== ====
Offshore:
Property acquisition costs:
Proved................................................. $ 2 $ -- $ --
Unproved............................................... 62 30 24
Exploration costs......................................... 70 77 33
Development costs*........................................ 173 185 166
---- ---- ----
$307 $292 $223
==== ==== ====
</TABLE>
- ---------------
* Excludes capitalized interest of $12 million, $15 million and $16 million for
1998, 1997 and 1996.
30
<PAGE> 33
EXPLORATION COSTS
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Onshore
Dry hole costs............................................ $ 6 $-- $--
Leasehold impairment...................................... 7 4 1
Geological and geophysical................................ 12 10 9
--- --- ---
$25 $14 $10
=== === ===
Offshore
Dry hole costs............................................ $39 $23 $18
Geological and geophysical................................ 29 21 13
Other..................................................... 3 3 1
--- --- ---
$71 $47 $32
=== === ===
</TABLE>
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES
Proved reserve quantities were based on estimates prepared by Company
engineers in accordance with guidelines established by the Securities and
Exchange Commission and were reviewed by Gaffney, Cline & Associates, Inc.,
independent petroleum engineers. The Partnership considers such estimates to be
reasonable; however, due to inherent uncertainties and the limited nature of
reservoir data, estimates of underground reserves are imprecise and subject to
change over time as additional information becomes available.
There has been no favorable or adverse event that has caused a significant
change in estimated proved reserves since December 31, 1998. The Partnership has
no long-term supply agreements or contracts with governments or authorities in
which it acts as producer nor does it have any interest in oil and gas
operations accounted for by the equity method. All reserves are located onshore
and offshore within the United States.
<TABLE>
<CAPTION>
CRUDE OIL AND CONDENSATE NATURAL GAS LIQUIDS NATURAL GAS*
(MILLIONS OF BARRELS) (MILLIONS OF BARRELS) (BILLIONS OF CUBIC FEET)
---------------------------- ---------------------------- ----------------------------
ONSHORE OFFSHORE TOTAL ONSHORE OFFSHORE TOTAL ONSHORE OFFSHORE TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
BALANCE AT DECEMBER 31, 1995....... 120 66 186 15 3 18 813 472 1,285
Revisions of previous estimates.... 5 4 9 3 (1) 2 (10) (12) (22)
Improved recovery.................. 1 -- 1 -- -- -- -- -- --
Purchases of minerals in place..... 3 -- 3 -- -- -- 8 -- 8
Sales of minerals in place......... (3) -- (3) -- -- -- (26) (6) (32)
Extensions and discoveries......... 2 3 5 2 -- 2 56 45 101
Production......................... (10) (6) (16) (2) -- (2) (110) (68) (178)
--- -- --- -- -- -- ---- --- -----
BALANCE AT DECEMBER 31, 1996....... 118 67 185 18 2 20 731 431 1,162
Revisions of previous estimates.... 2 2 4 2 -- 2 14 (23) (9)
Improved recovery.................. 3 -- 3 1 -- 1 8 3 11
Purchases of minerals in place..... 4 -- 4 1 -- 1 16 3 19
Sales of minerals in place......... -- -- -- -- -- -- (3) -- (3)
Extensions and discoveries......... 1 19 20 1 -- 1 37 153 190
Production......................... (10) (7) (17) (3) -- (3) (106) (71) (177)
--- -- --- -- -- -- ---- --- -----
BALANCE AT DECEMBER 31, 1997....... 118 81 199 20 2 22 697 496 1,193
Revisions of previous estimates.... 1 5 6 1 (1) -- 32 (37) (5)
Improved recovery.................. -- -- -- -- -- -- -- -- --
Purchases of minerals in place..... -- -- -- -- -- -- -- 4 4
Sales of minerals in place......... (12) -- (12) -- -- -- (80) -- (80)
Extensions and discoveries......... -- 12 12 1 -- 1 28 79 107
Production......................... (9) (7) (16) (3) -- (3) (78) (57) (135)
--- -- --- -- -- -- ---- --- -----
BALANCE AT DECEMBER 31, 1998....... 98 91 189 19 1 20 599 485 1,084
=== == === == == == ==== === =====
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
CRUDE OIL AND CONDENSATE NATURAL GAS LIQUIDS NATURAL GAS*
(MILLIONS OF BARRELS) (MILLIONS OF BARRELS) (BILLIONS OF CUBIC FEET)
---------------------------- ---------------------------- ----------------------------
ONSHORE OFFSHORE TOTAL ONSHORE OFFSHORE TOTAL ONSHORE OFFSHORE TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved Developed Reserves At:
December 31, 1995................ 99 16 115 13 -- 13 638 234 872
December 31, 1996................ 101 16 117 14 -- 14 603 205 808
December 31, 1997................ 101 20 121 16 -- 16 575 174 749
December 31, 1998................ 85 21 106 15 -- 15 491 144 635
</TABLE>
- ------------------------------
* Natural gas reserve volumes include liquefiable hydrocarbons approximating 5
percent of total gas reserves which are recoverable downstream. Such
recoverable liquids also have been included in natural gas liquids reserve
volumes.
STANDARDIZED MEASURE
The standardized measure of discounted future net cash flows from estimated
production of proved oil and gas reserves is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69, "Disclosures
about Oil and Gas Producing Activities" (SFAS No. 69). In computing this data,
assumptions other than those mandated by SFAS No. 69 could produce substantially
different results. The Partnership cautions against viewing this information as
a forecast of future economic conditions or revenues.
The standardized measure has been prepared assuming year-end selling prices
adjusted for future fixed and determinable contractual price changes, year-end
development and production costs and a 10 percent annual discount rate. No
future income tax expense has been provided for the Partnership since it incurs
no income tax liability. (See Summary of Significant Accounting
Policies -- Income Taxes in Note 1 to the Consolidated Financial Statements.)
The year-end realized prices were $8.86 and $17.16 per barrel of oil and $1.82
and $2.29 per mcf of gas for 1998 and 1997.
<TABLE>
<CAPTION>
ONSHORE OFFSHORE TOTAL
------- -------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
1998
Future cash inflows.................................... $ 2,112 $1,741 $ 3,853
Future production and development costs................ (951) (787) (1,738)
------- ------ -------
Future net cash flows.................................. 1,161 954 2,115
Discount at 10 percent................................. (484) (353) (837)
------- ------ -------
Standardized measure................................... $ 677 $ 601 $ 1,278
======= ====== =======
1997
Future cash inflows.................................... $ 3,870 $2,663 $ 6,533
Future production and development costs................ (1,508) (999) (2,507)
------- ------ -------
Future net cash flows.................................. 2,362 1,664 4,026
Discount at 10 percent................................. (1,001) (549) (1,550)
------- ------ -------
Standardized measure................................... $ 1,361 $1,115 $ 2,476
======= ====== =======
</TABLE>
32
<PAGE> 35
SUMMARY OF CHANGES IN THE STANDARDIZED MEASURE
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Balance, beginning of year............................. $ 2,476 $ 4,183 $2,341
Increase (decrease) in discounted future net cash
flows:
Sales of oil and gas production, net of related
costs............................................. (349) (561) (523)
Revisions to estimates of proved reserves:
Prices net of production taxes.................... (1,195) (2,023) 1,724
Development costs................................. (225) (167) (9)
Production costs.................................. 208 (1) (31)
Quantities........................................ 22 25 59
Other............................................. (190) (52) (213)
Extensions, discoveries and improved recovery, less
related costs..................................... 142 353 336
Development costs incurred during the period......... 241 296 242
Purchases of reserves in place....................... 3 26 38
Sales of reserves in place........................... (95) (1) (8)
Accretion of discount................................ 240 398 227
------- ------- ------
Balance, end of year................................... $ 1,278 $ 2,476 $4,183
======= ======= ======
</TABLE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(MILLIONS OF DOLLARS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
1998............................................ $146 $138 $116 $ 123
==== ==== ==== =====
1997............................................ $200 $169 $169 $ 190
==== ==== ==== =====
Gross profit:*
1998............................................ $ 3 $ 28 $ 16 $ (65)
==== ==== ==== =====
1997............................................ $ 98 $ 58 $ 69 $ 67
==== ==== ==== =====
Net income (loss):
1998............................................ $ -- $ 28 $ 3 $ (75)
==== ==== ==== =====
1997............................................ $ 83 $ 48 $ 51 $ 57
==== ==== ==== =====
Net income (loss)per unit:
1998............................................ $ -- $.07 $.01 $(.18)
==== ==== ==== =====
1997............................................ $.20 $.11 $.12 $ .14
==== ==== ==== =====
</TABLE>
- ------------------------------
* Gross profit equals oil and gas revenues plus gas plant margins less
production cost, exploration cost and depreciation, depletion and
amortization.
33
<PAGE> 36
QUARTERLY OPERATING INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
Crude oil and condensate:
Net production (thousand barrels daily):
1998................................. 48 45 41 43 44
1997................................. 41 45 49 49 46
Average price (per barrel):
1998................................. $15.05 $13.47 $13.12 $12.51 $13.58
1997................................. $21.19 $18.20 $17.81 $18.21 $18.75
Natural gas:
Net production (million cubic feet
daily):
1998................................. 378 381 366 361 371
1997................................. 507 500 470 462 485
Average price (per thousand cubic feet):
1998................................. $ 2.16 $ 2.11 $ 2.00 $ 2.11 $ 2.10
1997................................. $ 2.77 $ 2.05 $ 2.22 $ 2.55 $ 2.40
</TABLE>
34
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no employees. The Company, as the managing general
partner of the Partnership, has the responsibility for the Partnership's conduct
of operations. Set forth below is information as of March 1, 1999 concerning the
14 directors of the Company and the 13 executive officers of the Company (3 of
which are also directors). All elected executive officers of the Company are
elected annually by the Board of Directors of the Company. The directors are
divided into 3 classes with approximately one-third of the directors
constituting the Board being elected each year to serve a three-year term. Class
I directors (whose term expires in 2002) are Mr. McDaniel, Mr. Murphy, Mr.
Simmons and Mr. White-Thomson. Class II directors (whose term expires in 2000)
are Dr. Earle, Dr. Jischke, Mr. Keiser, Mr. Richie and Mr. Rompala. Class III
directors (whose term expires in 2001) are Mr. Bradford, Mr. Corbett, Mr.
Genever-Watling, Mr. Morris and Ms. Walters.
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING
POSITION WITH THE COMPANY PAST FIVE YEARS
------------------------- --------------------------
<S> <C>
William E. Bradford, 64...................... Chairman, Halliburton Company, a provider of energy
Director and energy services from 1998; Chairman and Chief
Executive Officer of Dresser Industries, Inc., now
merged with Halliburton Company, from 1996 to 1998;
President and Chief Operating Officer of Dresser
Industries, Inc. from 1992 to 1995.
George D. Christiansen, 54................... Vice President since March 1998; Vice President,
Vice President, Safety and Environmental Environmental Assessment and Remediation from
January 1996 to March 1998; Vice President,
Minerals Exploration, Hydrology and Real Estate,
Safety and Environmental Affairs Division from 1994
to 1996; Vice President, Exploration, Minerals
Exploration Division from 1980 to 1994.
Luke R. Corbett, 52.......................... Chief Executive Officer of Kerr-McGee since February
Chief Executive Officer and Director 27, 1999; Chairman of the Board and Chief Executive
Officer from 1997 to February 26, 1999; President
and Chief Operating Officer from 1995 through
January 1997; Group Vice President from 1992 to
1995.
Kenneth W. Crouch, 55........................ Senior Vice President of Kerr-McGee since 1996;
Senior Vice President Senior Vice President, Exploration, Kerr-McGee Oil
& Gas Corporation since 1996; Senior Vice
President, North America and International
Exploration, Exploration and Production Division
from 1995 to 1996; Vice President and Managing
Director of Exploration for North Sea Operation,
Exploration and Production Division from 1993 to
1995.
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING
POSITION WITH THE COMPANY PAST FIVE YEARS
------------------------- --------------------------
<S> <C>
Sylvia A. Earle, 63.......................... Chair, Deep Ocean Exploration and Research, Inc.,
Director since 1992; Explorer-in-Residence for the National
Geographic Society since 1998; Chair of the Sea
Change Trust, a non-profit scientific research
organization from 1993 to 1995; Advisor to the
Administrator from 1992 to 1993; and Chief
Scientist of the National Oceanic and Atmospheric
Administration from 1990 to 1992.
David C. Genever-Watling, 53................. Managing Director, SMG Management L.L.C., an
Director investment firm, since 1997; President and Chief
Executive Officer of General Electric Industrial
and Power Systems from 1992 to 1995.
Julius C. Hilburn, 48........................ Vice President, Human Resources since 1996; Manager,
Vice President, Human Resources Benefits Administration from 1992 to 1996.
Russell G. Horner, Jr., 59................... Senior Vice President and Corporate Secretary of
Senior Vice President, General Counsel and Kerr-McGee since 1997; General Counsel since 1986;
Corporate Secretary Vice President form 1986 to 1997.
Martin C. Jischke, 57........................ President of Iowa State University since 1991.
Director
Robert L. Keiser, 56......................... Chairman of the Board of Kerr-McGee Corporation since
Chairman of the Board February 27, 1999; Chairman of the Board and Chief
Executive Officer of Oryx Energy Company from 1994
to February 26, 1999.
Deborah A. Kitchens, 42...................... Vice President and Controller since 1996; Controller,
Vice President and Controller Exploration and Production Division from 1992 to
1996.
John C. Linehan, 59.......................... Executive Vice President of Kerr-McGee since 1997;
Executive Vice President and Chief Chief Financial Officer since 1987; Senior Vice
Financial Officer President from 1987 to 1997.
Tom J. McDaniel, 60.......................... Vice Chairman of the Board of Kerr-McGee since
Vice Chairman and Director February 1997; Senior Vice President and Corporate
Secretary from 1989 through January 1997.
William C. Morris, 60........................ Chairman of the Board of J. & W. Seligman & Co.,
Director Inc., an investment firm; Chairman of the Board of
Tri-Continental Corporation and Chairman of the
Boards of the companies in the Seligman family of
investment companies, all since December 1988.
Chairman of the Board of Carbo Ceramics, Inc. since
1987.
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING
POSITION WITH THE COMPANY PAST FIVE YEARS
------------------------- --------------------------
<S> <C>
John J. Murphy, 67........................... Managing Director of SMG Management L.L.C., an
Director investment firm, since January 1997; Chairman of
the Board of Dresser Industries, Inc., hydrocarbon
energy products and services, from 1983 through
November 1996; Chief Executive Officer of Dresser
Industries, Inc. from 1983 to 1995.
John M. Rauh, 49............................. Treasurer since 1996; Vice President since 1987;
Vice President and Treasurer Controller From 1987 to 1996.
Leroy C. Richie, 57.......................... President, Intrepid World Communications since
Director September 1998; Vice President and General Counsel
for Automotive Legal Affairs, Chrysler Corporation,
1990 through December 1997.
Richard R. Rompala, 52....................... Chairman of the Board, President and Chief Executive
Director Office of The Valspar Corporation, a manufacturer
of paints and related coatings, since February
1998; President and Chief Executive Officer from
1995 to January 1998; President in 1994; Group Vice
President of PPG Industries from 1987 to 1994.
Matthew R. Simmons, 55....................... President of Simmons & Company International, a
Director specialized investment banking firm that serves the
worldwide energy service industry, since founding
the company in 1974.
Jean B. Wallace, 44.......................... Vice President, General Administration since 1996;
Vice President, General Administration Vice President, Human Resources from 1989 to 1996.
Farah M. Walters, 54......................... President and Chief Executive Officer of University
Director Hospitals Health System of Cleveland, Ohio since
1992.
Michael G. Webb, 51.......................... Senior Vice President of Kerr-McGee since 1993;
Senior Vice President Senior Vice President, Exploration, Exploration and
Production Division from 1993 to 1996.
Ian L. White-Thomson, 62..................... Chairman of U.S. Borax, Inc.,a provider of borax and
Director borate products since 1996; President and Chief
Executive from 1996 to 1999; Chief Executive
Officer of Rio Tinto Borax Ltd. since 1995.
W. Peter Woodward, 50........................ Senior Vice President of Kerr-McGee since June 1997;
Senior Vice President Senior Vice President of Kerr-McGee Chemical
Corporation since June 1997; Senior vice president,
Chemical Marketing of Kerr-McGee Chemical
Corporation from may 1996 through May 1997.
Director, Pigment Business Management of Kerr-McGee
Chemical Corporation from 1993 through April 1996.
</TABLE>
37
<PAGE> 40
ITEM 11. EXECUTIVE COMPENSATION
The directors, officers and employees of the Company (the managing general
partner) receive no direct compensation from the Partnership for their services
to the Partnership. Such persons receive compensation from the Company, a
substantial portion of which is generally reimbursed to the Company by the
Partnership as costs allocable to it. (See Note 3 to the Consolidated Financial
Statements.)
The Partnership reimburses the Company for all direct costs and indirect
costs associated with the Partnership's activities. For the year 1998, the
Company received $57 million as reimbursement of costs allocable to the
Partnership. Such amounts included salaries of employees and allocations of
certain executive and administrative expenses. The aggregate amount reimbursed
by the Partnership to the Company in 1998 for the salaries of the Chief
Executive Officer of the Partnership and each of the four most highly
compensated executive officers of the Partnership other than the Chief Executive
Officer was approximately $1 million. (See Note 3 to the Consolidated Financial
Statements.)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding beneficial
ownership of the limited partnership units of Sun Energy Partners, L.P. as of
March 1, 1999.
UNITS OF SUN ENERGY PARTNERS, L.P.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
BENEFICIAL OWNER UNITS CLASS
---------------- ----------- ----------
<S> <C> <C>
Kerr-McGee Corporation
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102................................... 413,627,359 98.2*
All Directors and Executive Officers of Managing General
Partner (Kerr-McGee Corporation) as a Group (24).......... -- --
</TABLE>
- ------------------------------
* Assumes that Kerr-McGee Corporation's 292,000,000 general partnership units
are converted into limited partnership units of Sun Energy Partners, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In its capacity as managing general partner of the Partnership, the Company
controls the Partnership and its operations and has served as a lender and
borrower of funds for the Partnership. Following is a table which summarizes
lending activities between the Partnership and the Company during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
BALANCE DUE BALANCE DUE
FROM FROM
PARTNERSHIP PARTNERSHIP
DECEMBER 31, 1997 ADDITIONS REPAYMENTS DECEMBER 31, 1998
----------------- --------- ---------- -----------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Variable Rate Advances to Oryx Energy
Company................................ $(49) $(186) $147 $(88)
===== ====== ==== =====
9.75% Note Payable to Oryx Energy
Company................................ $(51) $ -- $ 13 $(38)
===== ====== ==== =====
</TABLE>
During 1998, no amounts were owed to the Partnership by the Company for
variable rate advances. The largest balance owed to the Company by the
Partnership during 1998 resulting from advances from Oryx Energy Company and
amounts due under the 9.75% Note Payable was $259 million. Certain information
required by this section is included in Notes to the Consolidated Financial
Statements. See Notes 1, 3 and 8 included elsewhere in this Form 10-K.
38
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following Documents are filed as a part of this report:
1. Financial Statements:
See Index to Financial Statements, Supplementary Financial and Operating
Information on page 13.
2. Exhibits:
<TABLE>
<C> <S>
2 -- Agreement and Plan of Merger, dated as of March 9, 1999,
between Sun Energy Partners, L.P. and Kerr-McGee Energy
Corporation
3(a) -- Second Amended and Restated Agreement of Limited
Partnership of Sun Energy Partners, L.P., dated
December 10, 1985 (incorporated by reference to Exhibit
3(a) of the Form SE filed March 20, 1986)
3(a)(i) -- Amendment No. 1, dated March 9, 1999, to the Second
Amended and Restated Agreement of Limited Partnership
of Sun Energy Partners, L.P.
3(b) -- Certificate of Limited Partnership of Sun Energy
Partners, L.P., dated October 1, 1985 (incorporated by
reference to Exhibit 3(b) of the Partnership's Form
10-K for the one month ended December 31, 1985)
3(b)(i) -- Certificate of Amendment, dated March 9, 1999, to the
Certificate of Limited Partnership of Sun Energy
Partners, L.P.
4(a) -- Deposit Agreement, made as of December 3, 1985 among Sun
Energy Partners, L.P., Manufacturers Hanover Trust
Company, Sun Company, Inc., Oryx Energy Company and All
Limited Partners in Sun Energy Partners, L.P.
(incorporated by reference to Exhibit 4(a) of the Form
SE filed March 20, 1986)
4(b) -- Instruments defining the rights of security holders,
including indentures: The Partnership will provide
copies of the instruments relating to long-term debt to
the SEC upon request
12 -- Computation of Consolidated Ratios of Earnings to Fixed
Charges
21 -- Affiliated Operating Partnerships/Subsidiary Corporations
of Sun Energy Partners. L.P. (incorporated by reference
to Exhibit 22 of the Form SE filed March 18, 1988)
24 -- Power of Attorney executed by certain officers and
directors of Kerr-McGee Corporation, managing general
partner of Sun Energy Partners, L.P.
27 -- Financial Data Schedule
99(a) -- Agreement of Limited Partnership of Sun Operating Limited
Partnership dated November 18, 1985, as amended
(incorporated by reference to Exhibit 28(a) of the Form
SE filed March 20, 1986)
99(b) -- Certificate of Limited Partnership of Sun Operating
Limited Partnership dated November 19, 1985
(incorporated by reference to Exhibit 28(b) of the
Partnership's Form 10-K for the one month ended
December 31, 1985)
99(c) -- Sun Operating Limited Partnership 9.75% Promissory Note
(incorporated by reference to Exhibit 28(c) of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, as amended by Amendment
No. 1 on Form 8 dated July 17, 1992, Commission File
No. 1-9033)
99(d) -- Letter Agreement Dated November 21, 1990, Between Oryx
Energy Company and Atlantic Richfield Company
(incorporated by reference to Exhibit 28(a) of the
Partnership's Current Report on Form 8-K dated January
31, 1991, Commission File No. 1-9033)
99(e) -- Amendment Dated November 28, 1990 to Letter Agreement
Dated November 21, 1990, Between Oryx Energy Company
and Atlantic Richfield Company (incorporated by
reference to Exhibit 28(b) of the Partnership's Current
Report on Form 8-K dated January 31, 1991, Commission
File No. 1-9033)
</TABLE>
(b) Reports on Form 8-K:
The Partnership did not file any reports on Form 8-K during the quarter
ended December 31, 1998.
39
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUN ENERGY PARTNERS, L.P.
By: KERR-MCGEE CORPORATION
(Managing General Partner)
By: /s/ JOHN C. LINEHAN
----------------------------------
John C. Linehan
Executive Vice President and
Chief Financial Officer
Date: March 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by or on behalf of the following persons on behalf
of the Registrant and in the capacities with Kerr-McGee Corporation, Managing
General Partner, and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
WILLIAM E. BRADFORD* Director March 24, 1999
- -----------------------------------------------------
William E. Bradford
LUKE R. CORBETT* Chief Executive Officer and March 24, 1999
- ----------------------------------------------------- Director (principal executive
Luke R. Corbett officer)
SYLVIA A. EARLE* Director March 24, 1999
- -----------------------------------------------------
Sylvia A. Earle
DAVID C. GENEVER-WATLING* Director March 24, 1999
- -----------------------------------------------------
David C. Genever-Watling
MARTIN C. JISCHKE* Director March 24, 1999
- -----------------------------------------------------
Martin C. Jischke
ROBERT L. KEISER* Chairman of the Board March 24, 1999
- -----------------------------------------------------
Robert L. Keiser
/s/ JOHN C. LINEHAN Executive Vice President and Chief March 24, 1999
- ----------------------------------------------------- Financial Officer (principal
John C. Linehan financial officer)
TOM J. MCDANIEL* Vice Chairman and Director March 24, 1999
- -----------------------------------------------------
Tom J. McDaniel
WILLIAM C. MORRIS* Director March 24, 1999
- -----------------------------------------------------
William C. Morris
JOHN J. MURPHY* Director March 24, 1999
- -----------------------------------------------------
John J. Murphy
LEROY C. RICHIE* Director March 24, 1999
- -----------------------------------------------------
Leroy C. Richie
RICHARD M. ROMPALA* Director March 24, 1999
- -----------------------------------------------------
Richard M. Rompala
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
MATTHEW R. SIMMONS* Director March 24, 1999
- -----------------------------------------------------
Matthew R. Simmons
FARAH M. WALTERS* Director March 24, 1999
- -----------------------------------------------------
Farah M. Walters
IAN L. WHITE-THOMSON* Director March 24, 1999
- -----------------------------------------------------
Ian L. White-Thomson
*By: /s/ JOHN C. LINEHAN
------------------------------------------------
John C. Linehan
Attorney-in-Fact
</TABLE>
- ------------------------------
* Original powers of attorney authorizing Luke R. Corbett, Tom J. McDaniel and
John C. Linehan or any one of them, to sign this Form 10-K Annual Report on
behalf of Sun Energy Partners, L.P., is being filed as an Exhibit to this Form
10-K.
41
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<C> <S>
2 -- Agreement and Plan of Merger, dated as of March 9, 1999,
between Sun Energy Partners, L.P. and Kerr-McGee Energy
Corporation
3(a) -- Second Amended and Restated Agreement of Limited
Partnership of Sun Energy Partners, L.P., dated
December 10, 1985 (incorporated by reference to Exhibit
3(a) of the Form SE filed March 20, 1986)
3(a)(i) -- Amendment No. 1, dated March 9, 1999, to the Second
Amended and Restated Agreement of Limited Partnership
of Sun Energy Partners, L.P.
3(b) -- Certificate of Limited Partnership of Sun Energy
Partners, L.P., dated October 1, 1985 (incorporated by
reference to Exhibit 3(b) of the Partnership's Form
10-K for the one month ended December 31, 1985)
3(b)(i) -- Certificate of Amendment, dated March 9, 1999, to the
Certificate of Limited Partnership of Sun Energy
Partners, L.P.
4(a) -- Deposit Agreement, made as of December 3, 1985 among Sun
Energy Partners, L.P., Manufacturers Hanover Trust
Company, Sun Company, Inc., Oryx Energy Company and All
Limited Partners in Sun Energy Partners, L.P.
(incorporated by reference to Exhibit 4(a) of the Form
SE filed March 20, 1986)
4(b) -- Instruments defining the rights of security holders,
including indentures: The Partnership will provide
copies of the instruments relating to long-term debt to
the SEC upon request
12 -- Computation of Consolidated Ratios of Earnings to Fixed
Charges
21 -- Affiliated Operating Partnerships/Subsidiary Corporations
of Sun Energy Partners. L.P. (incorporated by reference
to Exhibit 22 of the Form SE filed March 18, 1988)
24 -- Power of Attorney executed by certain officers and
directors of Kerr-McGee Corporation, managing general
partner of Sun Energy Partners, L.P.
27 -- Financial Data Schedule
99(a) -- Agreement of Limited Partnership of Sun Operating Limited
Partnership dated November 18, 1985, as amended
(incorporated by reference to Exhibit 28(a) of the Form
SE filed March 20, 1986)
99(b) -- Certificate of Limited Partnership of Sun Operating
Limited Partnership dated November 19, 1985
(incorporated by reference to Exhibit 28(b) of the
Partnership's Form 10-K for the one month ended
December 31, 1985)
99(c) -- Sun Operating Limited Partnership 9.75% Promissory Note
(incorporated by reference to Exhibit 28(c) of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, as amended by Amendment
No. 1 on Form 8 dated July 17, 1992, Commission File
No. 1-9033)
99(d) -- Letter Agreement Dated November 21, 1990, Between Oryx
Energy Company and Atlantic Richfield Company
(incorporated by reference to Exhibit 28(a) of the
Partnership's Current Report on Form 8-K dated January
31, 1991, Commission File No. 1-9033)
99(e) -- Amendment Dated November 28, 1990 to Letter Agreement
Dated November 21, 1990, Between Oryx Energy Company
and Atlantic Richfield Company (incorporated by
reference to Exhibit 28(b) of the Partnership's Current
Report on Form 8-K dated January 31, 1991, Commission
File No. 1-9033)
</TABLE>
42
<PAGE> 1
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 9, 1999
BETWEEN
SUN ENERGY PARTNERS, L.P.
AND
KERR-McGEE ENERGY CORPORATION
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 9, 1999 (the
"Agreement"), between SUN ENERGY PARTNERS, L.P., a Delaware limited partnership
(the "Partnership"), and KERR-McGEE ENERGY CORPORATION, a Delaware corporation
(the "Company").
BACKGROUND
The Board of Directors of the Company (the "Board of Directors") has
approved on behalf of the Company, and Kerr-McGee Corporation, a Delaware
corporation (the "Parent"), in its capacity as managing general partner of the
Partnership, has approved on behalf of the Partnership, upon the terms and
subject to the conditions set forth in this Agreement, the merger of the Company
into the Partnership (the "Merger"), whereby each outstanding LP Unit (as
defined in the Second Amended and Restated Agreement of Limited Partnership of
the Partnership, as amended (the "Partnership Agreement")) not owned by the
Company or any of its affiliates will be converted into the right to receive the
Merger Consideration (as hereinafter defined).
Pursuant to Section 17-211(b) of the DRULPA (as defined below), the
Parent, in its capacities as (i) the sole general partner of the Partnership and
(ii) the holder of more than 50% of the LP Units, has executed a written consent
approving the Merger.
Now, therefore, the Partnership and the Company hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION I.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Delaware General
Corporation Law (the "DGCL") and the Delaware Revised Uniform Limited
Partnership Act (the "DRULPA"), the Company shall be merged with and into the
Partnership as soon as practicable following the satisfaction or waiver of the
conditions set forth in Article IV. Following the Merger, the Partnership shall
continue as the surviving entity (the "Surviving Entity") and shall continue its
existence under the laws of the State of Delaware, and the separate existence of
the Company shall cease. At the election of the Parent, any direct or indirect
wholly-owned subsidiary of the Parent may be substituted for the Company as a
constituent party in the Merger.
SECTION I.2 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article IV, but in no
event before a 20-day period shall have elapsed from the date of mailing to
holders of LP Units of an information statement with respect to the Merger, the
Merger shall be consummated by filing with the Secretary of State of the State
of Delaware a certificate of merger or other appropriate documents (in any case,
the "Certificate of Merger") in accordance with the DGCL and the DRULPA. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed, or at such other time as the Partnership and the Company shall specify in
the Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
<PAGE> 2
2
SECTION I.3 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL and Section 17-211 of the DRULPA.
SECTION I.4 Certificate of Limited Partnership and Partnership
Agreement. The Certificate of Limited Partnership and the Partnership Agreement
of the Partnership shall be the certificate of limited partnership and
partnership agreement of the Surviving Entity until thereafter changed or
amended as provided therein or by applicable law.
SECTION I.5 General Partner. The Parent shall be the managing general
partner of the Surviving Entity until the earlier of its resignation or removal
or until its successor is duly appointed or elected pursuant to the Partnership
Agreement.
SECTION I.6 Conversion of Units. At the Effective Time, by virtue of
the Merger and without any action on the part of the Partnership, the Company or
the holders of any of the following securities:
(a) each LP Unit held by the Parent or any affiliate of the
Parent shall be canceled and retired and shall cease to exist, and no
payment or consideration shall be made with respect thereto;
(b) each issued and outstanding LP Unit, other than LP Units
referred to in paragraph (a) above, shall be converted into the right
to receive from the Surviving Entity an amount in cash, without
interest, equal to $4.52 per LP Unit (the "Merger Consideration") less
any required withholding taxes. At the Effective Time, all such LP
Units shall cease to be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such LP Unit shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration,
without interest; and
(c) all of the issued and outstanding shares of capital stock
of the Company shall be converted into and become a number of LP Units
equal to the number of LP Units canceled and retired pursuant to
paragraphs (a) and (b) above.
ARTICLE II
EXCHANGE OF UNITS
SECTION II.1 Exchange of Certificates.
(a) Prior to the Effective Time, the Company shall appoint a
bank or trust company to act as disbursing agent (the "Disbursing
Agent") for the payment of Merger Consideration upon surrender of
certificates representing the LP Units. The Company will enter into a
disbursing agent agreement with the Disbursing Agent, in form and
substance reasonably acceptable to the Company, and shall deposit or
cause to be deposited with the Disbursing Agent in trust for the
benefit of the holders of LP Units cash in an aggregate amount
necessary to make the payments pursuant to Section 1.06 to holders of
LP Units (such amounts being hereinafter referred to as the "Exchange
Fund"). The Disbursing Agent shall, pursuant to irrevocable
instructions, make the payments provided for in the preceding sentence
out of the Exchange Fund. The Disbursing Agent shall invest portions of
the Exchange Fund as the Company directs, provided that such
investments shall be in obligations of or guaranteed by the United
States of America, in commercial paper obligations receiving the
highest rating from either Moody's Investors Service, Inc. or Standard
& Poor's Corporation, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital
exceeding $100 million. The Exchange Fund shall not be used for any
other purpose, except as provided in this Agreement.
(b) Promptly after the Effective Time, the Surviving Entity
shall cause the Disbursing Agent to mail to each person who was a
record holder as of the Effective Time of an outstanding certificate or
certificates which immediately prior to the Effective Time represented
Depositary Units (as defined in the Partnership Agreement) representing
LP Units (the "Certificates"), and whose LP Units were converted into
the right to receive Merger Consideration pursuant to Section 1.06, a
form of letter of transmittal (which
<PAGE> 3
3
shall specify that delivery shall be effected, and risk of loss with
respect to the Certificates shall pass, only upon proper delivery of
the Certificates to the Disbursing Agent) and instructions for use in
effecting the surrender of the Certificate in exchange for payment of
the Merger Consideration. Upon surrender to the Disbursing Agent of a
Certificate, together with such letter of transmittal duly executed
and such other documents as may be reasonably required by the
Disbursing Agent, the holder of such Certificate shall be paid in
exchange therefor cash in an amount equal to the product of the number
of LP Units represented by such Certificate multiplied by the Merger
Consideration, and such Certificate shall forthwith be canceled. No
interest will be paid or accrued on the cash payable upon the
surrender of the Certificates. If payment is to be made to a person
other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment pay any transfer
or other taxes required by reason of the payment to a person other
than the registered holder of the Certificate surrendered or establish
to the satisfaction of the Surviving Entity that such tax has been
paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.01, each Certificate (other than
Certificates representing LP Units owned by the Parent or any
affiliate of the Parent) shall represent for all purposes only the
right to receive the Merger Consideration in cash multiplied by the
number of LP Units represented by such Certificate, without any
interest thereon.
(c) At and after the Effective Time, there shall be no
registration of transfers of LP Units and the Partnership shall
instruct the depositary for the Depositary Units not to register
transfers of the Depositary Units which were outstanding immediately
prior to the Effective Time. From and after the Effective Time, the
holders of LP Units outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such LP Units except as
otherwise provided in this Agreement or by applicable law. All cash
paid upon the surrender of Certificates in accordance with the terms of
this Article II shall be deemed to have been paid in full satisfaction
of all rights pertaining to the LP Units previously represented by such
Certificates. If, after the Effective Time, Certificates are presented
to the Surviving Entity for any reason, such Certificates shall be
canceled and exchanged for cash as provided in this Article II. At any
time more than one year after the Effective Time, the Surviving Entity
shall be entitled to require the Disbursing Agent to deliver to it any
funds which had been made available to the Disbursing Agent and not
disbursed in exchange for Certificates (including, without limitation,
all interest and other income received by the Disbursing Agent in
respect of all such funds). Thereafter, holders of LP Units shall look
only to the Surviving Entity (subject to abandoned property, escheat
and other similar laws) as general creditors thereof with respect to
any Merger Consideration that may be payable, without interest, upon
due surrender of the Certificates held by them. Notwithstanding the
foregoing, neither the Surviving Entity nor the Disbursing Agent shall
be liable to any holder of an LP Unit for any Merger Consideration
delivered in respect of such LP Unit to a public official pursuant to
any abandoned property, escheat or other similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION III.1 Representations and Warranties of Each Party. Each of the
Company and the Partnership represent and warrant to the other that:
(a) such company is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization
and has the requisite power and authority to carry on its respective
business as now conducted;
(b) such company has the requisite power and authority to
enter into this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by such company
and the consummation of the transactions contemplated hereby have been
duly authorized by all requisite organizational action and no other
organizational proceeding is necessary therefor. This Agreement has
been duly executed and delivered by such company and constitutes the
valid and binding obligation of such company, enforceable against each
such company in accordance with its terms;
(c) neither the execution and delivery hereof by such company,
nor the consummation of the transactions contemplated hereby, nor
compliance with the provisions hereof will (A) violate or conflict
<PAGE> 4
4
with or result in the breach of or default (whether following lapse of
time or notice of both), or terminate or accelerate any right or
obligation, or create any lien upon any property or assets of such
company or any of its subsidiaries, under any of the terms of (x) the
organization documents of such company or its subsidiaries or (y) any
material debt or other agreement to which such company or its
subsidiaries or the assets or properties thereof may be subject; or
(B) violate any judgment, ruling, order, writ, injunction, statute,
rule or regulation applicable to such company; except in the case of
clauses (A) and (B) above, for such violations, conflicts, breaches,
defaults, terminations, accelerations or liens which, in the
aggregate, would not have a material adverse effect on the
transactions contemplated hereby or on the condition (financial or
other), business or operations of such company and its subsidiaries,
taken as a whole. Other than under the DRULPA, the DGCL, the federal
securities laws, the "blue sky" regulations of various states, and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, to the knowledge
of such company no notice to, filing with, or authorization of any
domestic or foreign public body or authority is required for the
consummation of the transactions contemplated hereby; and
(d) the Parent, as managing general partner of the
Partnership, has received the opinion of Lehman Brothers Inc. dated
March 9, 1999, to the effect that the consideration to be paid to the
holders of the LP Units (other than the Parent and any other holders of
LP Units that are affiliates of the Parent) in connection with the
Merger is fair to such holders of LP Units from a financial point of
view (the "Fairness Opinion").
SECTION III.2 Additional Representations and Warranties of the
Partnership. The Partnership represents and warrants as follows: Since December
31, 1998, the business of the Partnership has not undergone any material adverse
change.
ARTICLE IV
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION IV.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver, prior to the Effective Time, of the
following conditions:
(a) no statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or
permanent), shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which is in effect and has the
effect of prohibiting the consummation of the Merger; provided that
each of the parties shall have used its best efforts to prevent the
entry of any injunction or other order and to appeal as promptly as
possible any injunction or other order that may be entered;
(b) there shall not be pending or threatened against the
Partnership, the Parent, or the Company, or any affiliate of the
Partnership, the Parent, or the Company, or the property or business of
the Partnership, the Parent, or the Company, any other action, suit or
proceeding involving a claim at law or in equity or before or by any
federal, state, or municipal or other government department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, relating to the Merger or this Agreement that would be
reasonably likely to have a material adverse effect on the condition,
financial or otherwise, of the Partnership, the Parent, or the Company;
(c) the parties shall have received any necessary governmental
consents or approvals and the waiting period (and any extension
thereof) applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if
any, shall have expired or been terminated and a 20-day period shall
have elapsed from the date of mailing to holders of LP Units of an
information statement with respect to the Merger; and
(d) the Fairness Opinion shall not have been withdrawn or
modified in any manner materially adverse to the Parent, the Company or
the Partnership.
<PAGE> 5
5
SECTION IV.2 Abandonment. The Company shall have the option, at any
time prior to the Effective Time, to abandon the Merger; provided, that if the
Company decides to exercise such option, the Company shall provide prompt
written notice thereof to the Partnership.
ARTICLE V
MISCELLANEOUS
SECTION V.1 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION V.2 Entire Agreement; Assignment. This Agreement constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. Except as set forth in this Agreement, neither this Agreement nor any
right, interest or obligation under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise without the prior written consent
of the other parties.
SECTION V.3 Validity. In the event any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.
SECTION V.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Delaware
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.
SECTION V.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION V.6 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer upon any person other than the parties to this
Agreement any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
SECTION V.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement, and shall become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other parties.
<PAGE> 6
6
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officers thereunto duly authorized, all
as of the day and year first above written.
SUN ENERGY PARTNERS, L.P.
By: Kerr-McGee Corporation,
its Managing General Partner
By: /s/ RUSSELL G. HORNER, JR. [STAMP]
------------------------------
Russell G. Horner, Jr.
Senior Vice President
KERR-McGEE ENERGY CORPORATION
By: /s/ JOHN M. RAUH [STAMP]
------------------------------
John M. Rauh
Vice President
Signature Page of Agreement and Plan of Merger Dated as of March 9, 1999
Between Sun Energy Partners, L.P. And Kerr-McGee Energy Corporation
<PAGE> 1
EXHIBIT 3(a)(i)
SUN ENERGY PARTNERS, L.P.
The undersigned Managing General Partner of SUN ENERGY PARTNERS, L.P.,
a Delaware limited partnership, (the "Partnership") hereby adopts the following
as Amendment No. 1 to the Second Amended and Restated Agreement of Limited
Partnership of Sun Energy Partners, L.P. (the "Agreement"):
Article I, Section 1.3(a) is hereby deleted and replaced with the following:
(a) The registered office of the Partnership in the State of
Delaware shall be the Corporate Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, and its registered agent
for service of process on the Partnership at such registered office
shall be The Corporation Trust Company. The principal office of the
Partnership shall be 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma
73102, or such other place as the Managing General Partner may from
time to time designate to the Partners. The Partnership may maintain
offices at such other place or places as the Managing General Partner
deems advisable.
Article I, Section 1.3(b) is hereby deleted and replaced with the following:
(b) The address of the Managing General Partner is 123 Robert
S. Kerr Avenue, Oklahoma City, Oklahoma 73102. The address of each
Limited Partner shall be the address of such Limited Partner appearing
on the books of The Recordkeeping Transfer Agent or the Partnership
from time to time, as provided for in Section 18.1.
<PAGE> 2
In view of the merger of Oryx Energy Company (formerly named Sun Exploration and
Production Company), heretofore the Managing General Partner of the Partnership,
into Kerr-McGee Corporation, a Delaware corporation, effective February 26,
1999, all references in the Agreement to "E&P", Sun Exploration and Production
Company or to the Managing General Partner of the Partnership shall be
understood as references to Kerr-McGee Corporation. All references to Sun
Company, Inc. or "Sun", a Pennsylvania corporation which was formerly the
corporate parent of Sun Exploration and Production Company but which no longer
has any direct or indirect interest in the Partnership or the Managing General
Partner, shall be replaced with references to Kerr-McGee Corporation.
This Amendment No. 1 shall become effective upon execution by Kerr-McGee
Corporation in its capacity as Managing General Partner of the Partnership.
Except as expressly amended hereby, the provisions of the Agreement shall remain
in full force and effect.
This Amendment No. 1 shall be construed in accordance with and governed by the
laws of the State of Delaware.
Adopted March 9, 1999
KERR-McGEE CORPORATION
in its capacity as Managing General Partner
of the Partnership
By /s/ RUSSELL G. HORNER, JR.
-----------------------------------------------
Russell G. Horner, Jr.
Senior Vice President
<PAGE> 1
EXHIBIT 3(b)(i)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
SUN ENERGY PARTNERS, L.P.
The undersigned, desiring to amend the Certificate of Limited Partnership
(the "Certificate") of Sun Energy Partners, L.P., pursuant to the provisions of
Section 17-202 of the Revised Uniform Limited Partnership Act of the State of
Delaware, does hereby certify as follows:
FIRST: The name of the Limited Partnership is Sun Energy Partners, L.P.
SECOND: Section 3 of the Certificate is hereby deleted and replaced with the
following:
"3. The name and business address of the General Partner is as follows:
General Partner Address
--------------- -------
Kerr-McGee Corporation 123 Robert S. Kerr Avenue
Oklahoma City, OK 73102"
IN WITNESS WHEREOF, the undersigned executed this Certificate of Amendment
to the Certificate of Limited Partnership on this 9th day of March, 1999.
KERR-McGEE CORPORATION, General Partner
BY: /s/ JOHN M. RAUH
------------------------------------
John M. Rauh,
Vice President & Treasurer
<PAGE> 1
EXHIBIT 12
SUN ENERGY PARTNERS, L.P.
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS
TO FIXED CHARGES - UNAUDITED (a)
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:
Fixed Charges:
Consolidated interest cost and debt
expense $ 20 $ 15
Interest allocable to rental expense (b) 2 2
-------- --------
Total $ 22 $ 17
======== ========
Earnings:
Consolidated income (loss) $ (44) $ 239
Fixed charges 22 17
Interest capitalized (12) (15)
Amortization of previously capitalized
interest 7 4
-------- --------
Total $ (27) $ 245
======== ========
Ratio of Earnings to Fixed Charges (c) 14.41
========
</TABLE>
(a) The consolidated financial statements of Sun Energy Partners, L.P.
include the accounts of all subsidiaries (more than 50 percent owned
and/or controlled).
(b) Represents one-third of total operating lease rental expense which is
that portion deemed to be interest.
(c) Since earnings for the year ended December 31, 1998 were less than
zero, the ratio of earnings to fixed charges for such period is not
meaningful and, accordingly, has not been presented. Earnings for such
period were inadequate to cover fixed charges by $49 million.
<PAGE> 1
EXHIBIT 24
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or
Officer or both, as the case may be, of the Company, does hereby appoint Luke R.
Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his
true and lawful attorneys or attorney-in-fact and agents or agent with power to
act with or without the other and with full power of substitution and
resubstitution, to execute for him and in his name, place and stead, in his
capacity as a Director or Officer or both, as the case may be, of the Company,
the Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto,
as said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument, effective
March 15, 1999.
/s/ Robert L. Keiser
----------------------------------------
Robert L. Keiser
Chairman of the Board and Director
<PAGE> 2
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934 as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer or
both, as the case may be, of the Company, does hereby appoint Tom J. McDaniel
and John C. Linehan, and each of them severally, his true and lawful attorneys
or attorney- in-fact and agents or agent with power to act with or without the
other and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K for Sun Energy Partners,
L.P. and any and all amendments thereto, as said attorneys or each of them shall
deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument, effective
March 15, 1999.
/s/ Luke R. Corbett
-----------------------------------------
Luke R. Corbett
Chief Executive Officer and Director
<PAGE> 3
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as an Officer of the
Company, does hereby appoint Luke R. Corbett and Tom J. McDaniel, and each of
them severally, his true and lawful attorneys or attorney-in-fact and agents or
agent with power to act with or without the other and with full power of
substitution and resubstitution, to execute for him and in his name, place and
steed, in his capacity as an Officer of the Company, the Form 10-K for Sun
Energy Partners, L.P. and any and all amendments thereto, as said attorneys or
each of them shall deem necessary or appropriate, together with all instruments
necessary or incidental in connection therewith, and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, each act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ John C. Linehan
-----------------------------------------
John C. Linehan
Executive Vice President and
Chief Financial Officer
<PAGE> 4
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in her capacity as an Officer of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as an Officer of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ Deborah A. Kitchens
-----------------------------------------
Deborah A. Kitchens
Vice President, Controller and
Chief Accounting Officer
<PAGE> 5
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L,P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ William E. Bradford
-----------------------------------------
William E. Bradford, Director
<PAGE> 6
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument. effective
March 15, 1999,
-----------------------------------------
Sylvia A. Earle, Director
<PAGE> 7
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999,
/s/ David C. Genever - Watling
-----------------------------------------
David C. Genever - Watling, Director
<PAGE> 8
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P., and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ Martin C. Jischke
-----------------------------------------
Martin C. Jischke, Director
<PAGE> 9
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents,
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer or
both, as the case may be, of the Company, does hereby appoint Luke R. Corbett
and John C. Linehan, and each of them severally, his true and lawful attorneys
or attorney-in-fact and agents or agent with power to act with or without the
other and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K for Sun Energy Partners,
L.P. and any and all amendments thereto, as said attorneys or each of them shall
deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ Tom J. McDaniel
-----------------------------------------
Tom J. McDaniel
Vice Chairman of the Board and Director
<PAGE> 10
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this Instrument effective
March 15, 1999.
/s/ William C. Morris
-----------------------------------------
William C. Morris, Director
<PAGE> 11
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the some to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ John J. Murphy
-----------------------------------------
John J. Murphy, Director
<PAGE> 12
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to,
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ Leroy C. Richie
-----------------------------------------
Leroy C. Richie, Director
<PAGE> 13
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument, effective
March 15, 1999.
/s/ Richard M. Rompala
-----------------------------------------
Richard M. Rompala, Director
<PAGE> 14
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument,
effective March 15, 1999.
/s/ Matthew R. Simmons
-----------------------------------------
Matthew R. Simmons, Director
<PAGE> 15
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, KERR-MCGEE Corporation, a Delaware corporation "Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the same or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this Instrument, effective
March 15, 1999.
/s/ Farah M. Walters
-----------------------------------------
Farah M. Walters, Director
<PAGE> 16
KERR-MCGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), as
Managing General Partner of Sun Energy Partners, L.P., intends to file with the
Securities: and Exchange Commission ("Commission") under the Securities Exchange
Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for Sun Energy
Partners, L.P., for the year ended December 31, 1998 ("Form 10-K") with such
amendment or amendments thereto as may be necessary or appropriate from time to
time, together with any and all exhibits and other relevant or associated
documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K for Sun Energy Partners, L.P. and any and all amendments thereto, as
said attorneys or each of them shall deem necessary or appropriate, together
with all instruments necessary or incidental in connection therewith, and to
file the some or cause the same to be filed with the Commission. Each of said
attorneys shall have full power and authority to do and perform in the name and
on behalf of the undersigned, in any and all capacities, each act whatsoever
necessary or desirable to be done in the premises, as fully and to all intents
and purposes as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
March 15, 1999.
/s/ Ian L. White Thomson
-----------------------------------------
Ian L. White Thomson, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE 1998 SUN ENERGY PARTNERS L.P.
FINANCIAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 38
<ALLOWANCES> 0
<INVENTORY> 1
<CURRENT-ASSETS> 71
<PP&E> 3,853
<DEPRECIATION> 2,632
<TOTAL-ASSETS> 1,374
<CURRENT-LIABILITIES> 211
<BONDS> 24
0
0
<COMMON> 0
<OTHER-SE> 1,102
<TOTAL-LIABILITY-AND-EQUITY> 1,374
<SALES> 501
<TOTAL-REVENUES> 523
<CGS> 423
<TOTAL-COSTS> 423
<OTHER-EXPENSES> 136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (44)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
