UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
Commission file number 1-9735
BERRY PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 77-0079387
(State of incorporation or (I.R.S. Employer Identification Number)
organization)
28700 Hovey Hills Road
Taft, California 93268
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (661) 769-8811
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Common Stock, $.01 par value New York Stock Exchange
including associated stock purchase rights)
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
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 or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 19, 1999, the registrant had 21,109,717 shares of Class A
Common Stock outstanding and the aggregate market value of the voting stock
held by nonaffiliates was approximately $136,057,000. This calculation is
based on the closing price of the shares on the New York Stock Exchange on
February 19, 1999 of $9 5/8. The registrant also had 898,892 shares of
Class B Stock outstanding on February 19, 1999, all of which is held by an
affiliate of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the registrant's definitive
Proxy Statement for its Annual Meeting of Shareholders to be filed, pursuant to
Regulation 14A, no later than 120 days after the close of the registrant's
fiscal year.
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BERRY PETROLEUM COMPANY
TABLE OF CONTENTS
PART I
Items 1
and 2. Business and Properties . . . . . . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Oil Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 4
Steaming Operations . . . . . . . . . . . . . . . . . . . . . . 5
Environmental and Other Regulations . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . 7
Development . . . . . . . . . . . . . . . . . . . . . . . . . 7
Exploration . . . . . . . . . . . . . . . . . . . . . . . . . 8
Enhanced Oil Recovery Tax Credits . . . . . . . . . . . . . . . 9
Oil and Gas Reserves . . . . . . . . . . . . . . . . . . . . . 9
Production . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Acreage and Wells . . . . . . . . . . . . . . . . . . . . . . .10
Drilling Activity . . . . . . . . . . . . . . . . . . . . . . .10
Title and Insurance . . . . . . . . . . . . . . . . . . . . . .10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . .11
Executive Officers . . . . . . . . . . . . . . . . . . . . . .11
PART II
Item 5. Market for the Registrant's Common Equity
and Related Shareholder Matters . . . . . . . . . . . . . . .12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . .13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . .14
Item 8. Financial Statements and Supplementary Data . . . . . . . . .19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . .38
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . .38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . .38
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . .38
Item 13. Certain Relationships and Related Transactions . . . . . . . .38
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . .38
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PART I
Items 1 and 2. Business and Properties
General
Berry Petroleum Company, ("Berry" or "Company"), is an independent energy
company engaged in the production, development, acquisition, exploitation,
exploration and marketing of crude oil and natural gas. The Company was
incorporated in Delaware in 1985 and has been a publicly traded company
since 1987. Currently, Berry's principal reserves and producing properties
are located in Kern, Los Angeles and Ventura Counties in California.
Information contained in this report on Form 10-K reflects the business of
the Company during the year ended December 31, 1998. The Company's corporate
headquarters are located on its properties in the South Midway-Sunset field,
near Taft, California and Management believes the current facilities are
adequate.
The Company's mission is to increase shareholder wealth, primarily through
maximizing the value and cash flow of the Company's assets. To achieve this,
Berry's corporate strategy is to remain a low cost producer and to grow the
Company's asset base strategically. To increase production and proved
reserves, the Company will compete to acquire oil and gas properties with
primarily proved reserves with exploitation potential and will focus on the
further development of its existing properties by application of enhanced oil
recovery (EOR) methods, developmental drilling, well completions and remedial
work. Berry believes that its primary strengths are its ability to maintain
a low cost operation and its flexibility in acquiring attractive producing
properties which have significant exploitation and enhancement potential.
While the Company is not currently involved in exploration activities, the
Company may investigate and pursue a focused exploration program in the
future. The Company has unused borrowing capacity to finance acquisitions
and will consider, as appropriate, the issuance of capital stock to finance
future purchases.
Proved Reserves
As of December 31, 1998, the Company's estimated proved reserves were 92.6
million barrels of oil equivalent, (BOE), of which 99.3% is crude oil. The
majority of these proved reserves are owned in fee. Substantially all of the
Company's reserves as of December 31, 1998 were located in California with 94%
and 6% of total reserves in Kern and Ventura Counties, respectively. The
Company's reserves have a long life, in excess of 20 years, which is primarily
a result of the Company's strong position in heavy crude oil (the Company's
properties in the Midway-Sunset field average 13 degree API gravity and the
Montalvo field averages 16 degree API gravity). Production in 1998 was
4.4 million BOE, down 3% from 1997 production of 4.6 million BOE. For the
five years 1994 through 1998, the Company's average reserve replacement rate
was 202% at a cost of $3.19 per BOE.
Acquisitions
South Midway-Sunset
Effective August 1, 1998, Berry purchased two leases and two fee
properties totaling 280 acres with estimated reserves of up to 1.3 million
barrels of 13 degree gravity crude oil for $3.1 million. The properties are
adjacent to Berry's other core South Midway-Sunset properties and averaged
208 net barrels of oil per day (BPD) for the Company in 1998. The acquisition
also included the assignment of a steam contract which delivers a minimum of
2,000 barrels of steam per day (BSPD) for use in production. The Company
paid for this acquisition out of cash flow.
Placerita
On December 23, 1998, the Company announced that it entered into an
agreement to purchase the Placerita oilfield in Los Angeles County for $35
million. By agreement, the Company took over operations as of January 1,
1999. The Company completed the transaction on February 12, 1999. None of
the 1998 operating data nor year end reserves of the property are included in
the Company's 1998 year end financial statements or tabular data presented in
this report. This acquisition is very important to the Company's future
operations. These properties are currently producing approximately 2,800 net
BPD of 13 degree gravity crude oil. Berry estimates the proved reserves to
be approximately 20
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million barrels, which at closing gave the Company approximately 112 million
barrels versus 92.6 million BOE at December 31, 1998. In addition, the
acquisition included a 42 megawatt cogeneration facility which provides
steam for use in the enhanced oil recovery methods utilized to produce the
oil. On January 21, 1999, the Company amended its existing credit agreement
and increased its borrowing base to $110 million. The Company increased its
borrowings in January 1999 by approximately $32 million to finance this
acquisition.
Operations
Berry operates all of its principal oil producing properties. Berry
utilizes primary recovery methods at its Montalvo field. The Midway-Sunset and
Placerita fields contain predominantly heavy crude oil which requires heat,
supplied in the form of steam, that is injected into the oil producing
formations to reduce the oil viscosity which improves the mobility of the oil
in flowing to the well-bore for production. Berry utilizes primary and
cyclic steaming recovery methods in the Midway-Sunset field and steam-drive
in the Placerita field. Field operations include the initial recovery of the
crude oil and its transport through treating facilities into storage tanks.
After the treating process is completed, which includes removal of water and
solids by mechanical, thermal and chemical processes, the crude oil is either
metered through Lease Automatic Custody Transfer (LACT) units and transferred
into crude oil pipelines owned by other companies or, as in the case of the
Placerita field, loaded on trucks. The point-of-sale is usually the LACT unit
or truck loading facility.
Revenues
The percentage of revenues by source for the prior three years is as
follows:
1998 1997 1996
Sales of oil and gas 100% 97% 97%
Interest and other income -%(1) 3% 3%
(1) less than 1%
Oil Marketing
The world and California markets for crude oil remained extremely
depressed throughout 1998 and into 1999. In October 1997, world crude oil
prices began a decline to the lowest levels in decades. Several factors have
caused an imbalance in supply of and demand for crude oil that may continue
to keep crude oil prices low in the near future.
The collective Asian economies have been responsible for a large part of
the world's growth in energy demand during the past few years. In 1998, the
Asian economies faltered and, as a result, growth in demand for crude oil from
this region has been reduced. In addition to this reduction in world demand,
Iraq has increased its crude oil production under the United Nations "food for
oil" sales program from approximately .5 million BPD in 1997 to a current level
of 2.5 million BPD. Also, the Organization of Petroleum Exporting Countries
(OPEC) agreed in late 1997 to an increase in production quotas that resulted in
a further increase in world crude supplies. Until current crude oil supply and
demand conditions change, crude oil prices are likely to remain at low levels.
For example, since early 1998, OPEC has implemented production quota reductions
among members, in addition to other exporting nations voluntarily reducing
production, in an attempt to reduce supply and increase world crude oil prices.
To date, this attempt has not resulted in higher crude oil prices.
On a positive note, the crude price differential between lighter crude
oils and California's heavy crude oil remains at historically low levels.
The lower light/heavy crude price differential is due to the decline in
competing Alaska North Slope (ANS) production, lifting of the export ban on
ANS crude oil, and past expansion of deep conversion capacity in West Coast
refineries designed to increase the use and improve the refining economics of
heavy crude oil. In addition, unlike other parts of the world where crude
oil inventories are at excessive levels, crude oil inventories on the West
Coast remain at or near average historical levels. Also, California is still
experiencing strong gasoline and asphalt demand.
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Another factor that will positively impact the California heavy crude
market is the current construction of a new 132 mile crude oil pipeline, the
Pacific Pipeline, that will deliver unblended San Joaquin Valley heavy crude
oil into the Los Angeles refining market. The Pacific Pipeline is insulated
and provides another transportation outlet for San Joaquin Valley heavy crude
oil without requiring lighter crude oil volumes as transportation blendstock.
The construction of the Pacific Pipeline has been completed and the pipeline
has been put into operation as of March 1999.
Berry competitively markets its crude oil production to competing buyers
including independent marketing, pipeline and integrated oil companies.
Management does not believe that the loss of any single customer or contract
would materially affect its business. The Company sells its oil and gas
production under both short-term and long-term contracts up to 18 months in
duration, whereby the Company agrees to deliver certain volumes of crude oil
to pipeline delivery points at the Company's properties. These contracts
provide for the sale of crude oil at current market prices. At various times
in the past, the Company has been able, through its marketing efforts, to
obtain crude oil price premiums, the level of which depends upon current
market conditions. From time to time, the Company also enters into crude oil
and natural gas hedge contracts depending on various factors, including
Management's view of future crude oil and natural gas prices, and the
Company's future financial commitments. The Company currently has a
bracketed zero cost collar hedge contract with an independent refiner for
3,000 BPD based upon California 13 degree gravity heavy crude oil posted
price. This contract expires on December 31, 1999. The hedging activities
contributed $.50 to the average price received for the Company's crude oil in
1998 and resulted in a net cost to the Company of less than $.01 per barrel
in 1997. Berry's 1998 average heavy crude oil sales price was $9.02 per
barrel, down $5.68 per barrel, or 39%, from $14.70 in 1997.
Steaming Operations
At December 31, 1998, approximately 94% of the Company's proved reserves,
or 87 million barrels, consisted of heavy crude oil produced from depths
averaging less than 2,000'. With the acquisition of the Placerita properties
in February 1999, approximately 95% of the proved reserves, or 107 million
barrels, consisted of heavy crude oil. The depths of the Placerita wells
range from 1,100' to 2,800', averaging 1,800'. The Company, in achieving its
goal of being a low cost heavy oil producer, has focused on reducing its
steam cost by the purchase of two gas-fired cogeneration facilities in 1995
and 1996, and the Placerita cogeneration facility in early 1999. Steam
generation from these facilities is more efficient than conventional steam
generators, as both steam and electricity are produced from the same natural
gas fuel supply. The proceeds received from the sale of electricity offset
a large portion of the cost of producing steam and are reported as a reduction
to operating costs in the Company's financial statements.
For its South Midway-Sunset properties, the Company's current steam
production is generated by its 38 and 18 megawatt cogeneration facilities
(approximately 18,500 BSPD) and, as needed, from conventional steam generators.
In addition, the Company made modifications to use the duct-firing capability
of its 38 megawatt facility to produce up to an additional 4,500 BSPD
available for delivery to its South Midway-Sunset properties. In August 1998,
the Company acquired a steam contract from an on-site, non-owned cogeneration
facility for a minimum delivery of 2,000 BSPD for use in the Company's
operations. Conventional steam generators are used by the Company at its
South Midway-Sunset properties as required to maintain current production
levels, to economically produce additional crude oil and as emergency back-up
steam generation to the cogeneration facilities. Due to low oil prices, the
Company temporarily shut down the duct-firing steam capacity in early 1998
and reduced the utilization of conventional steam generators at the South
Midway-Sunset field to reduce costs and improve cash flow. The Company
started increasing the volume of steam injected in this field in late 1998,
and in early 1999 restored duct-firing, offsetting some conventional steam
generation. On its North Midway-Sunset properties, the Company relies solely
on conventional steam generators for its steam requirements. On its Placerita
properties, the Company generates approximately 13,500 BSPD from its 42
megawatt cogeneration facility, acquires another 3,000 BSPD from a third
party cogeneration facility and has available another 6,000 BSPD from
conventional steam generators. The Company has ample productive steam
capacity for its requirements at all three core areas.
The Company's two cogeneration facilities in the South Midway-Sunset field
sold electricity to a large California-based utility under Standard Offer #2
(SO2) contracts in 1996. The SO2 contract for the 38 megawatt facility expired
on January 16, 1997, while the contract for the 18 megawatt facility does not
expire until January 31, 2002. The SO2
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contract for the 38 megawatt facility was replaced by a 15-year Standard Offer
#1 (SO1) contract effective January 16, 1997, which resulted in lower
electricity revenues than under the previous SO2 contract. However, under the
SO1 contract, the Company will continue to receive Short Run Avoided Cost
pricing plus a portion of the proceeds related to available capacity that was
received in prior years. The 42 megawatt facility (Placerita), which has two
separate 21 megawatt gas fired turbines, has two SO2 contracts; one which
expires in May 2002, and the other in March 2009. The electricity from this
facility is sold to a different California-based utility than the other
contracts. Deregulation of the electricity generation market in California
may have a positive or negative impact on the Company's future electricity
revenues. The Company believes, at a minimum, continued steam generation
from cogeneration facilities will be significantly more efficient and cost
effective than conventional steam generators.
The Company has physical access to gas pipelines, such as the Kern
River/El Paso and Southern California Gas Company systems, to transport its
gas purchases required for steam generation. Prior to February 1997, natural
gas purchases for the 38 megawatt cogeneration facility were subject to a
long-term gas transportation agreement which required the Company to pay
above-market transportation rates for a substantial portion of the facility's
gas requirements. The expiration of this contract resulted in substantial
reductions in gas transportation costs beginning in 1997. Currently, none of
the Company's cogeneration facilities are subject to any long-term gas
transportation agreements.
Environmental and Other Regulations
The operations of Berry are affected by federal, state, regional and
local laws and regulations, including laws governing allowable rates of
production, well spacing, air emissions, water discharges, endangered
species, marketing, pricing, taxes, land use restrictions and other laws
relating to the petroleum industry. Berry is further affected by changes
in such laws and by constantly changing administrative regulations.
The Company's oil and gas operations and properties are subject to
numerous federal, state and local laws and regulations relating to
environmental protection. These laws and regulations govern, among other
things, the amounts and types of substances and materials that may be
released into the environment, the issuance of permits in connection
with drilling, production and electricity generation activities, the
discharge and disposition of waste materials, the reclamation and abandonment
of wells and facility sites and the remediation of contaminated sites. In
addition, these laws and regulations may impose substantial liabilities for
the Company's failure to comply with them or for any contamination resulting
from the Company's operations.
Berry has established policies and procedures for continuing compliance
with environmental laws and regulations affecting its production. The costs
incurred to comply with these laws and regulations are inextricably connected
to normal operating expenses such that the Company is unable to separate the
expenses related to environmental matters; however, the Company does not
believe any such additional future expenses are material to its financial
position or results of operations.
Although environmental requirements do have a substantial impact upon the
energy industry, generally these requirements do not appear to affect the
Company any differently, or to any greater or lesser extent, than other
companies in California and in the domestic industry as a whole. Berry
believes that compliance with environmental laws and regulations will not
have a material adverse effect on the Company's operations or financial
condition but there can be no assurances that changes in or additions to
laws or regulations regarding the protection of the environment will not
have such an impact in the future.
Berry maintains insurance coverage which it believes is customary in the
industry, although it is not fully insured against all environmental risks.
The Company is not aware of any environmental claims existing as of
December 31, 1998, which would have a material impact upon the Company's
financial position or results of operations.
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Competition
The oil and gas industry is highly competitive. As an independent
producer, the Company does not own any refining or retail outlets and,
therefore, it has little control over the price it receives for its crude oil.
As such, higher costs, fees and taxes assessed at the producer level cannot
necessarily be passed on to the Company's customers. In acquisition
activities, significant competition exists as both integrated and
independent companies and individual producers and operators are active
bidders for desirable oil and gas properties. Although many of these
competitors have greater financial and other resources than the Company,
Management believes that it is in a position to compete effectively due to
its low cost structure, transaction flexibility, strong financial position
and experience.
Employees
On December 31, 1998, the Company had 88 full-time employees. In
conjunction with the acquisition of the Placerita properties, the Company
increased its full-time employees to 103 as of February 19, 1999.
Oil and Gas Properties
Development
South Midway-Sunset - Berry owns and operates working interests in twenty-
two properties consisting of 2,010 acres located in the South Midway-Sunset
field. The Company estimates these properties account for approximately 84% of
the Company's proved oil and gas reserves and approximately 85% of its current
daily production. Fourteen of these properties are owned in fee. The wells
produce from an average depth of approximately 1200'. These properties rely
on thermal EOR methods, primarily cyclic steaming.
During 1998, the primary focus in this field was directed at the continued
integration and further development of the Formax and Tannehill properties,
acquired in 1996, into the Company's operations. Of the 17 new wells drilled
in 1998 in this area, 10 were drilled on these recently acquired properties.
In addition, during 1998, the Company drilled a total of 3 horizontal wells
in this field and completed 35 workovers on existing wells. The Company's
objectives related to using this developing technology were to improve
ultimate recovery of original oil-in-place, reduce the development and
operating costs of the properties and accelerate production. In 1999, the
Company plans to drill an additional 8 development wells in this field, 3 of
which will be horizontal wells.
North Midway-Sunset - Berry owns and operates approximately 1,975 acres
in the North Midway-Sunset field which account for approximately 10% of the
Company's proved oil and gas reserves and 8% of daily production. These
properties also rely on thermal EOR methods, primarily cyclic steaming.
Berry's interests consist of four fee properties comprising 1,009 acres and
nine leases comprising 966 acres. These wells produce from an average depth
of approximately 1200'.
During 1998, the Company drilled 3 development wells to maintain
productive capacity and develop proved reserves and one exploitation well to
begin delineation of the diatomite accumulation in the Antelope Zone on top
of the Fairfield anticline. At current crude oil price levels, the Company
has no plans to drill additional development wells in this area. The Company
has, however, budgeted one well to continue delineation of the Antelope Shale
and other diatomaceous intervals.
Montalvo - Berry owns a 100% working interest in six leases, comprising
8,563 acres, in Ventura County, California comprising the Montalvo field. The
State of California is the lessor for two of the six leases. The Company
estimates current proved reserves from Montalvo account for approximately 6% of
Berry's proved oil and gas reserves. Total production from these leases
represents approximately 7% of Berry's total current daily oil and gas
production. The wells produce from an average depth of approximately 12,500'.
No new wells were drilled in 1998 or 1997.
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Placerita - On February 12, 1999, Berry acquired the Placerita oilfield
from a large California oil producer. The property consists of six leases
(three are federal leases) and two fee properties totaling approximately 700
acres. The average depth of the wells is approximately 1,800'. These
properties rely on thermal EOR methods, primarily steam drive.
The following is a summary of capital expenditures incurred during 1998
and 1997 and projected capital expenditures for 1999:
CAPITAL EXPENDITURES SUMMARY
(in thousands)
1999(1) 1998 1997
(Projected)
South Midway-Sunset Field
New wells $ 1,615 $ 2,886 $ 10,078
Remedials/workovers 370 767 1,695
Facilities 380 1,028 3,180
Cogeneration facilities (2) 2,300 623 208
------ ------ -------
4,665 5,304 15,161
------ ------ -------
North Midway-Sunset Field
New wells 175 826 1,719
Remedials/workovers - 57 251
Facilities - 45 336
------ ------ -------
175 928 2,306
------ ------ -------
Montalvo
Remedials/workovers - 117 -
Facilities - 108 -
------ ------ -------
- 225 -
------ ------ -------
Other
412 524 1,130
------ ------ -------
Totals $ 5,252 $ 6,981 $ 18,597
====== ====== =======
(1) Budgeted capital expenditures may be adjusted for numerous reasons
including, but not limited to, results of drilling and oil price levels. See
the Future Developments section of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(2) Principally relates to a major turnaround required on the 38 megawatt
facility.
Exploration
The Company did not participate in the drilling of any exploratory wells
in 1998 or 1997 and has none budgeted for 1999. Although the Company has
significantly reduced its exploration program since 1994 to concentrate on
growth through development of existing assets and strategic acquisitions, the
Company may investigate and pursue a focused exploration program in the future.
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Enhanced Oil Recovery Tax Credits
In 1990, President Bush signed into law the Revenue Reconciliation Act of
1990 which included a tax credit for certain costs associated with extracting
high-cost marginal oil which utilizes at least one of nine designated
"enhanced" or tertiary recovery methods. Cyclic steam and steam drive
recovery methods, which Berry utilizes extensively, are qualifying EOR
methods. In 1996, California conformed to the federal law thus, on a
combined basis, the Company is able to achieve credits approximating 12% of
its qualifying costs. The credit is earned for a qualified EOR project by
investing in one of three types of expenditures: (1) drilling new wells,
(2) adding facilities that are integrally related to qualified EOR production,
or (3) utilizing a tertiary injectant, such as steam, to produce oil. This
credit is significant in reducing the Company's income tax liabilities and
effective tax rate.
Oil and Gas Reserves
The Company continued to engage DeGolyer and MacNaughton (D&M) to estimate
the proved oil and gas reserves and the future net revenues to be derived from
properties of the Company for the year ended December 31, 1998. D&M is an
independent oil and gas consulting firm located in Dallas, Texas. In preparing
their reports, D&M reviewed and examined geologic, economic, engineering and
other data provided by the Company considered applicable to each reserve
determination. They also examined the reasonableness of certain economic
assumptions regarding forecasted operating and development costs and recovery
rates in light of the economic environment on December 31, 1998. For the
Company's operated properties, these reserve estimates are filed annually with
the U.S. Department of Energy. Refer to the Supplemental Information About
Oil & Gas Producing Activities (Unaudited) for the Company's oil and gas
reserve disclosures.
Production
The following table sets forth certain information regarding production
for the years ended December 31, as indicated:
1998 1997 1996
Net annual production(1):
Oil (Mbbls) 4,359 4,503 3,491
Gas (Mmcf) 245 282 491
Total equivalent barrels(2) 4,399 4,550 3,573
Average sales price:
Oil (per bbl) $ 9.02 $ 14.70 $ 15.42
Gas (per mcf) 2.64 2.68 1.99
Per BOE 9.05 14.71 15.36
Average production cost (per BOE) 4.05 4.92 4.92
(1) Net production represents that owned by Berry and produced to its interest,
less royalty and other similar interests.
(2) Equivalent oil and gas information is at a ratio of 6 thousand cubic feet
(mcf) of natural gas to 1 barrel (bbl) of oil.
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Acreage and Wells
At December 31, 1998, the Company's properties accounted for the following
developed and undeveloped acres:
Developed Acres Undeveloped Acres
Gross Net Gross Net
California 6,573 6,572 6,846 6,846
Other 360 42 - -
------ ------ ------ ------
6,933 6,614 6,846 6,846
====== ====== ====== ======
Gross acres represent acres in which Berry has a working interest; net
acres represent Berry's aggregate working interests in the gross acres.
Berry currently has 2,119 gross oil wells (2,113 net) and 4 gross gas
wells (3.1 net). Gross wells represent the total number of wells in which
Berry has a working interest. Net wells represent the number of gross wells
multiplied by the percentages of the working interests owned by Berry. One
or more completions in the same bore hole are counted as one well. Any well
in which one of the multiple completions is an oil completion is classified
as an oil well.
Drilling Activity
The following table sets forth certain information regarding Berry's
drilling activities for the periods indicated:
1998 1997 1996
Gross Net Gross Net Gross Net
Exploratory wells drilled:
Productive - - - - - -
Dry(1) - - - - - -
Development wells drilled:
Productive 20 20 89 88.9 46 45.1
Dry(1) 1 1 1 1 3 2.1
Total wells drilled:
Productive 20 20 89 88.9 46 45.1
Dry(1) 1 1 1 1 3 2.1
(1) A dry well is a well found to be incapable of producing either oil or
gas in sufficient quantities to justify completion as an oil or gas well
Title and Insurance
The Company is not aware of any defect in the title to any of its
principal properties. Notwithstanding the absence of a recent title opinion
or title insurance policy on all of its properties, the Company believes it
has satisfactory title to its properties, subject to such exceptions as the
Company believes are customary and usual in the oil and gas industry and
which the Company believes will not materially impair its ability to recover
the proved oil and gas reserves or to obtain the resulting economic benefits.
The oil and gas business can be hazardous, involving unforeseen
circumstances such as blowouts or environmental damage. Although it is not
insured against all risks, the Company maintains a comprehensive insurance
program to address the hazards inherent in the oil and gas business.
10
<PAGE> 11
Item 3. Legal Proceedings
The Company is a party to certain lawsuits arising in the ordinary course
of business. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect such matters to have a material adverse
effect on the financial statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers
Listed below are the names, ages (as of December 31, 1998) and positions
of the executive officers of Berry and their business experience during at
least the past five years. All officers of the Company are appointed in May
of each year at an organizational meeting of the Board of Directors. There
are no family relationships between any executive officer and members of the
Board of Directors.
JERRY V. HOFFMAN, 49, Chairman of the Board, President and Chief Executive
Officer. Mr. Hoffman has been President and Chief Executive Officer since May
1994 and President and Chief Operating Officer from March 1992 until May 1994.
Mr. Hoffman was added to the Board of Directors in March 1992 and named
Chairman on March 21, 1997. Mr. Hoffman held the Senior Vice President and
Chief Financial Officer positions from January 1988 until March 1992.
Mr. Hoffman has held a variety of other positions with the Company and its
predecessors since February 1985.
GEORGE T. CRAWFORD, 38, Manager of Production, since January 4, 1999. Mr.
Crawford, a petroleum engineer, was previously the Production Engineering
Supervisor for ARCO Western Energy, a subsidiary of Atlantic Richfield Corp.
(ARCO). Mr. Crawford was employed by ARCO from 1989 to 1998 in numerous
engineering and operational assignments including Production Engineering
Supervisor, Planning and Evaluation Consultant and Operations Superintendent.
DONALD A. DALE, 52, Controller since December 1985. Mr. Dale was the
Controller for the Company's predecessor from September 1985 to December 1985.
RALPH J. GOEHRING, 42, Senior Vice President and Chief Financial Officer.
Mr. Goehring has been Senior Vice President since April 1997, Chief Financial
Officer since March 1992 and was Manager of Taxation from September 1987
until March 1992. Mr. Goehring is also the Assistant Secretary for the
Company.
KENNETH A. OLSON, 43, Corporate Secretary since December 1985 and
Treasurer since August 1988. Mr. Olson has held a variety of other positions
with the Company and its predecessors since July 1985.
BRIAN L. REHKOPF, 51, Manager of Engineering since September 1997, joined
the Company's engineering department in June 1997. Mr. Rehkopf, a registered
petroleum engineer, was previously a Vice President and Asset Manager with
ARCO Western Energy, a subsidiary of ARCO since 1992 and an Operations
Engineering Supervisor with ARCO from 1988 to 1992.
MICHAEL R. STARZER, 37, Vice President of Corporate Development since
March 1996 and Manager of Corporate Development since April 1995.
Mr. Starzer, a registered petroleum engineer, was with Unocal from August
1983 to May 1991 and from August 1993 to April 1995. Mr. Starzer was an
engineering consultant and worked with the California State Lands Commission
from May 1991 to August 1993.
11
<PAGE> 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
Shares of Class A Common Stock (Common Stock) and Class B Stock, referred
to collectively as the "Capital Stock", are each entitled to one vote and 95%
of one vote, respectively. Each share of Class B Stock is entitled to a
$1.00 per share preference in the event of liquidation or dissolution.
Further, each share of Class B Stock is convertible into one share of Common
Stock at the option of the holder.
In 1989, the Company adopted a Shareholder Rights Agreement and declared a
dividend distribution of one such Right for each outstanding share of Capital
Stock on December 22, 1989. Each share of Capital Stock issued after December
22, 1989 includes one Right. The Rights expire on December 8, 1999. See Note 7
of Notes to the Financial Statements.
In conjunction with the acquisition of Tannehill in 1996, the Company
issued a Warrant Certificate to the beneficial owners of Tannehill Oil Company.
This Warrant authorizes the purchase of 100,000 shares of Berry Petroleum
Company Class A Common Stock until November 8, 2003 at $14.06 per share. All
the warrants are currently outstanding and the underlying shares will not be
registered under the Securities Act of 1933.
Berry's Class A Common Stock is listed on the New York Stock Exchange
under the symbol "BRY". The Class B Stock is not publicly traded. The market
data and dividends for 1998 and 1997 are shown below:
1998 1997
Price Range Dividends Price Range Dividends
High Low per Share High Low per Share
First Quarter $ 17 1/2 $ 13 3/4 $.10 $ 15 7/8 $ 14 $.10
Second Quarter 15 3/8 13 .10 19 13 7/8 .10
Third Quarter 13 13/16 10 1/2 .10 20 1/2 16 3/16 .10
Fourth Quarter 14 1/4 11 1/2 .10 21 3/8 17 .10
The closing price per share of Berry's Common Stock, as reported on the
New York Stock Exchange Composite Transaction Reporting System for February
19, 1999, December 31, 1998 and December 31, 1997 was $9 5/8, $14 3/16
and $17 7/16, respectively.
The number of holders of record of the Company's Common Stock was 885 (and
approximately 3,000 street name shareholders) as of February 19, 1999. There
was one Class B Stockholder of record as of February 19, 1999.
The Company paid cash dividends for many years prior to the roll-up of the
various Berry companies into Berry Petroleum Company on December 16, 1985.
Since Berry's formation, the Company has paid dividends on its Common Stock
for eight consecutive semi-annual periods through September 1989 and for
37 consecutive quarters through December 31, 1998. The Company intends
to continue the payment of dividends, although future dividend payments will
depend upon the Company's level of earnings, operating cash flow, capital
commitments, financial covenants and other relevant factors.
At December 31, 1998, dividends declared on 4,033,150 shares of certain
Common Stock are restricted, whereby 37.5% of the dividends declared on these
shares are paid by the Company to the surviving member of a group of
individuals, the B group, for as long as this remaining member shall live.
12
<PAGE> 13
Item 6. Selected Financial Data
The following table sets forth certain financial information with respect
to the Company and is qualified in its entirety by reference to the historical
financial statements and notes thereto of the Company included in Item 8,
"Financial Statements and Supplementary Data." The statement of operations and
balance sheet data included in this table for each of the five years in the
period ended December 31, 1998 were derived from the audited financial
statements and the accompanying notes to those financial statements
(in thousands, except per share and per barrel data):
1998 1997 1996 1995 1994
Statement of Operations
Data:
Sales of oil and gas $ 39,858 $ 67,172 $ 55,264 $ 45,773 $ 39,451
Operating costs 17,828 22,407 17,587 18,264 21,224
General and
administrative
expenses (G&A) 3,975 5,907 4,820 4,578 5,118
Depreciation,
depletion &
amortization
(DD&A) 10,080 10,138 7,323 6,847 7,270
Net income (loss) 3,879 19,260 17,546 12,203 (1,129)
Basic net income
(loss) per share .18 .88 .80 .56 (.05)
Weighted average number
of shares outstanding 22,007 21,976 21,939 21,932 21,932
Balance Sheet Data:
Working capital $ 9,081 $ 11,499 $ 7,850 $ 36,506 $ 38,273
Total assets 173,804 177,724 176,403 117,722 118,254
Long-term debt 30,000 32,000 36,000 - -
Shareholders' equity 106,924 111,871 101,009 92,060 88,632
Cash dividends per
Share .40 .40 .40 .40 .40
Operating Data:
Cash flow from
Operations 19,924 31,401 29,182 17,070 14,579
Capital expenditures
(excluding
acquisitions) 6,981 18,597 15,616 14,569 5,911
Property acquisitions 2,991 - 69,330 503 1,023
Per BOE:
Sales price $ 9.05 $ 14.71 $ 15.36 $ 13.48 $ 11.60
Operating costs 4.05 4.92 4.92 5.41 6.28
G&A .90 1.30 1.35 1.35 1.51
----- ----- ----- ----- -----
Cash flow 4.10 8.49 9.09 6.72 3.81
DD&A 2.29 2.23 2.05 2.03 2.15
----- ----- ----- ----- -----
Operating income $ 1.81 $ 6.26 $ 7.04 $ 4.69 $ 1.66
===== ===== ===== ===== =====
Production (BOE) 4,399 4,550 3,573 3,379 3,382
Proved Reserves
Information:
Total BOE 92,609 101,043 102,116 78,068 77,084
Present value (PV10)
of estimated future
cash flow before
income taxes $113,811 $376,459 $634,579 $308,370 $263,890
Year end BOE price
for PV10 purposes 7.05 12.19 18.37 13.39 12.49
Other:
Return on average
shareholders' equity 3.5% 18.1% 18.2% 13.6% (1.2)%
Return on average
total assets 2.2% 10.9% 13.3% 10.5% (0.9)%
Total debt/total debt
plus equity 21.9% 22.2% 29.8% N/A N/A
13
<PAGE> 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion provides information on the results of operations
for each of the three years ended December 31, 1998 and the financial condition,
liquidity and capital resources as of December 31, 1998. The financial
statements and the notes thereto contain detailed information that should be
referred to in conjunction with this discussion.
The profitability of the Company's operations in any particular accounting
period will be directly related to the average realized prices of oil and gas
sold, the type and volume of oil and gas produced and the results of
acquisition, development, exploitation and exploration activities. The average
realized prices for oil and gas will fluctuate from one period to another due
to world and regional market conditions and other factors. The aggregate
amount of oil and gas produced may fluctuate based on the success of
development and exploitation of oil and gas reserves pursuant to current
reservoir management. Production rates, steam costs net of electricity
revenue, labor, maintenance expenses and production taxes are expected to be
the principal influences on operating costs. Accordingly, the results of
operations of the Company may fluctuate from period to period based on the
foregoing principal factors, among others.
Results of Operations
Net income for 1998 was $3.9 million, down $15.4 million, or 80%, from
$19.3 million in 1997 and $13.6 million, or 78% from $17.5 million in 1996.
For the fourth quarter of 1998, net income was a loss of ($1.1) million, down
$5.8 million and $6.4 million from $4.7 million in the fourth quarter of 1997
and $5.3 million in the fourth quarter of 1996, respectively. Although the
Company maintained good cost discipline in 1998, profitability decreased due
to a very negative pricing environment for crude oil.
The following table presents certain operating data for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
Net production - BOE per day 12,053 12,465 9,762
Per BOE:
Average sales price $ 9.05 $ 14.71 $ 15.36
Operating costs* 3.46 4.24 4.44
Production taxes .59 .68 .48
Total operating costs 4.05 4.92 4.92
DD&A 2.29 2.23 2.05
G&A .90 1.30 1.35
* Excluding production taxes.
Operating income from producing operations was $12.3 million in 1998, down
$22.7 million and $18.4 million, respectively, from $35 million in 1997 and
$30.7 million in 1996 due to the significant decline in oil prices in 1998
compared to the prior years.
The average sales price/BOE received in 1998 was $9.05, or 38% below the
average of $14.71 in 1997 and 41% lower than the average of $15.36 for 1996.
World oil prices declined sharply in early 1998. The average posting for
Midway-Sunset crude oil which began the year at $12.19 had reached $6.50 by
March 16, 1998. Although postings rebounded slightly for short periods during
the balance of 1998, the average posted price during December 1998 was
only $6.53 and the average posted price has remained at very low levels in 1999.
Oil and gas production of 12,053 BOE/day in 1998 was 412 BOE/day, or 3% lower
than production of 12,465 BOE/day in 1997, but 2,291 BOE/day, or
24% higher than 1996 production of 9,762 BOE/day. The decrease in production
from 1997 was primarily related to the reduction of steam injection and reduced
capital expenditures on the Company's Midway-Sunset properties. This
reduction was necessitated by the poor crude oil pricing environment. The
increases in production compared to 1996 were primarily related to production
from and development of acquisitions made in the latter part of 1996.
14
<PAGE> 15
The Company continued to achieve excellent cost control in 1998.
Operating costs for the year averaged $4.05/BOE, down 18% from $4.92/BOE in
both 1997 and 1996. Many factors contributed to the positive results achieved
in this area. The Company's Management correctly interpreted the decline in
oil prices as a long-term event and moved quickly to reduce costs and protect
the cash flow of the Company. An across-the-board 10% salary reduction was
implemented and selected personnel reductions were made. Steam production
from higher cost sources such as conventional steam generation and cogeneration
plant duct firing was eliminated or significantly reduced. The number of well
service rigs was reduced and some low producing wells were shut-in. In
addition, production taxes began to decline in the second half of 1998 due to
lower oil property valuations. Also, the price of cogeneration steam was
lower than 1997 primarily because of lower gas prices.
DD&A/BOE increased to $2.29 in 1998, up 3% from $2.23 in 1997 and 12% from
$2.05 in 1996. The increase is due to higher depreciation related to additional
facilities and a higher basis related to the cumulative effect of recent capital
budgets.
The Company purchased certain properties in the Midway-Sunset field in the
third quarter of 1998 for $3.1 million in cash. The acquisition included four
producing properties and a steam purchase contract from an on-site, non-owned
cogeneration plant. These properties currently produce approximately 210 BPD
and the Company believes that additional development opportunities on these
properties are available.
On December 31, 1998, the Company recorded a $1.8 million pre-tax
impairment charge relating to non-producing properties in Kern County due to
the low year end oil price of $7.05/barrel.
Included in the 1998 gain/(loss) on sale of assets is a charge of $.76
million which represents the write-off of a receivable and related legal
expenses incurred to collect amounts owed from the 1995 sale of its Rincon
properties. Included in the 1997 gain/(loss) on sale of assets is a gain of
$1.0 million resulting from the sale of certain non-core properties in that
year.
General
Interest expense in 1998 was $1.9 million, down from $2.3 million in 1997,
but up significantly from $.2 million in 1996. The Company did not capitalize
interest expense in any of these periods. The reduction from 1997 was due to
the reduction in debt in both 1997 and 1998 and generally lower borrowing rates
in 1998. The Company did not have long-term debt until the borrowings were
made pursuant to the acquisitions made in the latter part of 1996. Interest
and dividend income was $.8 million in 1998, up from $.6 million in 1997, but
down from $2.1 million in 1996.
G&A was $4.0 million in 1998, down 32% and 17%, respectively, from $5.9
million in 1997 and $4.8 million in 1996. On a per BOE basis, G&A decreased to
$.90 from $1.30 in 1997 and $1.35 in 1996. In light of the severe market
conditions faced by the Company in early 1998, several steps were initiated to
reduce and control costs. An across-the-board 10% salary reduction, with
certain members of Management taking even higher reductions, was implemented
in March of 1998. Simultaneously, reductions were made in the number of
employees. These two factors accounted for approximately $1.0 million of the
G&A savings as compared to 1997. The salaries were reinstated effective
January 1, 1999. In addition, the Company experienced lower compensation
related to the exercise of stock options by employees and directors and also
lower medical claims.
The Company's effective income tax rate in 1998 was 9%, down from 32% and
36% in 1997 and 1996, respectively. The lower rate in 1998 was due primarily
to the impact of certain tax benefits, primarily EOR credits and percentage
depletion, applied against lower income in 1998 compared to 1997 and 1996. The
Company expects that its effective rate will remain significantly below the 32%
rate it achieved in 1997 if the current low oil price environment continues.
15
<PAGE> 16
In December 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". As required by this new
standard, the Company reports two earnings per share amounts, basic net income
per share and diluted net income per share. Basic net income per share is
computed by dividing income available to common shareholders (the numerator) by
the weighted average number of common shares outstanding (the denominator).
The computation of diluted net income per share is similar to the computation
of basic net income per share except that the denominator is increased to
include the dilutive effect of the additional common shares that would have
been outstanding if all convertible securities had been converted to common
shares during the period.
Also, during 1997 the Company adopted the provisions of the American
Institute of Certified Public Accountants Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities" and SFAS No. 125, "Accounting for
Transfer and Servicing of Financial Assets and Extinguishments of Liabilities."
The adoption of these two pronouncements had no material impact on the
financial statements of the Company.
During 1996, the Company implemented the disclosure requirements of SFAS
No. 123, "Accounting for Stock Based Compensation." This statement sets forth
alternative standards for recognition of the cost of stock-based compensation
and requires that a Company's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. As allowed in this statement, the Company continues
to apply Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in recording
compensation related to its plans. The supplemental disclosure requirements
and further information related to the Company's stock option plans are
presented in Note 9 to the Company's financial statements.
Financial Condition, Liquidity and Capital Resources
Working capital as of December 31, 1998 was $9.1 million, down from $11.5
million at December 31, 1997 and up from $7.9 million at December 31, 1996.
Cash flow from operations in 1998 was $19.9 million, down 37% and 32%,
respectively, from $31.4 million in 1997 and $29.2 million in 1996. The
decrease in cash flow in 1998 was primarily due to a 38% decrease in the
average sales price of heavy crude oil and a 3% decrease in production.
Working capital decreased in 1998 from 1997, primarily because internal cash
flows paid a portion, but not all, of the cost of $7.0 million in capital
expenditures, the payment of $8.8 million in dividends, the retirement of
$2.0 million in long-term debt and the cost of property acquisitions of
$3.0 million. The Company's 1998 capital budget included the drilling of
21 development wells, remedial work on a number of other wells and $1.3 million
in improvements to surface facilities.
On December 1, 1996, the Company established a $150 million unsecured
revolving credit facility with NationsBank, N.A. As of December 31, 1998, the
borrowing base was $35 million. On January 21, 1999, the Company amended its
credit agreement and established a new borrowing base of $110 million and
included two additional banks in its syndication. The primary purpose of this
amendment was to increase the borrowing base and to fund the Placerita
acquisition. The Company is carrying $62 million in long-term debt under this
credit facility as of February 19, 1999.
The total proved reserves at December 31, 1998 were 92.6 million BOE, down
from 101 million BOE at December 31, 1997 and 102.1 million BOE at December 31,
1996. The decrease in 1998 was primarily related to production of 4.4 million
barrels and the reduction of 5 million barrels deemed uneconomic at the
December 31, 1998 oil price of $7.05/barrel, partially offset by the
acquisition of approximately 1 million barrels of reserves in properties
adjacent to the Company's South Midway-Sunset properties.
The Company's present value of estimated future net cash flows before
income taxes, discounted at 10%, was $114 million at December 31, 1998, down
substantially from $376 million and $635 million at December 31, 1997 and
December 31, 1996, respectively. This decline is also primarily related to the
decline in oil prices. The values were based on year end oil prices of $7.05,
$12.19 and $18.37 per BOE for 1998, 1997 and 1996, respectively.
16
<PAGE> 17
Year 2000
In 1997, the Company began a review of its computer hardware, software
applications and process control equipment with embedded semiconductor chips to
determine which components, if any, would not function correctly in the years
2000 and beyond. In the third quarter of 1998, the Company created a Year 2000
(Y2k) team to monitor the results of the review on an ongoing basis to better
ensure that the Company's operations will not experience any material adverse
effects when the year 2000 arrives.
As part of the review, started in 1997, the Company determined that its
accounting software would have to be modified or replaced. The Company has
identified new software that is represented to be Y2k compliant. Two
modules were replaced in the first half of 1998. The remaining modules are
scheduled to be replaced during the first nine months of 1999. The total cost
of the software and hardware purchased to complete the installation is
estimated to be approximately $.6 million. If, for some reason, the software
cannot be purchased and installed by the year 2000, the Company intends to
modify its existing software to handle Y2k. These modifications would be
made by the Company's in-house information systems personnel. The Company
has evaluated all of its other software, which is predominantly purchased
from third party providers, and determined that they are substantially Y2k
compliant as of the end of 1998.
The Company has performed an evaluation of its computer hardware and
determined that with only a few minor exceptions, it is Y2k compliant at this
time. Minor upgrades were completed on some of the equipment to make them
compliant at no material cost to the Company.
The Company has made inquiries to the operator of the Company's two
cogeneration facilities to ensure that all equipment is Y2k compliant. These
facilities provide over two-thirds of the Company's steam, which is necessary
to produce the Company's heavy oil reserves. The Company has been informed
by the operator that the facilities are Y2k compliant at this time. If, by
the year 2000, the cogeneration facilities are not compliant, it could have
a material adverse effect on the Company's production volumes and results of
operations. If the plants were shut down, the Company would fire its
conventional generators, which would result in a lower volume of steam at a
higher cost to the Company. However, the Company believes such action will
not be necessary and is confident that the facilities will be compliant when
the year 2000 arrives. Facilities and equipment at the Placerita properties
acquired in February 1999 and the non-owned cogeneration facilities which
provide additional steam to the Placerita and South Midway-Sunset properties
will be evaluated during the first half of 1999.
The Company's customers are predominantly major oil companies or large
independent refiners. If any of these customers were not Y2k compliant by the
end of 1999 and could not buy the Company's crude oil, it could have a
material impact on the Company's operations. The Company's operations could
also be impacted if the pipeline companies that transport the crude oil or if
any of the utility or critical service providers were not Y2k compliant and
could not provide their products and services. However, Management anticipates
that these companies will be ready and, therefore, the Company's operations
will not be materially impacted when the year 2000 arrives. The Company has
communicated with the financial institutions that are business partners of the
Company. It is anticipated that they will be Y2k compliant by the year 2000
resulting in no material impact to the Company. If any of the Company's
other business partners are not Y2k compliant by the year 2000, Management does
not believe it will have a material impact on the Company's operations.
17
<PAGE> 18
Future Developments
On February 12, 1999, the Company completed the acquisition of the
Placerita oilfield producing properties and a 42 megawatt duel-turbine
cogeneration facility from a large California oil producer for $35 million.
The producing properties contain approximately 20 million barrels of proven
reserves of 13 degree gravity crude oil. Production on the properties is
enhanced primarily through the use of steam drive methods. The power from
both turbines at the cogeneration facility is sold under SO2 contracts.
This facility generates economical steam available for the property and
lowers operating costs substantially. The Company began operating the
property on December 31, 1998, and continues to integrate the operations.
Due to the continuing historic low crude oil prices received by the
Company in early 1999, the Company is operating under an austere capital
budget. In addition, the Company estimates that it has shut-in approximately
550 BPD of production due to poor economics. As oil prices improve, it is
likely that the Company will return to production these shut-in wells and may
increase its capital budget as cash flow allows.
Deregulation of the electricity generation market in California may have a
positive or negative impact on the Company's future steam costs as electricity
prices somewhat de-couple from natural gas prices. As of December 31, 1998,
the Company's electricity price received for sales from the two cogeneration
plants owned by the Company correlates directly with natural gas prices.
Therefore, our net steam costs are fairly consistent between quarters and
years. In the future, electricity prices will be determined by not only the
cost of natural gas, but also the cost of coal, hydroelectric, nuclear and
other sources of fuel. In addition, power consumption demand may make
electricity prices more volatile than in the past.
Impact of Inflation
The impact of inflation on the Company has not been significant in recent
years because of the relatively low rates of inflation experienced in the
United States.
Forward Looking Statements
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995. With the exception of historical information, the matters discussed
in this Form 10-K are forward-looking statements that involve risks and
uncertainties. Although the Company believes that its expectations are based
on reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include, but are
not limited to, the timing and extent of changes in commodity prices for oil,
gas and electricity, environmental risks, drilling and operating risks,
uncertainties about the estimates of reserves, Y2k non-compliance by the
vendors, customers, the Company, etc. and government regulation.
18
<PAGE> 19
Item 8. Financial Statements and Supplementary Data
BERRY PETROLEUM COMPANY
Index to Financial Statements and
Supplementary Data
Page
Report of PricewaterhouseCoopers LLP, Independent Accountants . . . . . 20
Balance Sheets at December 31, 1998 and 1997 . . . . . . . . . . . . . 21
Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 22
Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 23
Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 24
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . 25
Supplemental Information About Oil & Gas Producing Activities. . . . . . 36
Financial statement schedules have been omitted since they are either not
required, are not applicable, or the required information is shown in the
financial statements and related notes.
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Berry Petroleum Company
In our opinion, the accompanying balance sheets and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Berry Petroleum Company (the "Company") at
December 31, 1998 and 1997, and the 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 the 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/s PRICEWATERHOUSECOOPERS LLP
February 12, 1999
Los Angeles, California
20
<PAGE> 21
BERRY PETROLEUM COMPANY
Balance Sheets
December 31, 1998 and 1997
(In Thousands, Except Share Information)
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 7,058 $ 7,756
Short-term investments available
for sale 710 718
Accounts receivable 5,495 8,990
Prepaid expenses and other 4,049 1,979
------- -------
Total current assets 17,312 19,443
Oil and gas properties (successful efforts
basis), buildings and equipment, net 155,571 157,441
Other assets 921 840
------- -------
$ 173,804 $ 177,724
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,491 $ 4,432
Accrued liabilities 2,108 2,459
Federal and state income taxes payable 632 1,053
------- -------
Total current liabilities 8,231 7,944
Long-term debt 30,000 32,000
Deferred income taxes 28,649 25,909
Shareholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized;
no shares outstanding - -
Capital stock, $.01 par value:
Class A Common Stock, 50,000,000 shares
authorized; 21,109,729 shares issued
and outstanding (21,094,494 in 1997) 211 211
Class B Stock, 1,500,000 shares authorized;
898,892 shares issued and outstanding
(liquidation preference of $899) 9 9
Capital in excess of par value 53,400 53,422
Retained earnings 53,304 58,229
------- -------
Total shareholders' equity 106,924 111,871
------- -------
$ 173,804 $ 177,724
======= =======
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
BERRY PETROLEUM COMPANY
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Data)
1998 1997 1996
Revenues:
Sales of oil and gas $ 39,858 $ 67,172 $ 55,264
Interest and dividend income 805 643 2,081
Gain/(loss) on sale of assets (716) 1,093 -
Other income (expense), net (48) 87 (72)
------- ------- -------
39,899 68,995 57,273
------- ------- -------
Expenses:
Operating costs 17,828 22,407 17,658
Depreciation, depletion & amortization 10,080 10,138 7,323
Interest expense 1,939 2,302 178
Impairment of properties 1,827 - -
General and administrative 3,975 5,907 4,820
------- ------- -------
35,649 40,754 29,979
------- ------- -------
Income before income taxes 4,250 28,241 27,294
Provision for income taxes 371 8,981 9,748
------- ------- -------
Net income $ 3,879 $ 19,260 $ 17,546
======= ======= =======
Basic net income per share $ .18 $ .88 $ .80
======= ======= =======
Diluted net income per share $ .18 $ .87 $ .80
======= ======= =======
Weighted average number of shares of
capital stock outstanding (used to
calculate basic net income per share) 22,007 21,976 21,939
Effect of dilutive securities:
Stock options 25 173 25
Other 5 16 -
------- ------- -------
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,037 22,165 21,964
======= ======= =======
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
BERRY PETROLEUM COMPANY
Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Data)
Capital in
Capital Stock Excess of Retained Shareholders'
Class A Class B Par Value Earnings Equity
Balances at
January 1, 1996 $ 210 $ 9 $ 52,850 $ 38,991 $ 92,060
Stock options
expired - - (1) - (1)
Stock options
Exercised - - 180 - 180
Cash dividends
Declared -
$.40 per share - - - (8,776) (8,776)
Net income - - - 17,546 17,546
------ ------ ------- ------- -------
Balances at
December 31, 1996 210 9 53,029 47,761 101,009
Stock options
exercised 1 - 393 - 394
Cash dividends
declared -
$.40 per share - - - (8,792) (8,792)
Net income - - - 19,260 19,260
------ ------ ------- ------- -------
Balances at
December 31, 1997 211 9 53,422 58,229 111,871
Stock options
Exercised - - (58) - (58)
Deferred director
fees - stock
compensation - - 36 - 36
Cash dividends
declared -
$.40 per share - - - (8,804) (8,804)
Net income - - - 3,879 3,879
------ ------ ------- ------- -------
Balances at
December 31, 1998 $ 211 $ 9 $ 53,400 $ 53,304 $ 106,924
====== ====== ======= ======= =======
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
BERRY PETROLEUM COMPANY
Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
1998 1997 1996
Cash flows from operating activities:
Net income $ 3,879 $ 19,260 $ 17,546
Depreciation, depletion and
Amortization 10,080 10,138 7,323
Gain on sale of assets (55) (1,093) -
Impairment of properties 1,827 - -
Increase in deferred income tax
liability 2,740 4,917 4,024
Other, net (260) (302) (258)
------- ------- -------
Net working capital provided by
operating activities 18,211 32,920 28,635
Decrease (increase) in current
assets other than cash, cash
equivalents and short-term
investments 1,425 2,039 (2,262)
Increase (decrease) in current
liabilities other than notes
payable 288 (3,558) 2,809
------- ------- -------
Net cash provided by operating
Activities 19,924 31,401 29,182
------- ------- -------
Cash flows from investing activities:
Capital expenditures, excluding
property acquisitions (6,981) (18,597) (15,616)
Property acquisitions (2,991) - (69,330)
Proceeds from sale of assets 350 1,892 352
Purchase of short-term investments - (14) (710)
Maturities of short-term investments 8 - 15,700
Restricted cash deposit - 2,570 (2,570)
Other, net (240) (50) (100)
------- ------- -------
Net cash used in investing activities (9,854) (14,199) (72,274)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt - 3,000 36,000
Proceeds from issuance of short-term
notes payable - - 6,900
Payment of long-term debt (2,000) (7,000) -
Payment of short-term notes payable - (6,900) -
Dividends paid (8,804) (8,792) (8,776)
Other, net 36 276 179
------- ------- -------
Net cash provided by (used in)
financing activities (10,768) (19,416) 34,303
------- ------- -------
Net decrease in cash and cash
Equivalents (698) (2,214) (8,789)
Cash and cash equivalents at beginning
of year 7,756 9,970 18,759
------- ------- -------
Cash and cash equivalents at
end of year $ 7,058 $ 7,756 $ 9,970
======= ======= =======
Supplemental disclosures of cash
flow information:
Interest paid $ 1,924 $ 2,319 $ -
======= ======= =======
Income taxes paid $ 270 $ 4,280 $ 4,709
======= ======= =======
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
1. General
The Company is an independent energy company engaged in the production,
development, acquisition, exploitation, exploration and marketing of crude oil
and natural gas. Substantially all of the Company's oil and gas reserves are
located in California. Approximately 99% of the Company's production is crude
oil, which is principally sold to other oil companies for processing in
refineries located in California.
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.
2. Summary of significant accounting policies
Cash and cash equivalents
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
Short-term investments
All short-term investments are classified as available for sale. Short-
term investments consist principally of United States treasury notes and
corporate notes with remaining maturities of more than three months at date of
acquisition. Such investments are stated at cost, which approximates market.
The Company utilizes specific identification in computing realized gains and
losses on investments sold.
Oil and gas properties, buildings and equipment
The Company accounts for its oil and gas exploration and development costs
using the successful efforts method. Under this method, costs to acquire and
develop proved reserves and to drill and complete exploratory wells that find
proved reserves are capitalized and depleted over the remaining life of the
reserves using the units-of-production method. Exploratory dry hole costs and
other exploratory costs, including geological and geophysical costs, are
charged to expense when incurred. The costs of carrying and retaining unproved
properties are also expensed when incurred.
Depletion of oil and gas producing properties is computed using the units-
of-production method. Depreciation of lease and well equipment is computed
using the units-of-production method or on a straight-line basis over estimated
useful lives ranging from 10 to 20 years. The estimated costs, net of salvage
value, of plugging and abandoning oil and gas wells and related facilities are
accrued using the units-of-production method and are taken into account in
determining DD&A expense. Buildings and equipment are recorded at cost.
Depreciation is provided on a straight-line basis over estimated useful lives
ranging from 5 to 30 years for buildings and improvements and 3 to 10 years for
machinery and equipment. Assets are grouped at the field level and if it is
determined that the book value of long-lived assets cannot be recovered by
estimated future undiscounted cash flows, they will be written down to fair
value. When assets are sold, the applicable costs and accumulated depreciation
and depletion are removed from the accounts and any gain or loss is included in
income. Expenditures for maintenance and repairs are expensed as incurred.
25
<PAGE> 26
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
2. Summary of significant accounting policies (cont'd)
Hedging
The Company has periodically entered into bracketed zero cost collar hedge
contracts on a portion of its crude oil production with a California refiner to
protect the Company's revenues from potential price declines. Any revenues
received or costs incurred related to this hedging activity are reflected in
sales of oil and gas of the Company.
Steam Costs
The costs of producing steam are recorded as an operating expense of the
Company. Proceeds received from the sale of electricity produced by its
cogeneration plants are reported as a reduction to operating costs in the
Company's financial statements.
Stock-Based Compensation
During 1996, the Company implemented the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." This statement sets forth alternative
standards for recognition of the cost of stock-based compensation and requires
that a Company's financial statements include certain disclosures about stock-
based employee compensation arrangements regardless of the method used to
account for them. As allowed in this statement, the Company continues to apply
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in recording compensation
related to its plans. The supplemental disclosure requirements and further
information related to the Company's stock option plans are presented in Note 9
to the Company's financial statements.
Income Taxes
Income taxes are provided based on the liability method of accounting
pursuant to SFAS No. 109, "Accounting for Income Taxes." The provision for
income taxes is based on pre-tax financial accounting income. Deferred tax
assets and liabilities are recognized for the future expected tax consequences
of temporary differences between income tax and financial reporting, and
principally relate to differences in the tax basis of assets and liabilities
and their reported amounts using enacted tax rates in effect for the year in
which differences are expected to reverse. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Earnings Per Share
In December 1997, the Company adopted SFAS No. 128, "Earnings per Share."
As required by this new standard, the Company reports two earnings per share
amounts, basic net income and diluted net income per share. Basic net income
per share is computed by dividing income available to common shareholders (the
numerator) by the weighted average number of common shares outstanding (the
denominator). The computation of diluted net income per share is similar to
the computation of basic net income per share except that the denominator is
increased to include the dilutive effect of the additional common shares that
would have been outstanding if all convertible securities had been converted to
common shares during the period. Comparative earnings per share data for prior
periods presented has been restated to conform to the new standard.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 presentation.
26
<PAGE> 27
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
3. Fair value of financial instruments
Financial instruments consist of cash and short-term investments, whose
carrying amounts are not materially different from their fair values because of
the short maturity of those instruments. Cash equivalents consist principally
of commercial paper investments. Cash equivalents of $6.9 million and $6.2
million at December 31, 1998 and 1997, respectively, are stated at cost, which
approximates market.
The Company's short-term investments available for sale at December 31,
1998 and 1997 consist of one United States treasury note. All of the
short-term investments at December 31, 1998 mature in less than one year.
The carrying value of the Company's long-term debt, which was incurred in
1996, is assumed to approximate its fair value since it is carried at current
interest rates. For the three years ended December 31, 1998, realized and
unrealized gains and losses were insignificant to the financial statements.
United States treasury notes with an aggregate market value of $.6 million
are pledged as collateral to the California State Lands Commission as a
performance bond on the Company's Montalvo properties.
To protect the Company's revenues from potential price declines, the
Company entered into a bracketed zero cost collar hedge contract with a
California refiner covering 3,000 BPD of its crude oil production. The posted
price of the Company's 13 degree API gravity crude oil was used as the basis
for the hedge. The current contract expires on December 31, 1999.
4. Concentration of Credit Risks
The Company sells oil, gas and natural gas liquids to pipelines,
refineries and major oil companies. Credit is extended based on an
evaluation of the customer's financial condition. For the three years ended
December 31, 1998, the Company has experienced no credit losses on the sale
of oil, gas and natural gas liquids.
The Company places its temporary cash investments with high quality
financial institutions and limits the amount of credit exposure to any one
financial institution. For the three years ended December 31, 1998, the
Company has not incurred losses related to these investments.
The following summarizes the accounts receivable balances at December 31,
1998 and 1997 and sales activity with significant customers for each of the
years ended December 31, 1998, 1997 and 1996 (in thousands):
Sales
Accounts Receivable For the Year Ended December 31,
Customer December 31, 1998 December 31, 1997 1998 1997 1996
A $ 794 $ 1,681 $ 12,409 $ 19,482 $ 14,478
B 601 1,587 10,785 12,875 -
C 435 1,812 7,281 23,804 23,067
D 454 15 6,282 7,119 10,982
------- ------- ------- ------- -------
$ 2,284 $ 5,095 $ 36,757 $ 63,280 $ 48,527
======= ======= ======= ======= =======
27
<PAGE> 28
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
5. Oil and gas properties, buildings and equipment
Oil and gas properties, buildings and equipment consist of the following
at December 31 (in thousands):
1998 1997
Oil and gas:
Proved properties:
Producing properties, including
intangible drilling costs $ 133,372 $ 128,453
Lease and well equipment 93,637 92,461
------- -------
227,009 220,914
Less accumulated depreciation,
depletion and amortization 73,577 65,828
------- -------
153,432 155,086
------- -------
Commercial and other:
Land 170 151
Buildings and improvements 4,007 4,034
Machinery and equipment 3,775 3,653
------- -------
7,952 7,838
Less accumulated depreciation 5,813 5,483
------- -------
2,139 2,355
------- -------
$ 155,571 $ 157,441
======= =======
The following sets forth costs incurred for oil and gas property acquisition,
exploration and development activities, whether capitalized or expensed (in
thousands):
1998 1997 1996
Acquisition of properties(1) $ 2,991 $ - $ 69,330
Exploration - - 40
Development(2) 6,896 18,172 15,689
------- ------- -------
$ 9,887 $ 18,172 $ 85,059
======= ======= =======
(1) Excludes cogeneration facility costs and includes certain closing and
consultant costs related to the acquisitions.
(2) Includes cogeneration facilities.
The Company completed two significant acquisitions (Tannehill and Formax) in
1996 for a combined purchase price of approximately $75 million, including the
purchase of an 18 megawatt cogeneration facility. In 1998, the Company
completed one acquisition consisting of minerals and a steam contract. These
properties are in the Company's core South Midway-Sunset producing area. These
acquisitions had proved reserves of approximately 28 million barrels upon
acquisition.
28
<PAGE> 29
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
5. Oil and gas properties, buildings and equipment (cont'd)
Results of operations from oil and gas producing and exploration activities
The results of operations from oil and gas producing and exploration
activities (excluding corporate overhead and interest costs) for the three
years ended December 31 are as follows (in thousands):
1998 1997 1996
Sales to unaffiliated parties $ 39,858 $ 67,172 $ 55,264
Production costs (17,828) (22,407) (17,658)
Depreciation, depletion and
Amortization (9,686) (9,731) (6,868)
------- ------- -------
12,344 35,034 30,738
Income tax expenses (3,223) (10,870) (10,230)
------- ------- -------
Results of operations from
producing and exploration
activities $ 9,121 $ 24,164 $ 20,508
======= ======= =======
6. Debt obligations 1998 1997
Long-term debt for the years
ended December 31 (in thousands):
Revolving bank facility $ 30,000 $ 32,000
======= =======
At December 31, 1998, Berry had a $150 million unsecured three-year
revolving credit facility with NationsBank N.A. As of December 31, 1997, the
borrowing base was $40 million and the principal amount outstanding was $32
million. As of January 23, 1998, the borrowing base was reduced to $35
million. On January 21, 1999, the Company amended its existing credit
agreement with the bank primarily to increase the borrowing base to $110
million and add two additional banks to its syndication. In addition, the
facility has been revised to be a five-year bullet loan. The maximum amount
available is subject to an annual redetermination of the borrowing base in
accordance with the lender's customary procedures and practices. Both parties
have bilateral rights to one additional redetermination each year. The
revolving period is scheduled to terminate on January 21, 2004. Interest on
amounts borrowed is charged at NationsBank base rate or at London Interbank
Offered Rates (LIBOR) plus 75 to 150 basis points, depending on the ratio of
outstanding credit to the borrowing base. The weighted average interest rate
on outstanding borrowings at December 31, 1998 was 6.02%. The Company pays a
commitment fee of 25 to 35 basis points on the available unused portion of
the commitment. The credit agreement contains other restrictive covenants as
defined in the agreement.
In conjunction with the purchase of Tannehill in November 1996, the
Company incurred $6.9 million in short-term notes, which were due and paid on
January 6, 1997.
29
<PAGE> 30
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
7. Shareholders' equity
Shares of Class A Common Stock (Common Stock) and Class B Stock, referred
to collectively as the "Capital Stock", are each entitled to one vote and 95%
of one vote, respectively. Each share of Class B Stock is entitled to a
$1.00 per share preference in the event of liquidation or dissolution. Further,
each share of Class B Stock is convertible into one share of Common Stock at
the option of the holder.
In December 1989, the Company adopted a Shareholder Rights Agreement and
declared a dividend distribution of one Right for each outstanding share of
Capital Stock. Each Right, when exercisable, entitles the holder to purchase
one one-hundredth of a share of a Series A Junior Participating Preferred
Stock, or in certain cases other securities, for $38.00. The exercise price
and number of shares issuable are subject to adjustment to prevent dilution.
The Rights would become exercisable, unless earlier redeemed by the Company,
10 days following a public announcement that a person or group has acquired,
or obtained the right to acquire, 20% or more of the outstanding shares of
Common Stock or, 10 business days following the commencement of a tender or
exchange offer for such outstanding shares which would result in such person
or group acquiring 20% or more of the outstanding shares of Common Stock,
either event occurring without the prior consent of the Company.
The Rights will expire in December 1999 or may be redeemed by the Company
at $.01 per Right prior to that date unless they have theretofore become
exercisable. The Rights do not have voting or dividend rights, and until they
become exercisable, have no diluting effect on the earnings of the Company. A
total of 250,000 shares of the Company's Preferred Stock has been designated
Series A Junior Participating Preferred Stock and reserved for issuance upon
exercise of the Rights.
In conjunction with the acquisition of Tannehill, the Company issued a
Warrant Certificate to the beneficial owners of Tannehill Oil Company. This
Warrant authorizes the purchase of 100,000 shares of Berry Petroleum Company
Class A Common Stock until November 8, 2003 at $14.06 per share. All the
warrants are currently outstanding and the underlying shares will not be
registered under the Securities Act of 1933.
The Company issued 15,268, 47,621, and 13,932 shares in 1998, 1997 and
1996, respectively, through its stock option plans.
At December 31, 1998, dividends declared on 4,033,150 shares of certain
Common Stock are restricted, whereby 37.5% of the dividends declared on these
shares are paid by the Company to the surviving member of a group of
individuals, the B Group, as long as this remaining member shall live.
30
<PAGE> 31
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
8. Income taxes
The Provision for income taxes consists of the following (in thousands):
1998 1997 1996
Current:
Federal $ (716) $ 3,502 $ 3,519
State (881) 995 1,027
------ ------ ------
(1,597) 4,497 4,546
------ ------ ------
Deferred:
Federal 1,968 3,940 4,322
State - 544 880
------ ------ ------
1,968 4,484 5,202
------ ------ ------
Total $ 371 $ 8,981 $ 9,748
====== ====== ======
The current deferred tax assets and liabilities are offset and presented
as a single amount in the financial statements. Similarly, the noncurrent
deferred tax assets and liabilities are presented in the same manner. The
following table summarizes the components of the total deferred tax assets
and liabilities before such financial statement offsets. The components of
the net deferred tax liability consist of the following at December 31
(in thousands):
1998 1997
Deferred tax asset
Federal benefit of state taxes $ 1,514 $ 1,900
Credit/deduction carryforwards 2,481 1,440
Other, net (479) 415
------- -------
3,516 3,755
------- -------
Deferred tax liability
Depreciation and depletion (26,143) (24,069)
State taxes, net of federal benefit (4,545) (4,546)
Other, net (275) (619)
------- -------
(30,963) (29,234)
------- -------
Net deferred tax liability $ (27,447) $ (25,479)
======= =======
31
<PAGE> 32
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
8. Income taxes (cont'd)
Reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
1998 1997 1996
Tax computed at statutory federal rate 34.0% 35.0% 35.0%
Asset acquisition/sale differences (3.0) - -
State income taxes, net of federal
Benefit 2.0 3.5 4.5
Tax credits (24.3) (7.6) (4.5)
Other - .9 .7
------ ------ ------
Effective tax rate 8.7% 31.8% 35.7%
====== ====== ======
The Company has $.3 million of loss carryforwards which may be utilized
in future years to reduce the Company's federal income taxes. These loss
carryforwards expire in the year 2000. The Company also has approximately
$3.0 million of federal and $1.6 million of state enhanced oil recovery (EOR)
tax credit carryforwards available to reduce future income taxes. The EOR
credits will expire in the years 2012 and 2013, if not previously utilized.
32
<PAGE> 33
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
9. Stock option and stock appreciation rights plans
The Company has a 1987 Nonstatutory Stock Option Plan (the NSO Plan) and a
1987 Stock Appreciation Rights Plan (the SAR Plan). The NSO Plan provided for
the granting of options (Options) to purchase up to an aggregate of 700,000
shares of Common Stock. The SAR Plan originally authorized a maximum of
700,000 shares of Common Stock subject to stock appreciation rights (SARs).
Holders of SARs had the right upon exercise to receive a payment, payable at
the discretion of the Compensation Committee in cash or in shares of Common
Stock, equal to the amount by which the market price exceeds the Base Price
(as defined) with respect to the shares subject to such SARs on the date of
exercise. In December 1994, the Board of Directors adopted a resolution to
terminate the 1987 Stock Appreciation Rights Plan without utilizing the
307,860 SARs which were still available for issuance. The 1,120 outstanding
SARs at December 31, 1997 were exercised in early 1998. Total compensation
expense recognized for the SAR Plan was less than $100,000 in 1998, 1997 and
1996, respectively.
On December 2, 1994, the Board of Directors of the Company adopted the
Berry Petroleum Company 1994 Stock Option Plan which was restated and amended
in December 1997 (the 1994 Plan) and approved by the shareholders in May 1998.
The 1994 Plan provides for the granting of stock options to purchase up to an
aggregate of 2,000,000 shares of Common Stock. All Options, with the exception
of the formula grants to non-employee Directors, will be granted at the
discretion of the Compensation Committee of the Board of Directors. The term
of each Option may not exceed ten years from the date the Option is granted.
On December 4, 1998, December 5, 1997, June 2, 1997 and December 6, 1996,
434,000, 200,000, 40,000 and 480,000 Options, respectively, were issued to
certain key employees at an exercise price of $12.50, $19.375, $15.50
and $14.00 per share, respectively, which was the closing market price of the
Company's Class A Common Stock on the New York Stock Exchange on those dates.
The Options vest 25% per year for four years. The 1994 Plan also allows for
Option grants to the Board of Directors under a formula plan whereby
all non-employee Directors are eligible to receive 5,000 Options annually on
December 2 at the fair value on the date of grant. The Options granted to
the non-employee Directors vest immediately. Through the 1994 Plan, 45,000,
30,000 and 33,000 Options, respectively, were issued on December 2, 1998,
December 2, 1997 and 1996, (5,000 Options to each of the non-employee Directors
each year for 1998 and 3,000 for 1997 and 1996) at an exercise price of
$12.625, $18.9375 and $13.75 per share, respectively. In addition, 25,000
Options were granted on May 15, 1998 to the Non-employee Directors on
December 2, 1997 at an exercise price of $18.9375.
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, since the stock options related to
the 1987 Plan were issued at prices below the existing current market prices
and they were fully vested previously, compensation related to this plan was
recorded in prior years. The Options issued per the 1994 Plan were issued at
market price. Compensation recognized related to the 1994 Plan was
$.04 million in 1998, $.5 million in 1997 and $.1 million in 1996.
Under SFAS No. 123, compensation cost would be recognized for the fair
value of the employee's option rights. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
1998 1997 1996
Dividend - $/year $ .40 $ .40 $ .40
Expected option life-years 4 4 4
Volatility 28.13% 26.03% 24.97%
Risk-free interest rate 4.68% 5.48% 6.10%
33
<PAGE> 34
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
9. Stock option and stock appreciation rights plans (cont'd)
Had compensation cost for the 1994 Plan been based upon the fair value at
the grant dates for awards under this plan consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share data):
1998 1997 1996
Net income as reported $ 3,879 $ 19,260 $ 17,546
Pro forma $ 3,244 $ 19,185 $ 17,387
Net income per share as reported $ .18 $ .88 $ .80
Pro forma $ .15 $ .87 $ .79
The following is a summary of stock-based compensation activity for the
years 1998, 1997 and 1996.
1998 1997 1996
Options SARs Options SARs Options SARs
Balance out-
standing,
January 1 924,429 1,120 861,229 9,200 431,141 39,740
Granted 504,000 - 270,000 - 513,000 -
Exercised (75,799) (1,120) (196,800) (8,080) (76,912) (30,540)
Canceled/
expired (125,000) - (10,000) - (6,000) -
--------- ------ ------- ------ ------- -------
Balance out-
standing,
December 31 1,227,630 - 924,429 1,120 861,229 9,200
========= ====== ======= ====== ======= =======
Balance exer-
cisable at
December 31 449,880 - 256,929 1,120 231,229 9,200
========= ====== ======= ====== ======= =======
Available for
future grant 681,800 - 60,800 - 320,800 -
========= ====== ======= ====== ======= =======
Exercise
price-
Range $ 9.80 $ 9.80 $ 9.80 $ 9.80 $ 9.80 $ 9.80
to 19.375 to 19.375 to 10.00 to 14.00 to 10.00
Weighted average
remaining
contractual
life (years) 9 - 9 1 9 2
Weighted average
fair value per
option granted
during
the year $ 2.82 $ 4.56 $ 3.22
Weighted average option exercise price information for the years 1998, 1997
and 1996 as follows:
1998 1997 1996
Outstanding at January 1 $ 14.71 $ 12.61 $ 10.52
Granted during the year $ 12.83 $ 18.75 $ 13.98
Exercised during the year $ 11.42 $ 11.03 $ 12.82
Expired during the year $ 14.34 $ 14.00 $ 10.69
Outstanding at December 31 $ 14.18 $ 14.71 $ 12.61
Exercisable at December 31 $ 14.17 $ 13.09 $ 11.02
34
<PAGE> 35
BERRY PETROLEUM COMPANY
Notes to the Financial Statements
10. Retirement Plan
The Company sponsors a defined contribution retirement or thrift plan
(401(k) Plan) to assist all employees in providing for retirement or other
future financial needs. Employee contributions (up to 6% of their earnings)
are matched by the Company dollar for dollar. Effective November 1, 1992, the
401(k) Plan was modified to provide for increased Company matching of employee
contributions whereby the monthly Company matching contributions will
range from 6% to 9% of eligible participating employee earnings, if certain
financial results are achieved. The Company's contributions to the 401(k) Plan
were $.2 million in 1998 and $.3 million in 1997 and 1996.
11. Quarterly financial data (unaudited)
The following is a tabulation of unaudited quarterly operating results for
1998 and 1997 (in thousands, except for per share data):
Basic Diluted
Operating Gross Net Net Income Net Income
Revenues Profit Income (loss) Per Share Per Share
First Quarter $ 11,473 $ 4,569 $ 2,071 $ .09 $ .09
Second Quarter 9,590 3,136 1,514 .07 .07
Third Quarter 10,105 2,926 1,378 .06 .06
Fourth Quarter 8,642 1,665 (1,084) (.04) (.04)
------- ------- ------- ----- -----
$ 39,810 $ 12,296 $ 3,879 $ .18 $ .18
======= ======= ======= ===== =====
1997
First Quarter $ 17,025 $ 8,952 $ 4,816 $ .22 $ .22
Second Quarter 15,988 8,787 4,652 .21 .21
Third Quarter 16,775 8,697 5,136 .23 .23
Fourth Quarter 17,327 8,533 4,656 .22 .21
------- ------- ------- ----- -----
$ 67,115 $ 34,969 $ 19,260 $ .88 $ .87
======= ======= ======= ===== =====
12. Subsequent Event
On December 23, 1998, the Company announced that it had entered into an
agreement with Aera Energy, LLC to acquire the Placerita, California oilfield
for $35 million in cash. The Company closed the transaction on February 12,
1999. The Placerita oilfield consists of six leases and two fee properties
totaling approximately 700 acres and produces approximately 2,800 net BPD
of 13 degree gravity crude oil. The Company estimates the property has
approximately 20 million barrels of proved reserves, of which 65% are
developed. The acquisition also includes a 42 megawatt cogeneration facility
which generates electricity sold to a major utility and provides approximately
13,500 BSPD for injection into the reservoir. The Company financed the
acquisition through borrowings under its credit facility.
35
<PAGE> 36
BERRY PETROLEUM COMPANY
Supplemental Information About Oil & Gas Producing Activities (Unaudited)
The following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests owned by the Company located solely within the
United States. Proved reserves represent estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are the quantities expected to be recovered through existing wells
with existing equipment and operating methods. Proved undeveloped oil and gas
reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells for which relatively major
expenditures are required for completion.
Disclosures of oil and gas reserves which follow are based on estimates
prepared by independent engineering consultants as of December 31, 1998, 1997
and 1996. Such estimates are subject to numerous uncertainties inherent in
the estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. These
estimates do not include probable or possible reserves. The information
provided does not represent Management's estimate of the Company's expected
future cash flows or value of proved oil and gas reserves.
Changes in estimated reserve quantities
The net interest in estimated quantities of proved developed and
undeveloped reserves of crude oil and natural gas at December 31, 1998, 1997
and 1996, and changes in such quantities during each of the years then ended
were as follows (in thousands):
1998 1997 1996
Oil Gas Oil Gas Oil Gas
Mbbls Mmcf Mbbls Mmcf Mbbls Mmcf
Proved developed and
undeveloped reserves:
Beginning of year 100,454 3,531 101,336 4,682 77,071 5,983
Revision of
previous
estimates (4,894) 774 3,647 (869) 739 (810)
Production (4,359) (245) (4,503) (282) (3,491) (491)
Sale of reserves
in place - - (26) - - -
Purchase of reserves
in place 732 - - - 27,017 -
------- ------ ------- ------ ------- ------
End of year 91,933 4,060 100,454 3,531 101,336 4,682
======= ====== ======= ====== ======= ======
Proved developed
reserves:
Beginning of year 86,858 1,457 76,358 2,608 62,856 3,380
======= ====== ======= ====== ======= ======
End of year 83,532 1,604 86,858 1,457 76,358 2,608
======= ====== ======= ====== ======= ======
36
<PAGE> 37
BERRY PETROLEUM COMPANY
Supplemental Information About Oil & Gas Producing Activities
(Unaudited)(Cont'd)
The standardized measure has been prepared assuming year end sales prices
adjusted for fixed and determinable contractual price changes, current costs
and statutory tax rates (adjusted for tax credits and other items), and a ten
percent annual discount rate. No deduction has been made for depletion,
depreciation or any indirect costs such as general corporate overhead or
interest expense.
Standardized measure of discounted future net cash flows from estimated
production of proved oil and gas reserves (in thousands):
1998 1997 1996
Future cash inflows $ 656,607 $ 1,232,749 $ 1,875,373
Future production and development
Costs (388,546) (421,305) (429,879)
Future income tax expenses (33,577) (246,668) (495,412)
-------- -------- --------
Future net cash flows 234,484 564,776 950,082
10% annual discount for
estimated timing of cash flows (127,967) (297,182) (529,523)
-------- -------- --------
Standardized measure of discounted
future net cash flows $ 106,517 $ 267,594 $ 420,559
======== ======== ========
Pre-tax standardized measure of
discounted future net cash flows $ 113,811 $ 376,459 $ 634,579
======== ======== ========
Average sales prices at December 31:
Oil ($/bbl) $ 7.05 $ 12.19 $ 18.37
Gas ($/mcf) $ 2.10 $ 2.33 $ 3.02
Changes in standardized measure of discounted future net cash flows from proved
oil and gas reserves (in thousands):
1998 1997 1996
Standardized measure -
beginning of year $ 267,594 $ 420,559 $ 208,301
-------- -------- --------
Sales of oil and gas produced,
net of production costs (22,030) (44,765) (37,677)
Revisions to estimates of proved
reserves:
Net changes in sales prices and
production costs (216,265) (259,026) 170,529
Revisions of previous quantity
Estimates (8,400) 14,014 4,020
Change in estimated future
development costs (17,262) (1,775) (19,294)
Purchases of reserves in place 1,597 - 171,456
Sale of reserves in place - (244) -
Development costs incurred during
the period 6,728 18,597 9,305
Accretion of discount 37,539 63,458 30,837
Income taxes 46,293 109,780 (101,936)
Other 10,723 (53,004) (14,982)
-------- -------- --------
Net increase (decrease) (161,077) (152,965) 212,258
-------- -------- --------
Standardized measure - end of year $ 106,517 $ 267,594 $ 420,559
======== ======== ========
37
<PAGE> 38
BERRY PETROLEUM COMPANY
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 information called for by Item 10 is incorporated by reference from
information under the caption "Election of Directors" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A no later than
120 days after the close of its fiscal year. The information on Executive
Officers is contained in Part I of this Form 10-K.
Item 11. Executive Compensation
The information called for by Item 11 is incorporated by reference from
information under the caption "Executive Compensation" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A no later than
120 days after the close of its fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 is incorporated by reference from
information under the captions "Ownership by Directors and Management" and
"Principal Shareholders" in the Company's definitive proxy statement to be
filed pursuant to Regulation 14A no later than 120 days after the close of
its fiscal year.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 and related
Securities and Exchange Commission rules require that Directors and
Executive Officers report to the Securities and Exchange Commission changes
in their beneficial ownership of Berry stock, and that any late filings be
disclosed. Based solely on a review of the copies of such forms furnished
to the Company, or written representations that no Form 5 was required, the
Company believes that all Section 16(a) filing requirements were complied with.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is incorporated by reference from
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement to be filed pursuant to Regulation
14A no later than 120 days after the close of its fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Financial Statements and Schedules
See Index to Financial Statements and Supplementary Data in Item 8.
B. Reports on Form 8-K
A Form 8-K was filed on February 26, 1999 to report an Item 2 -
Acquisition of Assets. The Form 8-K was filed to report the acquisition
on February 12, 1999 of the Placerita oilfield assets for $35 million.
38
<PAGE> 39
C. Exhibits
Exhibit No. Description of Exhibit Page
3.1* Registrant's Restated Certificate of Incorporation
(filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 filed on June 7, 1989, File No. 33-29165)
3.2* Registrant's Restated Bylaws (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 on June 7,
1989, File No. 33-29165)
3.3* Registrant's Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
(filed as Exhibit 3.3 to the Annual Report on Form 10-K for
the year ended December 31, 1989, File No. 0-11708)
4.1* Rights Agreement between Registrant and Bank of America dated
as of December 8, 1989 (filed as Exhibit 1 to Form 8-K filed
on December 20, 1989, File No. 0-11708)
10.1* Description of Cash Bonus Plan of Berry Petroleum Company
(filed as Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
1-9735)
10.2* Salary Continuation Agreement dated as of December 5, 1997,
by and between Registrant and Jerry V. Hoffman (filed as Exhibit
10.2 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, File No.1-9735)
10.3* Form of Salary Continuation Agreement dated as of December 5,
1997, by and between Registrant and Ralph J. Goehring and
Michael R. Starzer (filed as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-9735)
10.4* Form of Salary Continuation Agreements dated as of March 20,
1987, as amended August 28, 1987, by and between Registrant
and selected employees of the Company (filed as Exhibit 10.12
to the Registration Statement on Form S-1 filed on June 7,
1989, File No. 33-29165)
10.5* Instrument for Settlement of Claims and Mutual Release by
and among Registrant, Victory Oil Company, the Crail Fund
and Victory Holding Company effective October 31, 1986
(filed as Exhibit 10.13 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 filed
on May 22, 1987, File No. 33-13240)
10.6* Warrant Certificate dated November 14, 1996, by and
between Registrant and Tannehill Oil Company (filed as
Exhibit 10.16 in Registrant's Form 10-K filed on March 21,
1997, File No. 1-9735)
10.7* Credit Agreement, dated as of December 1, 1996, by and
between the Registrant and NationsBank of Texas, N.A.
(filed as Exhibit 10.1 in Registrant's Form 8-K filed on
December 18, 1996, File No. 1-9735)
10.8* Standard Offer #2 Power Purchase Agreement dated May 1984
by and between Registrant's predecessor and Pacific Gas
and Electric Company (filed as Exhibit 10.14 in Registrant's
Form 10-K filed on March 21, 1997, File No. 1-9735)
10.9* Standard Offer #1 Power Purchase Agreement dated
January 16, 1997, by and between Registrant and Pacific
Gas and Electric Company (filed as Exhibit 10.15 in
Registrant's Form 10-K filed on March 21, 1997,
File No. 1-9735) 10.10* Purchase and Sale Agreement,
dated as of January 26, 1999, by and between the Registrant
and Aera Energy LLC (filed as Exhibit 10.1 to the
Registrant's Form 8-K filed on February 26, 1999,
File No. 1-9735)
10.11* Standard Offer #2 Power Purchase Agreement
(Newhall Phase I), as amended, dated December 1985,
between Tenneco Oil Company and Southern California Edison
(filed as Exhibit 10.2 to the Registrant's Form 8-K filed
on February 26, 1999, File No. 1-9735)
10.12* Standard Offer #2 Power Purchase Agreement
(Newhall Phase II), as amended, dated December 1985,
between Tenneco Oil Company and Southern California
Edison (filed as Exhibit 10.3 to the Registrant's
Form 8-K filed on February 26, 1999, (File No. 1-9735)
39
<PAGE> 40
Exhibits (cont'd)
Exhibit No. Description of Exhibit Page
10.13 Amended and Restated 1994 Stock Option Plan 42
10.14 Second Amendment to Credit Agreement dated as of
January 21, 1999, by and between Registrant and
NationsBank, N.A. 49
23.1 Consent of PricewaterhouseCoopers LLP 76
23.2 Consent of DeGolyer and MacNaughton 77
27. ** Financial Data Schedule
99.1 Undertaking for Form S-8 Registration Statements 79
99.2* Form of Indemnity Agreement of Registrant (filed as
Exhibit 28.2 in Registrant's Registration Statement on
Form S-4 filed on April 7, 1987, File No. 33-13240)
99.3* Form of "B" Group Trust (filed as Exhibit 28.3 to Amendment
No. 1 to Registrant's Registration Statement on Form S-4 filed
on May 22, 1987, File No. 33-13240)
* Incorporated by reference
** Included in the Company's electronic filing on EDGAR
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, thereto duly authorized on March 12, 1999.
BERRY PETROLEUM COMPANY
/s/ JERRY V. HOFFMAN /s/ RALPH J. GOEHRING /s/ DONALD A. DALE
JERRY V. HOFFMAN RALPH J. GOEHRING DONALD A. DALE
Chairman of the Board, Senior Vice President and Controller
President and Chief Chief Financial Officer Principal Accounting Officer)
Executive Officer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates so indicated.
Name Office Date
/s/ Jerry V. Hoffman Chairman of the Board, President March 12, 1999
Jerry V. Hoffman & Chief Executive Officer
/s/ William F. Berry Director March 12, 1999
William F. Berry
/s/ Gerry A. Biller Director March 12, 1999
Gerry A. Biller
/s/ Ralph B. Busch, III Director March 12, 1999
Ralph B. Busch, III
/s/ William E. Bush, Jr. Director March 12, 1999
William E. Bush, Jr.
/s/ Richard F. Downs Director March 12, 1999
Richard F. Downs
/s/ John A. Hagg Director March 12, 1999
John A. Hagg
/s/ Thomas J. Jamieson Director March 12, 1999
Thomas J. Jamieson
/s/ Roger G. Martin Director March 12, 1999
Roger G. Martin
40
<PAGE> 42
EXHIBIT A
BERRY PETROLEUM COMPANY
RESTATED AND AMENDED
1994 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The purpose of this Plan is to promote the growth and profitability of
the Company and other Participating Companies by providing, through the
ownership of Options, incentives to attract and retain highly talented persons
to provide managerial, administrative and other specialized services to the
Company and other Participating Companies and to motivate such persons to use
their best efforts on behalf of the Company and other Participating Companies.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
set forth in this Article II:
2.1 Accrued installment. The term "Accrued installment" shall mean any
vested installment of an Option.
2.2 Board. The term "Board" shall mean the Board of Directors of the
Company.
2.3 Committee. The term "Committee" shall mean the Compensation
Committee, or a successor committee, appointed by the Board and constituting
not less than two members of the Board, each of whom is a Disinterested
Person.
2.4 Company. The term "Company" shall mean Berry Petroleum Company, a
Delaware corporation, or any successor thereof.
2.5 Director. The term "Director" shall mean a member of the Board, or a
member of the board of directors of any Participating Company.
2.6 Disinterested Person. The term "Disinterested Person" shall mean any
person defined as a Disinterested Person in Rule 16b-3 of the Securities and
Exchange Commission as amended from time to time and as promulgated under the
Exchange Act.
2.7 Effective Date. The term "Effective Date" shall mean December 2,
1994.
2.8 Eligible Person. The term "Eligible Person" shall mean, except as
provided in Section 3.1, any full-time or part-time employee, officer or
Director of any Participating Company.
2.9 Exchange Act. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
2.10 Fair Market Value. The term "Fair Market Value" shall mean the
closing sale price on the trading day in question of the Shares on the
Composite Tape for New York Stock Exchange Listed Stocks, or, if the Shares
are not quoted on the Composite Tape, on the New York Stock Exchange, or, if
the Shares are not listed on such Exchange, on the principal United States
securities exchange on which the Shares are listed, or, if the Shares are not
listed on any such exchange, the closing bid quotation with respect to the
Shares on the trading day in question on the National Association of
Securities Dealers, Inc. Automated Quotations Systems or any similar system
then in use, or if no such quotation is available, the fair market value on
the date in question of the Shares as determined in good faith by the
Committee. If the day in question is not a trading day, the determination of
Fair Market Value shall be made as of the nearest preceding trading day.
2.11 Option. The term "Option" shall mean a nonstatutory option to
acquire Shares granted under this Plan.
A-1
<PAGE> A-2
2.12 Optionee. The term "Optionee" shall mean an Eligible Person who has
been granted an Option.
2.13 Parent Corporation. The term "Parent Corporation" shall mean a
corporation as defined in Internal Revenue Code Section 424(e) or any
successor thereto.
2.14 Participating Company. The term "Participating Company" shall mean
the Company and any Parent Corporation or Subsidiary Corporation of the
Company.
2.15 Plan. The term "Plan" shall refer to the Company's 1994 Stock
Option Plan.
2.16 Shares. The term "Shares" shall mean shares of the Company's Class
A Common Stock, $.01 par value, and may be unissued shares or treasury shares
or shares purchased for purposes of this Plan.
2.17 Subsidiary Corporation. The term "Subsidiary Corporation" shall
mean a corporation as defined in Internal Revenue Code Section 424(f) or any
successor thereto.
2.18 Terminating Transaction. The term "Terminating Transaction" shall
mean any of the following events: (a) the dissolution or liquidation of the
Company; (b) a reorganization, merger or consolidation of the Company with one
or more other corporations as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation (which shall be
deemed to have occurred if another corporation shall own, directly or
indirectly, over eighty percent (80%) of the aggregate voting power of all
outstanding equity securities of the Company); (c) a sale of all or
substantially all of the Company's assets; or (d) a sale of the equity
securities of the Company representing more than eighty percent (80%) of the
aggregate voting power of all outstanding equity securities of the Company to
any person or entity, or any group of persons and entities acting in concert.
2.19 Termination Date. The term "Termination Date" shall mean December
2, 2004.
2.20 Total Disability. The term "Total Disability" shall mean a
permanent and total disability as that term is defined in Internal Revenue
Code Section 22(e)(3) or any successor thereto.
ARTICLE III
ADMINISTRATION OF PLAN; GRANT TO DIRECTORS
3.1 Administration by the Committee. This Plan shall be administered by
the Compensation Committee of the Board, or its successor (the "Committee").
Subject to the provisions of this Plan document, the Committee shall have full
and absolute power and authority in its sole discretion to (i) determine which
Eligible Persons shall receive Options, (ii) determine the time when Options
shall be granted, (iii) determine the terms and conditions, not inconsistent
with the provisions of this Plan, of any Option granted hereunder, (iv)
determine the number of shares subject to or covered by each Option, and (v)
interpret the provisions of this Plan and of any Option granted under this
Plan. A member of the Committee shall not be an Eligible Person, and shall not
have been an Eligible Person at any time within one (1) year prior to
appointment to the Committee. Except as otherwise provided herein or otherwise
permitted by Rule 16b-3(c)(3) of the Exchange Act, during said one (1) year
prior to such appointment, no member of the Committee shall have been eligible
to acquire stock, stock options or stock appreciation rights under any plan of
the Company.
3.2 Grant to Non-employee Directors. All non-employee Directors of the
Company holding office on December 5, 1997, shall receive a grant of 5,000
Options, (3,000 of which have been granted to the 12 directors on that date
except for Mr. Middleton) conditioned upon the receipt of Shareholder Approval
at the May 15, 1998 Annual Meeting of Shareholders. For the duration of the
1994 Plan, each non-employee Director holding office on December 2nd of each
year shall automatically receive a grant of 5,000 Options.
The above referenced Options to non-employee Directors shall be granted upon
the following terms and conditions:
(a) The exercise price of the Options shall be Fair Market Value on the
date of grant.
A-2
<PAGE> A-3
(b) The Options shall vest immediately upon grant.
(c) This "formula" grant to non-employee Directors shall not be amended
more than once every (6) six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement income Security Act or the
rules thereunder.
3.3 Rules and Regulations. The Committee may adopt such rules and
regulations as the Committee may deem necessary or appropriate to carry out
the purposes of this Plan and shall have authority to take all action
necessary or appropriate to administer this Plan.
3.4 Binding Authority. All decisions, determinations, interpretations,
or other actions by the Committee shall be final, conclusive, and binding on
all Eligible Persons, Optionees, Participating Companies and any successors-
in-interest to such parties.
ARTICLE IV
NUMBER OF SHARES AVAILABLE UNDER THIS PLAN
The maximum aggregate number of Shares which may be optioned and sold
under this Plan is 2,000,000 Shares. In the event that Options granted under
this Plan shall for any reason terminate, lapse, be forfeited, or expire
without being exercised, the Shares subject to such unexercised Options may
again be subjected to Options under this Plan. In any event, however, no
Option may be granted hereunder if the sum of Shares subject to such Option
and the number of Shares subject to unexpired Options previously granted
hereunder (or subject to unexercised options or stock appreciation rights
under any other stock option or stock appreciation right plan of the Company)
would exceed twenty percent (20%) of the total shares of voting stock
outstanding at such time.
ARTICLE V
TERM OF PLAN
This Plan shall be effective as of the Effective Date and shall terminate
on the Termination Date. No Option may be granted hereunder after the
Termination Date.
ARTICLE VI
OPTION TERMS
6.1 Form of Option Agreement. Any option granted under this Plan shall
be evidenced by an agreement ("Option Agreement") in such form as the
Committee, in its discretion, may from time to time approve. Any Option
Agreement shall contain such terms and conditions as the Committee may deem,
in its sole discretion, necessary or appropriate and which are not
inconsistent with the provisions of this Plan.
6.2 Vesting and Exercisability of Options. Subject to the limitations
set forth herein and/or in any applicable Option Agreement entered into
hereunder, Options granted under this Plan shall vest and be exercisable in
accordance with the rules set forth in this Section 6.2:
a. General. Subject to the other provisions of this Section 6.2, Options
shall vest and become exercisable at such times and in such installments as
the Committee shall provide in each individual Option Agreement.
Notwithstanding the foregoing, the Committee may in its sole discretion
accelerate the time at which an Option or installment thereof may be
exercised. Unless otherwise provided in this Section 6.2 or in the Option
Agreement pursuant to which an Option is granted, an Option may be exercised
when Accrued Installments accrue as provided in such Option Agreement and at
any time thereafter until, and including, the Option Termination Date (as
defined below).
A-3
<PAGE> A-4
b. Termination of Options. All installments and Options shall expire and
terminate on such date as the Committee shall determine ("Option Termination
Date"), which in no event shall be later than ten (10) years from the date on
which such Option was granted.
c. Termination of Eligible Person Status Other Than by Reason of Death or
Disability. In the event that the employment of an Eligible Person with a
Participating Company is terminated for any reason (other than by reason of
death or Total Disability), any installments under an Option held by such
Eligible Person which have not accrued as of such termination date shall
expire and become unexercisable as of such termination date. Except as
otherwise provided herein, in the event that an Eligible Person who is a
Director terminates his directorship or otherwise ceases to be a Director for
any reason (other than by reason of death or Total Disability), any
installments under an Option held by such Eligible Person which have not
accrued as of the directorship termination date shall expire and become
unexercisable as of the directorship termination date. All Accrued
installments as of the employment termination date and/or the directorship
termination date shall remain exercisable only within such period of time as
the Committee may determine, but in no event shall any Accrued installments
remain exercisable for a period in excess of three (3) months following such
termination date or for a period in excess of the original Option Termination
Date, whichever is earlier. For purposes of this Plan, an Eligible Person who
is an employee or Director of any Participating Company shall not be deemed to
have incurred a termination of his employment or his directorship (whichever
may be applicable) so long as such Eligible Person is an employee or Director
(whichever may be applicable) of any Participating Company.
d. Leave of Absence. In the case of any employee on an approved leave of
absence, the Committee may make such provision respecting continuance of any
Options held by the employee as the Committee deems appropriate in its sole
discretion, except in no event shall an Option be exercisable after the
original Option Termination Date.
e. Death or Total Disability of Eligible Person. In the event that the
employment or directorship of an Eligible Person with a Participating Company
is terminated by reason of death or Total Disability, any unexercised Accrued
installments of Options granted hereunder to such Eligible Person shall expire
and become unexercisable as of the earlier of:
(1) The applicable Option Termination Date, or
(2) The first anniversary of the date of termination of the employment
or directorship of such Eligible Person by reason of the Eligible Person's
death or Total Disability. Any such Accrued Installments of a deceased
Eligible Person may be exercised prior to their expiration only by the person
or persons to whom the Eligible Person's Option rights pass by will or the
laws of descent and distribution. Any Option installments under such a
deceased or disabled Eligible Person's Option that have not accrued as of the
date of the termination of employment, or directorship due to death or Total
Disability shall expire and become unexercisable as of such termination date.
f. Termination of Affiliation of Participating Company. Notwithstanding
the foregoing provisions of this section, in the case of an Eligible Person
who is an employee or Director of a Participating Company other than the
Company, upon an Affiliation Termination (as defined herein) of such
Participating Company such Eligible Person shall be deemed (for all purposes
of this Plan) to have incurred a termination of his employment or directorship
with such Participating Company for reasons other than death or Total
Disability, with such termination to be deemed effective as of the effective
date of said Affiliation Termination. As used herein the term "Affiliation
Termination" shall mean, with respect to a Participating Company, the
termination of such Participating Company's status as a Participating Company
(as defined herein) with respect to the Company.
6.3 Options Not Transferable. Options granted under this Plan may not be
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily or
by operation of law, other than by will or the laws of descent and
distribution, and
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<PAGE> A-5
(except as specifically provided to the contrary in Section 6.2(e) hereof)
may be exercised during the lifetime of an Optionee only by such Optionee.
6.4 Restrictions on Issuance of Shares.
a. No Shares shall be issued or delivered upon exercise of an Option
unless and until there shall have been compliance with all applicable
requirements of the Securities Act of 1933, all applicable listing
requirements of any market or securities exchange on which the Company's
Common Stock is then listed, and any other requirements of law or of any
regulatory body having jurisdiction over such issuance and delivery. The
inability of the Company to obtain any required permits, authorizations or
approvals necessary for the lawful issuance and sale of any Shares hereunder
on terms deemed reasonable by the Committee shall relieve the Company, the
Board, and the Committee of any liability in respect of the nonissuance or
sale of such Shares as to which such requisite permits, authorizations or
approvals shall not have been obtained.
b. As a condition to the granting or exercise of any Option, the
Committee may require the person receiving or exercising such Option to make
any representations and warranties to the Company as may be required or
appropriate under any applicable law or regulation, including, but not limited
to, a representation that the Option or Shares are being acquired only for
investment and without any present intention to sell or distribute such Option
or Shares, if such a representation is required under the Securities Act of
1933 or any other applicable law, rule or regulation.
c. The exercise of any Option under this Plan is conditioned on approval
of this Plan, within twelve (12) months of the adoption of this Plan by the
Board, by (i) the vote of the holders of a majority of the outstanding
securities of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with applicable law, or (ii) the written
consent of the holders of a majority of the securities of the Company entitled
to vote if the requirements of Rule 16b-3(b)(2) promulgated under the Exchange
Act are otherwise satisfied. In the event such shareholder approval is not
obtained within such time period, any Options granted hereunder shall be void.
6.5 Option Adjustments.
a. If the outstanding Shares are increased, decreased, changed into or
exchanged for a different number or kind of shares of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split, an appropriate and proportionate adjustment
shall be made in the number or kind of shares, and the per-share Option price
thereof which may be issued in the aggregate and to any individual Optionee
under this Plan upon exercise of Options granted under this Plan; provided,
however, that no such adjustment need be made if, upon the advice of counsel,
the Committee determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted hereunder or the
holders of Shares or other classes of the Company's securities.
b. Upon the occurrence of a Terminating Transaction (as defined in
Article II hereof), as of the effective date of such Terminating Transaction,
this Plan and any then outstanding Options (whether or not vested) shall
terminate unless (i) provision is made in writing in connection with such
transaction for the continuance of this Plan and for the assumption of such
Options, or for the substitution of such Options of new options covering the
securities of the successor or surviving corporation in the Terminating
Transaction or an affiliate thereof, with appropriate adjustments as to the
number and kind of securities and prices, in which event this Plan and such
outstanding Options shall continue or be replaced, as the case may be, in the
manner and under the terms so provided; or (ii) the Committee otherwise shall
provide in writing for such adjustments as it deems appropriate in the terms
and conditions of the then outstanding Options (whether or not vested),
including without limitation (A) accelerating the vesting of outstanding
Options, and/or (B) providing for the cancellation of Options and their
automatic conversion into the right to receive the securities or other
properties which a holder of the Shares underlying such Options would have
been entitled to receive upon consummation of such Terminating Transaction had
such Shares been issued and outstanding (net of the appropriate option
exercise prices). If this Plan or the Options shall terminate pursuant to the
foregoing provisions of this paragraph (b) because neither (i) nor (ii) is
satisfied, any Optionee holding outstanding Options shall have the right, at
such time immediately prior to the consummation of the
A-5
<PAGE> A-6
Terminating Transaction as the Company shall designate, to exercise his or
her Options to the full extent not theretofore exercised, including any
installments which have not yet become Accrued installments.
c. In all cases, the nature and extent of adjustments under this Section
6.5 shall be determined by the Committee in its sole discretion, and any such
determination as to what adjustments shall he made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under this Plan pursuant to any such adjustment.
6.6 Taxes. The Committee shall make such provisions and take such steps
as it deems necessary or appropriate for the withholding of any federal,
state, local and other tax required by law to be withheld with respect to the
grant or exercise of an Option under this Plan, including, but without
limitation, the withholding of the number of Shares at the time of the grant
or exercise of an Option the Fair Market Value of which would satisfy any
withholding tax on said exercise or grant, the deduction of the amount of any
such withholding tax from any compensation or other amounts payable to an
Optionee by any member of the Participating Companies, or requiring an
Optionee (or the Optionee's beneficiary or legal representative) as a
condition of granting or exercising an Option to pay to any member of the
Participating Companies any amount required to be withheld, or to execute such
other documents as the Committee deems necessary or appropriate in connection
with the satisfaction of any applicable withholding obligation.
6.7 Legends. Each Option Agreement and each certificate representing
Shares acquired upon exercise of an Option shall be endorsed with all legends,
if any, required by applicable federal and state securities laws to be placed
thereon. The determination of which legends, if any, shall be placed upon
Option Agreements and/or said Share certificates shall be made by the
Committee in its sole discretion and such decision shall be final, binding and
conclusive.
ARTICLE VII
SPECIAL OPTION TERMS UNDER THIS PLAN
7.1 Option Exercise Price. The Option exercise price for Shares to be
issued under this Plan shall be determined by the Committee in its sole
discretion, but shall not be less than eighty percent (80%) of the Fair Market
Value of the Shares on the date of grant. The date of grant shall be deemed to
be the date on which the Committee authorizes the grant of the Option, unless
a subsequent date is specified in such authorization.
7.2 Exercise of Options. An Option may be exercised in accordance with
this Section 7.2 as to all or any portion of the Shares covered by an Accrued
installment of the Option from time to time during the applicable Option
period, except that an Option shall not be exercisable with respect to
fractions of a Share. Options may be exercised, in whole or in part, by giving
written notice of exercise to the Company, which notice shall specify the
number of Shares to be purchased and shall be accompanied by payment in full
of the purchase price in accordance with Section 7.3. An Option shall be
deemed exercised when such written notice of exercise and payment has been
received by the Company. No Shares shall be issued until full payment has been
made and the Optionee has satisfied such other conditions as may be required
by this Plan, as may be required by applicable law, rules, or regulations, or
as may be adopted or imposed by the Committee. Until the stock certificates
have been issued, no right to vote or receive dividends or any other rights as
a stockholder shall exist with respect to optioned Shares notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
rights for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 6.5.
7.3 Payment of Option Exercise Price.
a. Except as otherwise provided in Section 7.3(b), the entire Option
exercise price shall be paid in cash at the time the Option is exercised.
b. In the discretion of the Committee, an Optionee may elect to pay for
all or some of the Optionee's Shares with Common Stock of the Company
previously acquired and owned at the time of exercise by the Optionee, subject
to all restrictions and limitations of applicable laws, rules and regulations,
and subject to the satisfaction of any conditions the Committee may impose,
including, but not limited to, the making of such
A-6
<PAGE> A-7
representations and warranties and the providing of such other assurances
that the Committee may require with respect to the Optionee's title to the
Company's Common Stock used for payment of the exercise price. Such payment
shall be made by delivery of certificates representing the Company's Common
Stock, duly endorsed or with duly signed stock power attached, such Common
Stock to be valued at its Fair Market Value on the date notice of exercise
is received by the Company.
ARTICLE VIII
AMENDMENT OR TERMINATION OF PLAN
8.1 Board Authority. The Board may amend, alter, and/or terminate this
Plan at any time; provided, however, that unless required by applicable law,
rule, or regulation or unless no longer required to satisfy the requirements
of Rule 16b-3 promulgated under the Exchange Act, the Board shall not amend
this Plan without the approval of stockholders (as obtained in accordance with
the provisions of Section 6.4(c) hereof) if the amendment would (A) materially
increase the benefits accruing to participants under this Plan, (B) materially
increase the number of securities which may be issued under this Plan, or (C)
materially modify the requirements as to eligibility for participation in this
Plan. In determining whether a given amendment is within the scope of (A), (B)
or (C), the Company may rely, without limitation, upon the regulations
promulgated and the advice provided by the Securities and Exchange Commission
with respect to Rule 16b-3. No amendment of this Plan or of any Option
Agreement shall affect in a material and adverse manner Options granted prior
to the date of any such amendment without the consent of any Optionee holding
any such affected Options.
8.2 Contingent Grants Based on Amendments. Options may be granted in
reliance on and consistent with any amendment adopted by the Board alone which
is necessary to enable such Options to be granted under this Plan, even though
such amendment requires future stockholder approval; provided, however, that
any such contingent Option by its terms may not be exercised prior to
stockholder approval of such amendment and provided, further, that in the
event stockholder approval is not obtained within twelve (12) months of the
date of grant of such contingent Option, then such contingent Option shall be
deemed canceled and no longer outstanding.
ARTICLE IX
GENERAL PROVISIONS
9.1 Availability of Plan. A copy of this Plan shall be delivered to the
Secretary and Assistant Secretary of the Company and shall be shown by the
Secretary or Assistant Secretary to any Eligible Person making reasonable
inquiry concerning this Plan.
9.2 Notice. Any notice or other communication required or permitted to
be given pursuant to this Plan or under any Option Agreement must be in
writing and shall be deemed to have been given when delivered to and actually
received by the party to whom addressed. Notice shall be given to Optionees at
their most recent addresses shown in the Company's records. Notice to the
Company shall be addressed to the Company at the address of the Company's
principal executive offices, to the attention of the Secretary of the Company.
9.3 Titles and Headings. Titles and headings of sections of this Plan
are for convenience of reference only and shall not affect the construction of
any provision of this Plan.
A-7
<PAGE> 49
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Second Amendment") is entered
into as of the 21st day of January, 1999, by and among Berry Petroleum Company
("Borrower"), NationsBank, N.A., successor by merger to NationsBank of Texas,
N.A., as Administrative Agent ("Agent"), and each of the financial institutions
set forth on the signature pages hereto as Banks.
WITNESSETH:
WHEREAS, Borrower, Agent and NationsBank, N.A. in its individual capacity
"NationsBank") are parties to that certain Credit Agreement dated as of
December 1, 1996, as amended by that certain First Amendment to Credit
Agreement by and among Borrower, Agent and NationsBank dated as of
May 29, 1998 (as amended, the "Credit Agreement") (unless otherwise defined
herein, all terms used herein with their initial letter capitalized shall
have the meaning given such terms in the Credit Agreement); and
WHEREAS, pursuant to the Credit Agreement, NationsBank has made certain Loans
to Borrower and issued certain Letters of Credit for the account of Borrower;
and
WHEREAS, immediately prior to the execution of this Second Amendment,
NationsBank has entered into Assignment and Assumption Agreements with each of
Wells Fargo Bank (Texas), N.A. and Union Bank of California, N.A.
(collectively, the "New Banks," and together with NationsBank, the "Banks")
pursuant to which NationsBank assigned to the New Banks, and each of the New
Banks (a) acquired from NationsBank a portion of NationsBank's Commitment and
a portion of the Loans and Letter of Credit Exposure held by NationsBank under
the Credit Agreement and each of the other Loan Papers, (b) assumed and agreed
to perform a portion of NationsBank's obligations under the Credit Agreement
and the other Loan Papers, and (c) became a party to, and a "Bank" under, the
Credit Agreement and the other Loan Papers; and
WHEREAS, Schedule 1 hereto reflects the Commitments of each Bank after giving
effect to the Assignment and Assumption Agreements referenced above, and
pursuant to Section 13.10 of the Credit Agreement, Schedule 1 to the Credit
Agreement is deemed amended and restated in the form of Schedule 1 hereto; and
WHEREAS, Borrower has requested that Banks (i) amend certain terms of the
Credit Agreement in certain respects, and (ii) establish a Borrowing Base of
$110,000,000 to be effective January 21, 1999 and continuing until the next
Determination Date; and
WHEREAS, subject to the terms and conditions herein contained, the Banks have
agreed to Borrower's request.
NOW THEREFORE, for and in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confessed, Borrower, Agent and
Banks hereby agree as follows:
1
<PAGE> 2
SECTION 1 Amendments. Subject to the satisfaction of each condition precedent
set forth in Section 3 hereof and in reliance on the representations,
warranties, covenants and agreements contained in this Second Amendment, the
Credit Agreement shall be amended effective January 21, 1999 (the "Effective
Date") in the manner provided in this Section 1.
1.1 Additional Definitions. Section 1.1 of the Credit Agreement shall be
amended to insert the following additional defined terms together with the
definitions thereof set forth below in alphabetical order:
"Competitive Bid Eurodollar Loan" means a Competitive Bid Loan from a Bank to
Borrower bearing interest at a rate equal to the Competitive Bid
Eurodollar Margin offered by such Bank and accepted by Borrower pursuant to
Section 2.2.1 above or below the Adjusted Eurodollar Rate.
"Competitive Bid Eurodollar Margin" means, as to any Competitive Bid made by a
Bank pursuant to Section 2.2.1 to make a Competitive Bid Eurodollar Loan, the
margin above or below the Adjusted Eurodollar Rate offered by the Bank making
such Competitive Bid, expressed as a decimal to no more than four decimal
places.
"Competitive Bid Fixed Rate" means, as to any Competitive Bid made by a Bank
pursuant to Section 2.2.1 to make a Competitive Bid Fixed Rate Loan, the fixed
rate of interest offered by the Bank making such Competitive Bid expressed as a
decimal to no more than four decimal places.
"Competitive Bid Fixed Rate Loan" means a Competitive Bid Loan from a Bank to
Borrower bearing interest at an absolute fixed rate.
1.2 Amendment to Definitions. The definitions of "Applicable Margin,"
"Commitment Fee Percentage," "Competitive Bid Loan," "Eurodollar Loan,"
"Interest Period," "Letter of Credit Fee," "Letter of Credit Fronting Fee,"
"Loan Papers," "Minimum Consolidated Tangible Net Worth," and "Termination Date"
contained in Section 1.1 of the Credit Agreement shall be amended to read in
full as follows:
"Applicable Margin" means, on any date, with respect to each Type of Loan, the
amount determined in accordance with the table below by reference to the ratio
of (a) Outstanding Credit on such date, to (b) the Borrowing Base in effect on
such date; provided, that, so long as the Borrowing Base is equal to or less
than $50,000,000 and no Borrowing Base Deficiency exists, the Applicable Margin
for Base Rate Loans shall be 0% and the Applicable Margin for Committed
Eurodollar Loans shall be .75%:
2
Ratio of Outstanding Applicable Margin for Applicable Martin for
Credit to Borrowing Base Base Rate Loans Committed Eurodollar
Loans
<= .50 to 1 0.00% .75%
> .50 to 1 <= .75 to 1 0.00% 1.00%
> .75 to 1 <= .90 to 1 0.00% 1.25%
> .90 to 1 0.00% 1.50%
"Commitment Fee Percentage" means, on any date, a per annum percentage
determined in accordance with the table below by reference to the ratio of (a)
the Outstanding Credit on such date, to (b) the Borrowing Base in effect on
such date; provided, that, so long as the Borrowing Base is equal to or less
than $50,000,000 and no Borrowing Base Deficiency exists, the Commitment Fee
Percentage shall be .25%:
Ratio of Outstanding Commitment Fee
Credit to Borrowing Base Percentage
<= .50 to 1 .25%
> .50 to 1 <= .75 to 1 .25%
> .75 to 1 <= .90 to 1 .30%
> .90 to 1 .35%
"Competitive Bid Loan" means a Loan from a Bank to Borrower pursuant to the
bidding procedure described in Section 2.2.1. Each Competitive Bid Loan may be
either a Competitive Bid Fixed Rate Loan or a Competitive Bid Eurodollar Loan
in each case as requested by Borrower in the applicable Competitive Bid
Request.
"Eurodollar Loan" means a Loan bearing interest with reference to the Adjusted
Eurodollar Rate. Each Eurodollar Loan having a different Interest Period shall
be deemed to be a separate Eurodollar Loan. Eurodollar Loans may be Committed
Loans (a "Committed Eurodollar Loan") or Competitive Bid Loans.
"Interest Period" means: (a) with respect to each Borrowing comprised of
Eurodollar Loans, the period commencing on the date of such Borrowing and
ending one (1), two (2), three (3) or six (6), and, if available to Banks,
nine (9) or twelve (12) months thereafter, as Borrower may elect in the
applicable Request for Committed Loans or Competitive Bid Request;
provided that:
(i) any Interest Period which would otherwise end on a day which is not a
Eurodollar Business Day shall be extended to the next succeeding Eurodollar
Business Day
3
unless such Eurodollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Eurodollar Business Day;
(ii) any Interest Period which begins on the last Eurodollar Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (iii) below, end on the last Eurodollar Business Day of a calendar month;
(iii) if any Interest Period includes a date on which any payment of principal
of such Loans is required to be made hereunder, but does not end on such date,
then (A) the principal amount of each Eurodollar Loan required to be repaid on
such date shall have an Interest Period ending on such date, and (B) the
remainder of each such Eurodollar Loan shall have an Interest Period determined
as set forth above; and
(iv) no Interest Period for Competitive Bid Eurodollar Loans shall be for a
period of more than three (3) months.
(b) with respect to each Borrowing comprised of Competitive Bid Fixed Rate
Loans, the period commencing on the date of such Borrowing and ending 7, 30, 60
or 90 days thereafter as Borrower may elect in the applicable Competitive Bid
Request; provided, that:
(i) any Interest Period (other than an Interest Period determined pursuant to
clause (ii)(A) below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next succeeding Domestic
Business Day; and
(ii) if any Interest Period includes a date on which any payment of principal
of the Loans is required to be made hereunder, but does not end on such date,
then (A) the principal amount of each Competitive Bid Fixed Rate Loan
required to be repaid on such date shall have an Interest Period ending on
such date, and (B) any remainder of each such Competitive Bid Fixed Rate Loan
shall have an Interest Period determined as set forth above; and
(iii) no Interest Period shall extend past the thirtieth (30th) day prior to
the Termination Date.
"Letter of Credit Fee" means, the Letter of Credit Fee payable pursuant to
Section 2.1(b) and which shall accrue each day at the greater of (a) a per
annum fee of $500, or (b) a per annum rate in effect on such day determined
in accordance with the table below by reference to the ratio of (i) the
Outstanding Credit on such day, to (ii) the Borrowing Base in effect on such
day provided, that, so long as the Borrowing Base is equal to or less than
$50,000,000 and no Borrowing Base Deficiency exists, the Letter of Credit Fee
shall be the greater of (y) a per annum fee of $500, or (z) .75%:
4
Ratio of Outstanding Per Annum Letter of
Credit to Borrowing Credit Fee
Base
<= .50 to 1 .75%
> .50 to 1 <= .75 to 1 1.00%
> .75 to 1 <= .90 to 1 1.25%
> .90 to 1 1.50%
"Letter of Credit Fronting Fee" means the Letter of Credit Fronting Fee
payable pursuant to Section 2.1(b) which shall accrue each day at a per annum
rate of .125%.
"Loan Papers" means this Agreement, the First Amendment, the Second
Amendment, the Notes and all other certificates, documents or instruments
delivered in connection with this Agreement, as the foregoing may be amended
from time to time.
"Minimum Consolidated Tangible Net Worth" means the sum of (a) $90,000,000 plus
(b) seventy-five percent (75%) of any increase in the shareholders equity of
Borrower resulting from the issuance of equity securities by Borrower after the
Effective Date of the Second Amendment.
"Termination Date" means January 21, 2004.
"Second Amendment" means that certain Second Amendment to Credit
Agreement dated as of January 21, 1999, by and among Borrower, Agent and the
Banks.
1.3 Elimination of Certain Definitions. Section 1.1 of the Credit Agreement
shall be amended to eliminate the defined terms "Additional Interest,"
"Competitive Bid Availability," "Competitive Bid Rate," "Conversion Date,"
"Over Funded Bank," "Single Bank Credit Limit" and "Under Funded Bank" and the
definitions of such terms.
1.4 Amendment to Commitment Provisions. Article II of the Credit
Agreement shall be amended to read in full as follows:
ARTICLE II
THE CREDIT
SECTION 2.1. Commitments. (a) Each Bank severally agrees, subject to
the terms and conditions set forth in this Agreement, to make Committed Loans
to Borrower from time to time in amounts not to exceed in the aggregate
amount at any
5
one time outstanding, the lesser of (i) such Bank's Commitment Percentage of
the Borrowing Base in effect at such time reduced by the amount of such Bank's
Letter of Credit Exposure, or (ii) the amount of such Bank's Commitment at such
time reduced by the amount of such Bank's Letter of Credit Exposure. In
addition to the foregoing, each Bank may, in its sole and absolute discretion,
and in accordance with the procedures set forth in Section 2.2.1 make
Competitive Bid Loans to Borrower without limit with respect to the amount of
such Bank's Commitment or such Bank's Commitment Percentage of the Borrowing
Base, but subject in all respects to Section 2.1(c) and the other terms and
provisions of this Agreement. Each Committed Borrowing shall be in an
aggregate principal amount of $1,000,000 or any larger integral multiple of
$100,000 (except that any Base Rate Committed Borrowing may be in an amount
equal to the Availability). Borrower's right to request Competitive Bid
Loans and the right of each Bank to make Competitive Bid Loans hereunder
shall be subject to the restriction that no Bank shall be permitted to make
Competitive Bid Loans with an Interest Period expiring on or after the
thirtieth (30th) day prior to the Termination Date. Subject to the foregoing
limitations and the other provisions of this Agreement, Borrower may obtain
Borrowings under this Section 2.1(a), and repay Loans and request new
Borrowings under this Section 2.1(a).
(b) Agent, or such Bank designated by Agent which (without
obligation to do so) consents to the same ("Issuer") will, from time to time
until the ninetieth (90th) day prior to the Termination Date, upon request by
Borrower, issue Letters of Credit for the account of Borrower so long as
(i) the sum of (A) the total Letter of Credit Exposure then existing and
(B) the amount of the requested Letter of Credit does not exceed twenty five
percent (25%) of the Borrowing Base then in effect, and (ii) Borrower would
be entitled to a Committed Borrowing under Section 2.1(a) in an amount greater
than or equal to the requested Letter of Credit. Not less than three (3)
Domestic Business Days prior to the requested date of issuance of any such
Letter of Credit, Borrower shall execute and deliver to Issuer, Issuer's
customary letter of credit application. Each Letter of Credit shall be in
the minimum amount of $5,000 and shall be in form and substance acceptable to
Issuer. No Letter of Credit shall have an expiration date later than the
earlier of (i) thirty (30) days prior to the Termination Date, or (ii) one
(1) year from the date of issuance. Upon the date of issuance of a Letter of
Credit, Issuer shall be deemed to have sold to each other Bank, and each other
Bank shall be deemed to have purchased from Issuer, a participation in the
related Letter of Credit and Letter of Credit Exposure equal to such Bank's
Commitment Percentage thereof. Issuer shall notify each Bank by telephone,
teletransmission or telex of each Letter of Credit issued pursuant to the
terms hereof. If any Letter of Credit is presented for payment by the
beneficiary thereof, Agent shall cause a Committed Borrowing comprised of
Base Rate Loans to be made to reimburse Issuer for the payment under the
Letter of Credit, whether or not Borrower would then be entitled to a
Committed Borrowing pursuant to the terms hereof, and each Bank
which participated in such Letter and Letter of Credit Exposure shall be
obligated to make a Base Rate Loan equal to the amount of its participation
interest. On the Termination Date, and on each Quarterly Date prior to
the Termination Date,
6
and in the event the Commitments are terminated in their
entirety prior to the Termination Date, on the date of such termination,
Borrower shall pay to (a) the Administrative Agent for the ratable benefit of
each Bank, the Letter of Credit Fee which accrued during the Fiscal Quarter (or
portion thereof) ending on such date, and (b) Administrative Agent solely for
its own account, the Letter of Credit Fronting Fee which accrued during the
Fiscal Quarter (or portion thereof) ending at such date. The Letter of Credit
Fees and Letter of Credit Fronting Fees payable hereunder shall accrue on a
daily basis at the per annum rates specified in the definitions of such terms
and on the aggregate outstanding Letter of Credit Exposure each day computed on
the basis of the actual number of days elapsed and assuming a calendar year of
360 days.
Upon the occurrence of any Event of Default, and at the times required by
Section 3.4 hereof, Borrower shall deposit with Agent cash or readily
marketable United States Treasury securities with a maturity of one year or
less in such amounts as Agent may request, up to a maximum amount equal to
the aggregate existing Letter of Credit Exposure of all Banks. Any cash or
securities so deposited shall be held by Agent for the ratable benefit of all
Banks with Letter of Credit Exposure as security for such Letter of Credit
Exposure and as security for the Base Rate Loans to be made pursuant to this
Section 2.1(b) upon any payment of any related Letter of Credit, and Borrower
will, in connection therewith, execute and deliver such security agreements
in form and substance satisfactory to Agent which it may, in its discretion,
require. As drafts or demands for payment are presented under any Letter of
Credit, Agent shall apply such cash (and liquidate such treasury securities
and apply the cash proceeds thereof) to satisfy such drafts or demands. When
either (i) all Letters of Credit have expired, the Obligations have been
repaid in full and the Commitments of all Banks have been terminated, or
(ii) all Events of Default have been cured to the satisfaction of the
Required Banks, Agent shall release to Borrower any remaining cash and
securities deposited under this Section 2.1(b).
Whenever Borrower is required to make deposits under this Section 2.1(b)
and fails to do so on the day such deposit is due, Agent or any Bank may,
without notice to Borrower, make such deposit (whether by transfers from other
accounts maintained with any Bank or otherwise) using any funds then available
to any Bank of Borrower, any guarantor, or any other person liable for all or
any part of the Obligations.
(c) No Bank will be obligated to, or shall, lend to Borrower or incur Letter
of Credit Exposure, and Borrower shall not be entitled to borrow any amount or
obtain Letters of Credit hereunder in an amount which would cause the
Outstanding Credit to exceed the Borrowing Base then in effect under Article
III. Nothing in this Section 2.1(c) shall be deemed to limit any Bank's
obligation to fund Base Rate Loans with respect to its participation in
Letters of Credit in connection with any Committed Borrowing comprised of
Base Rate Loans made as a result of the drawing under any Letter of Credit.
7
SECTION 2.2. Method of Borrowing.
2.2.1. Competitive Bid Procedure. (a) In order to request Competitive Bids,
Borrower shall hand deliver, telex or telecopy to Agent a duly completed
Competitive Bid Request, to be received by Agent not later than 12:00 noon
(Dallas, Texas time), three (3) Domestic Business Days (in the case of any
request for Competitive Bid Fixed Rate Loans) and five (5) Eurodollar Business
Days (in the case of any request for Competitive Bid Eurodollar Loans) before
the date specified for a proposed Competitive Bid Borrowing. No Competitive
Bid Request shall be made with respect to any Type of Loan other than a
Competitive Bid Fixed Rate Loan or a Competitive Bid Eurodollar Loan, and
Competitive Bids shall be submitted and Competitive Bid Loans shall be made
only of the Type requested in the applicable Competitive Bid Request. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit C may be rejected at Agent's sole discretion, and Agent shall
promptly notify Borrower of such rejection by telex or telecopier. Each
Competitive Bid Request shall in each case refer to this Agreement and specify
(x) the Borrowing date of such Competitive Bid Loans (which shall be a
Domestic Business Day) and the aggregate principal amount thereof (which
shall not be less than $5,000,000 and shall be an integral multiple of
$100,000), (y) whether the Competitive Bid Loans to be made pursuant thereto
are to be Competitive Bid Fixed Rate Loans or Competitive Bid Eurodollar
Loans, and (z) the Interest Period with respect thereto. Promptly after its
receipt of a Competitive Bid Request that is not rejected as aforesaid,
Agent shall invite by telex or telecopier (in the form set forth in Exhibit D
hereto) Banks to bid, on the terms and conditions of this Agreement, to make
Competitive Bid Loans pursuant to such Competitive Bid Request.
(b) Each Bank may, in its sole discretion, make one or more Competitive Bids
to Borrower responsive to each Competitive Bid Request. Each Competitive Bid
by a Bank must be received by Agent via telex or telecopier, in the form of
Exhibit E hereto, not later than 10:00 a.m. (Dallas, Texas time), two (2)
Domestic Business Days (in the case of any request for Competitive Bid Fixed
Rate Loans) or four (4) Eurodollar Business Days (in the case of any request
for Competitive Bid Eurodollar Loans) before the date specified for a proposed
Competitive Bid Borrowing. Competitive
8
Bids that do not conform substantially to the format of
Exhibit E may be rejected by Agent after conferring with, and upon the
instruction of Borrower, and Agent shall notify the applicable Bank of such
rejection as soon as practicable. Each Competitive Bid shall refer to this
Agreement and (x) specify the principal amount (which shall be in a minimum
principal amount of $1,000,000 and in an integral multiple of $100,000 and
which, subject to the conditions set forth in Section 2.1, may equal the entire
principal amount of the Competitive Bid Borrowing requested by Borrower) of
the Competitive Bid Loan that Bank is willing to make to Borrower, (y) specify
the Competitive Bid Fixed Rate or Competitive Bid Eurodollar Margin at which
such Bank is prepared to make the Competitive Bid Loan and (z) confirm the
Interest Period with respect thereto specified by Borrower in its Competitive
Bid Request. If any Bank shall elect not to make a Competitive Bid, such Bank
shall so notify Agent via telex not later than 10:00 a.m. (Dallas, Texas time),
two (2) Domestic Business Days (in the case of any request for Competitive Bid
Fixed Rate Loans) or four (4) Eurodollar Business Days (in the case of any
request for Competitive Bid Eurodollar Loans) before the date specified for a
proposed Competitive Bid Borrowing; provided, however, that failure by any Bank
to give such notice shall not cause such Bank to be obligated to make any
Competitive Bid Loan as part of such Competitive Bid Borrowing. A Competitive
Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable.
(c) Agent shall promptly notify Borrower and each Bank by telex or telecopier
of all the Competitive Bids made, the Competitive Bid Fixed Rate or Competitive
Bid Eurodollar Margin and the principal amount of each Competitive Bid Loan in
respect of which a Competitive Bid was made and the identity of Bank that made
each bid. Agent shall send a copy of all Competitive Bids to Borrower and each
Bank for their records as soon as practicable after completion of the bidding
process set forth in this Section 2.2.1.
(d) Borrower may in its sole and absolute discretion, subject only to the
provisions of this Section 2.2.1(d), accept or reject any Competitive Bid
referred to in paragraph (c) above; provided, however, that the aggregate
amount of the Competitive Bids so accepted by Borrower may
9
not exceed the principal amount of the Competitive Bid Borrowing requested by
Borrower. Borrower shall notify Agent by telex or telecopier whether and to
what extent it has decided to accept or reject any or all of the bids
referred to in paragraph (c) above, not later than 10:00 a.m. (Dallas, Texas
time), one (1) Domestic Business Day (in the case of any request for
Competitive Bid Fixed Rate Loans) or three (3) Eurodollar Business Days (in
the case of any request for Competitive Bid Eurodollar Loans) before the date
specified for a proposed Competitive Bid Borrowing; provided, however, that
(w) the failure by Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (x) Borrower
shall not accept a bid made at a particular Competitive Bid Fixed Rate or
Competitive Bid Eurodollar Margin if Borrower has decided to reject a bid
made at a lower Competitive Bid Fixed Rate or Competitive Bid Eurodollar
Margin, (y) if Borrower shall accept bids made at a particular Competitive
Bid Fixed Rate or Competitive Bid Eurodollar Margin but shall be restricted
by other conditions hereof from borrowing the principal amount of all
Competitive Bid Loans in respect of which bids at such Competitive Bid Fixed
Rate or Competitive Bid Eurodollar Margin have been made, then Borrower shall
accept a pro rata portion of each bid made at such Competitive Bid Fixed Rate
or Competitive Bid Eurodollar Margin based as nearly as possible on the
respective principal amounts of Competitive Bid Loans for which such
bids were made, and (z) no bid shall be accepted for a Competitive
Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of
$1,000,000 and an integral multiple of $100,000. Notwithstanding the
foregoing, if it is necessary for Borrower to accept a pro rata allocation of
the bids made in response to a Competitive Bid Request (whether pursuant to
the events specified in clause (y) above or otherwise) and the available
principal amount of Competitive Bid Loans to be allocated among Banks is not
sufficient to enable Competitive Bid Loans to be allocated to each Bank in a
minimum principal amount of $1,000,000 and in integral multiples of $100,000,
then Borrower shall select Banks to be allocated such Competitive Bid Loans
and shall round allocations up or down to the next higher or lower multiple
of $100,000 as it shall deem appropriate. A notice given by Borrower pursuant
to this paragraph (d) shall be irrevocable.
10
(e) Agent shall promptly notify each bidding Bank whether or not its
Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Fixed Rate or Competitive Bid Eurodollar Margin) by telex or
telecopier sent by Agent, and each successful bidder will thereupon become
bound, subject to the other applicable conditions hereof, to make the
Competitive Bid Loan in respect of which its bid has been accepted. After
completing the notifications referred to in the immediately preceding sentence,
Agent shall notify each Bank of the aggregate principal amount of all
Competitive Bids accepted.
(f) No Competitive Bid Borrowing shall be made within five (5) Business Days
of the date of any other Competitive Bid Borrowing unless Borrower and Agent
shall mutually agree otherwise.
(g) If Agent shall at any time have a Commitment hereunder and shall elect to
submit a Competitive Bid in its capacity as a Bank, it shall submit such bid
directly to Borrower at least one half of an hour earlier than the latest
time at which the other Banks are required to submit their bids to Agent
pursuant to paragraph (b) above.
(h) All notices required by this Section 2.2.1 shall be made in accordance
with Section 13.1.
2.2.2. Method of Committed Borrowing. (a) In order to request Committed
Loans, Borrower shall hand deliver, telex or telecopy to Agent a duly completed
Request for Committed Loans prior to 12:00 noon (Dallas, Texas time), (i) at
least one (1) Domestic Business Day before the date specified for a proposed
Base Rate Borrowing, and (ii) at least three (3) Eurodollar Business Days
before the date of a proposed Eurodollar Borrowing. Each Request for
Committed Loans shall be substantially in the form of Exhibit F hereto, and
shall specify:
(i) the date of such Committed Borrowing, which shall be a Domestic Business
Day in the case of a Committed Borrowing comprised of Base Rate Loans
or a Eurodollar Business Day in the case of a Committed Borrowing comprised of
Eurodollar Loans;
11
(ii) the aggregate amount of such Committed Borrowing;
(iii) whether the Loans comprising such Committed Borrowing are to be Base Rate
Loans or Eurodollar Loans; and
(iv) in the case of a Committed Borrowing comprised of Eurodollar Loans the
duration of the Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
(b) Upon receipt of a Request for Committed Loans, Agent shall promptly notify
each Bank of the contents thereof and the amount of the Committed Borrowing to
be loaned by such Bank pursuant thereto, and such Request for Committed Loans
shall not thereafter be revocable by Borrower.
(c) Not later than 12:00 noon (Dallas, Texas time) on the date of each
Committed Borrowing, each Bank shall (except as provided in Section 2.2.2(d))
make available that portion of such Committed Borrowing allocated to such Bank
pursuant to Section 2.1(a) in Federal or other funds immediately available in
Dallas, Texas to Agent at its address referred to in Section 13.1.
Notwithstanding the foregoing, if Borrower delivers to Agent a Request for
Committed Loans prior to 10:00 a.m. (Dallas, Texas time) on a Domestic
Business Day requesting a Committed Borrowing comprised of Base Rate Loans on
such day, each Bank shall use its best efforts to make available to Agent that
portion of such Committed Borrowing allocated to such Bank pursuant to
Section 2.1 by 1:00 p.m. (Dallas, Texas time) on the same day. Unless Agent
determines that any applicable condition specified in Section 6.2 has not been
satisfied, Agent will make the funds so received from Banks available to
Borrower at Agent's aforesaid address.
(d) If any Bank makes a new Committed Loan hereunder on a day on which
Borrower is to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Committed Loan to make such
repayment and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being
12
repaid shall be made available by such Bank to Agent or remitted by
Borrower to Agent, as the case may be.
SECTION 2.3. Method of Obtaining Letters of Credit. (a) Borrower shall
give Agent notice (a "Request for Letter of Credit") prior to 12:00 noon
(Dallas, Texas time) at least three (3) Domestic Business Days before the date
Borrower requests that a Letter of Credit be issued. Each Request for Letter
of Credit shall be substantially in the form of Exhibit G attached hereto and
shall be accompanied by the executed, complete letter of credit application and
agreement referenced in Section 2.1(b).
(b) Upon receipt of a Request for Letter of Credit, Agent shall promptly
notify each Bank of the contents thereof and of the material provisions of
the related letter of credit application and agreement. Agent shall provide a
copy of the Request for Letter of Credit and the original counterpart of the
letter of credit application and agreement to the proposed Issuer.
(c) Provided that the proposed Issuer agrees to issue the requested
Letter of Credit, and provided further that Agent has not determined that a
condition to such issuance referred to in Section 6.2 has not been satisfied,
not later than 12:00 noon (Dallas, Texas time) on the date Borrower requests
that such Letter of Credit be issued, the Issuer shall issue such Letter of
Credit and deliver the same to the beneficiary thereof and shall promptly
thereafter provide notice thereof to each other Bank.
SECTION 2.4. Notes. The Committed Loans of each Bank shall be evidenced by a
single Committed Note payable to the order of such Bank in an amount equal to
such Bank's Commitment. The Competitive Bid Loans of each Bank shall be
evidenced by a single Competitive Bid Note payable to the order of such Bank in
an amount equal to the Total Commitment.
SECTION 2.5. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal balance thereof at a rate per annum equal to the
sum of the Applicable Margin plus the Base Rate in effect from day to day, each
change in the Base Rate to be effective without notice to Borrower on the
effective date of each such change, provided that in no event shall the rate
charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest
on each Base Rate Loan shall be payable as it accrues on each Quarterly Date.
(b) Each Committed Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Applicable Margin plus the applicable
Adjusted Eurodollar Rate; provided that in no event shall the rate charged
hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on each
Eurodollar Loan having an Interest Period of one, two or three months shall be
payable on the
13
last day of the Interest Period applicable thereto. Interest on each
Committed Eurodollar Loan having an Interest Period of six, nine, or twelve
months, shall be payable on the last day of the Interest Period applicable
thereto and on each Quarterly Date during such Interest Period.
(c) Each Competitive Bid Fixed Rate Loan shall bear interest at a rate per
annum equal to the fixed rate of interest offered by the Bank making such
Competitive Bid Fixed Rate Loan in such Bank's Competitive Bid and accepted by
Borrower pursuant to Section 2.2.1; provided, that in no event shall the rate
charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest
on each Competitive Bid Fixed Rate Loan shall be payable on the last day of the
Interest Period applicable thereto.
(d) Each Competitive Bid Eurodollar Loan shall bear interest at a rate per
annum equal to the sum of (i) the Competitive Bid Eurodollar Margin offered by
the Bank making such Competitive Bid Eurodollar Loan in such Bank's Competitive
Bid and accepted by Borrower pursuant to Section 2.2.1, plus (ii) the
applicable Adjusted Eurodollar Rate; provided, that in no event shall the
rate charged hereunder or under the Notes exceed the Maximum Lawful Rate.
Interest on each Competitive Bid Eurodollar Loan shall be payable on the last
day of the Interest Period applicable thereto.
(e) [Intentionally Deleted].
(f) With respect to Committed Loans and Competitive Bid Eurodollar Loans,
Agent shall determine each interest rate applicable thereto in accordance with
the terms hereof (and in accordance with the applicable Competitive Bids for
Competitive Bid Eurodollar Loans accepted by Borrower). Agent shall promptly
notify Borrower and Banks by telex, telecopy or cable of each rate of interest
so determined, and its determination thereof shall be conclusive in the absence
of manifest error.
(g) Notwithstanding the foregoing, if at any time the rate of interest
calculated with reference to the Base Rate, any Competitive Bid Fixed Rate
accepted by Borrower or the Adjusted Eurodollar Rate hereunder, if applicable,
(the "contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of interest on the
affected Loan below the Maximum Lawful Rate until the total amount of interest
accrued equals the amount of interest which would have accrued if the contract
rate had at all times been in effect. In the event that at maturity (stated or
by acceleration), or at final payment of any Note, the total amount of interest
paid or accrued on such Note is less than the amount of interest which would
have accrued if the contract rate had at all times been in effect with respect
thereto, then at such time, to the extent permitted by law, Borrower shall pay
to the holder of such Note an amount equal to the difference between (i) the
lesser of the amount of interest which would have accrued if the
14
contract rate had at all times been in effect and the amount of interest which
would have accrued if the Maximum Lawful Rate had at all times been in effect,
and (ii) the amount of interest actually paid on such Note.
SECTION 2.6. [Intentionally Deleted]
SECTION 2.7. Voluntary Prepayments. Borrower may, subject to Section
5.1 and the other provisions of this Agreement, upon three (3) Business Days
advance notice to Agent, prepay the principal of Committed Loans then
outstanding in whole or in part. Any partial prepayment shall be in a minimum
amount of $500,000 and shall be in an integral multiple of $100,000. Voluntary
prepayments of Competitive Bid Loans are not permitted.
SECTION 2.8. [Intentionally Deleted].
SECTION 2.9. Voluntary Reduction of Commitments and Prepayment of
Loans. Borrower may, by notice to Agent five (5) Domestic Business Days prior
to the effective date of any such reduction, reduce the Total Commitment (and
thereby reduce the Commitment of each Bank ratably) in amounts not less than
$5,000,000 or any larger multiple of $5,000,000. On the effective date of any
such reduction, Borrower shall, to the extent required as a result of such
reduction, make a principal payment on the Loans in an amount sufficient to
cause the principal balance of all Loans then outstanding to be equal to or
less than the Total Commitment as thereby reduced. Notwithstanding the
foregoing, Borrower shall not be permitted to voluntarily reduce the Total
Commitment to an amount less than the sum of (i) the aggregate Letter of
Credit Exposure of all Banks, plus (ii) the aggregate outstanding principal
balance of all Competitive Bid Loans.
SECTION 2.10. Termination of Commitments; Final Maturity; Maturity of
Committed Eurodollar Loans and Competitive Bid Loans. The Total Commitment
(and the Commitment of each Bank) shall terminate, and the entire outstanding
principal balance of all Loans, all interest accrued thereon, all accrued but
unpaid fees hereunder and all other outstanding Obligations shall be due and
payable in full on the Termination Date. All Eurodollar Loans and Competitive
Bid Loans shall be due and payable on the expiration of the Interest Period
applicable thereto; provided, that, to the extent permitted by Section 2.1(a)
and 6.2, such Loans may be refinanced on such date pursuant to a Refunding
Borrowing.
SECTION 2.11. Application of Payments. Each repayment pursuant to Sections
2.7, 2.9, 2.10, 3.4 or 4.5 shall be made together with accrued interest on the
amount repaid to the date of payment, and shall be applied to payment of the
Loans of Banks in accordance with Section 4.2 and the other provisions of this
Agreement.
SECTION 2.12. Commitment Fee. On the Termination Date, on each Quarterly Date
prior to the Termination Date, and, in the event the Commitments are
15
terminated in their entirety prior to the Termination Date, on the date of such
termination, Borrower shall pay to Agent, for the ratable benefit of each Bank
based on each Bank's Commitment Percentage, a commitment fee equal to the
Commitment Fee Percentage (applied on a per annum basis and computed on the
basis of actual days elapsed and as if each calendar year consisted of 365
days) of the remainder of the following for each day during the Fiscal
Quarter (or portion thereof) ending on such date (a) the Borrowing Base in
effect on such day, minus (b) the sum of (i) the aggregate outstanding
principal balance of all Committed Loans on such day, plus (ii) the aggregate
outstanding Letter of Credit Exposure on such day.
SECTION 2.13. Agency Fee. Borrower shall pay to Agent and its Affiliates
such other fees and amounts as Borrower shall be required to pay to Agent and
its Affiliates from time to time pursuant to any separate agreement between
Borrower and Agent or such Affiliates. Such fees and other amounts shall be
retained by Agent and its Affiliates, and no Bank (other than Agent) shall have
any interest therein.
SECTION 2.14 Increases in the Total Commitment. Borrower shall have the
option, at any time, by written notice (an "Increase Request") to Agent and
each Bank of requesting an increase in the Total Commitment to an amount up to
$200,000,000. Any such increase shall require the approval of Required Banks,
and no such increase shall have the effect of increasing the Commitment of any
Bank without the prior written consent of such Bank which consent may be
withheld by each Bank in its sole and absolute discretion. In the event
Required Banks fail to notify Borrower of their approval of any increase in the
Total Commitment within 15 Domestic Business Days following the date of the
Increase Request, such increase will be deemed to be denied. In the event any
of the Banks elect, in their sole and absolute discretion, to increase their
respective Commitments, such Banks (individually, an "Electing Bank", and
collectively, the "Electing Banks") shall notify (an "Increase Notice") Agent
and Borrower of such election within 15 Domestic Business Days following the
date of Borrower's Increase Request. If the aggregate amount by which the
Banks elect to increase their Commitments exceeds the amount of the increase in
the Total Commitment requested by Borrower, the amount of the increase in the
Total Commitment shall be allocated to increases in the Commitments of the
Electing Banks in such manner as Agent and Borrower shall determine as
specified in a written notice from Agent to all Banks; provided, that in no
event shall the Commitment of any Electing Bank be increased by an amount
greater than the amount specified by such Electing Bank in its Increase Notice.
In the event Banks deliver Increase Notices and the aggregate amount of the
increase in the Commitments specified therein is less than or equal to the
increase in the Total Commitment requested by Borrower, each Electing Bank's
Commitment shall be increased by the amount specified in its Increase Notice.
In the event no Banks deliver Increase Notices or the aggregate amount of the
increase in the Commitments of the Electing Banks specified in Increase
Notices is less than or equal to the increase in the Total Commitment
requested by Borrower, unless Required Banks have denied Borrower's request
for an increase in the Total Commitment, Borrower
16
shall have the right to cause one or more other financial institutions
selected by Borrower and approved by Agent, such approval to not be
unreasonably withheld, to become parties to this Agreement as Banks ("New
Banks") by executing an Addendum hereto in the form of Exhibit A to the Second
Amendment, and each of such new Banks shall have the Commitments specified in
such Addendums; provided, that the aggregate Commitments of the New Banks shall
not exceed the difference between (a) the amount of the increase in the Total
Commitment requested by Borrower in the related Increase Request, and (b) the
amount of such requested increase which was satisfied by the existing Banks in
the manner set forth above. Simultaneously with any increase in the Total
Commitment contemplated by this Section 2.14, (w) the Commitment Percentages of
each Bank shall be automatically adjusted to the decimal, expressed as a
percentage, determined by dividing the amount of each Bank's Commitment (as
then increased, if applicable) by the amount of the Total Commitment as then
increased, (y) Borrower shall execute and deliver to each Bank which has
increased its Commitment a new Note payable to such Bank in the amount of its
Commitment as increased thereby, (y) Agent, on behalf of all Banks, and
Borrower, shall enter into such conforming amendments to this Agreement and the
other Loan Papers as Agent shall deem necessary or appropriate to reflect the
increase in the Total Commitment contemplated thereby (and each Bank hereby
authorizes Agent to enter into any such conforming amendments on its behalf,
each of which shall be enforceable by and against each Bank to the same extent
as if executed by such Bank), and (z) Borrower shall deliver to Agent such
certificates of officers of Borrower and of Governmental Authorities,
resolutions of the Board of Directors of Borrower and other documents and
instruments, including, without limitation, opinions of counsel, as Agent shall
reasonably require to evidence the corporate existence of Borrower, the due
authorization of the increase in the Commitments and the Total Commitment, the
due authorization, execution and delivery of any documents related to such
increase (including any Addendum, new Notes or conforming amendments
contemplated by this Section 2.14) and such other matters relating to such
increase as Agent shall reasonably require. No increase in the Total
Commitment shall result in any increase in the Borrowing Base unless the
Banks shall simultaneously approve an increase in the Borrowing Base in the
manner specified in Article III hereof.
1.5 Amendments to Borrowing Base Provisions. Sections 3.1 of the Credit
Agreement shall be amended to read in full as follows:
SECTION 3.1. Reserve Report; Proposed Borrowing Base. As soon as available
and in any event by March 1 of each year, Borrower shall (a) make or cause
to be made available to Agent and each Bank for its review and inspection at
Borrower's offices in Taft, California and at the offices of the Approved
Petroleum Engineer (or at such other locations as Agent, the Borrower and the
Banks may mutually agree) a Reserve Report prepared as of the immediately
preceding December 31, and (b) deliver to Agent and each Bank a Reserve Summary
and a Reserve Engineer's Letter prepared with respect to such Reserve Report.
17
On or before April 1 of each year (or if such day is not a Domestic Business
Day, on or before the Domestic Business Day immediately preceding April 1 (or
on such other Domestic Business Day on or around April 1 as Agent, Borrower and
Banks shall mutually agree), Borrower shall make available in Dallas, Texas (or
at such other locations as Agent, the Borrower and the Banks may mutually
agree) the appropriate representatives of the Approved Petroleum Engineer and
Borrower's in house engineering staff for a meeting with the engineering
staff of each Bank to review the data contained in the Reserve Report and
such other geologic, geophysical and other information regarding Borrower's
Mineral Interests as each Bank shall request. On or before May 1, 1999
Borrower shall notify each Bank of the amount of the Borrowing Base which
Borrower requests becomes effective on June 1, 1999 (or such date promptly
thereafter as Required Banks shall elect). Simultaneously with the delivery
to Agent and each Bank of each Reserve Summary and Reserve Engineer's Letter
commencing with the Reserve Summary and Reserve Engineer's Letter to be
delivered on or before March 1, 2000, Borrower shall notify each Bank of the
amount of the Borrowing Base which Borrower requests becomes effective on the
next April 1 (or such date promptly following April 1 as Required Banks shall
elect).
The first sentence of Section 3.2 of the Credit Agreement shall be amended to
read in full as follows:
Based in part on the Reserve Report made available to Banks pursuant to Section
3.1, Banks shall redetermine the Borrowing Base on or prior to June 1 (in the
case of calendar year 1999) and May 1 (in the case of calendar year 2000 and
thereafter)(or in each case, such date promptly thereafter as Required Banks
shall elect).
Section 3.3(a) of the Credit Agreement shall be amended to read in full as
follows:
(a) In addition to Scheduled Redeterminations, Required Banks, in their sole
discretion, shall be permitted to make a Special Redetermination of the
Borrowing Base once in each Fiscal Year. Any request by Required Banks
pursuant to this Section 3.3 (a) shall be submitted to Agent and Borrower.
Section 3.5 of the Agreement shall be deleted in its entirety.
1.6 Certain Amendments to General Provisions. Sections 4.2 and 4.7 of the
Credit Agreement shall be amended to read in full as follows:
SECTION 4.2. General Provisions as to Payments. (a) Borrower shall make
each payment of principal of, and interest on, the Loans and all fees payable
hereunder shall be paid not later than 12:00 noon (Dallas, Texas time) on the
date when due, in Federal or other funds immediately available in Dallas,
Texas, to Agent at its address referred to in Section 13.1. Agent will
promptly (and if such payment is received by Agent by 10:00 a.m., and
otherwise if reasonably possible, on the same Domestic Business Day)
distribute to each Bank its share (as determined in
18
accordance with the other provisions of this Agreement) of
each such payment received by Agent for the account of Banks. Whenever any
payment of principal of, or interest on, Base Rate Loans or Competitive Bid
Fixed Rate Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day (subject to the definition of Interest Period).
Whenever any payment of principal of, or interest on, the Eurodollar Loans
shall be due on a day which is not a Eurodollar Business Day, the date for
payment thereof shall be extended to the next succeeding Eurodollar Business
Day (subject to the definition of Interest Period). If the date for any
payment of principal is extended by operation of Law or otherwise, interest
thereon shall be payable for such extended time. Borrower hereby authorizes
Agent to charge from time to time against Borrower's accounts with Agent any
amount then due.
(b) Prior to the occurrence of an Event of Default, all principal
payments received by Banks on Competitive Bid Loans shall be applied to the
Competitive Bid Loans then due, and all principal payments received by Banks in
respect of Committed Loans shall be applied first, to Eurodollar Loans with
Interest Periods ending on the date of such payment, then to Base Rate Loans,
then to Eurodollar Loans next maturing until such principal payment is fully
applied with such adjustments in such order of payment as Agent shall specify
in order that each Bank receives its ratable share of each such payment.
(c) After the occurrence of an Event of Default, all amounts collected or
received by Agent or any Bank in respect of the Obligations shall be applied
first to the payment of all proper costs incurred by Agent in connection with
the collection thereof (including reasonable expenses and disbursements of
Agent), second to the payment of all proper costs incurred by Banks in
connection with the collection thereof (including reasonable expenses and
disbursements of Banks), third to the reimbursement of any advances made by
Banks to effect performance of any unperformed covenants of Borrower under any
of the Loan Papers, fourth to the payment of any unpaid agency fees required
pursuant to Section 2.13, fifth to the payment of any unpaid fees required
pursuant to Sections 2.1(b), and 2.12 and sixth, to payment of the Loans to
each Bank in accordance with each Bank's Sharing Percentage.
SECTION 4.7. Limitation on Number of Eurodollar Loans and Competitive
Bid Loans. Unless otherwise agreed by Agent with the consent of the Required
Banks, there may be no more than an aggregate of fifteen (15) Committed
Eurodollar Loans and Competitive Bid Loans outstanding at any time.
1.7 Certain Amendments to Eurodollar Loan Provisions. Sections 5.1 and 5.2
of the Credit Agreement shall be amended to read in full as follows:
SECTION 5.1. Funding Losses. If Borrower makes any payment of
principal with respect to any Committed Eurodollar Loan or Competitive Bid Loan
19
(whether pursuant to Sections 2.7, 2.9, 2.10, 3.4, 11.1, the remaining
provisions of this Article V or as a voluntary or mandatory prepayment or
otherwise) on any day other than the last day of an Interest Period applicable
thereto, or if Borrower fails to borrow any Committed Eurodollar Loan or
Competitive Bid Loan after notice has been given to any Bank in accordance with
Section 2.2, Borrower shall reimburse each Bank on demand for any resulting
loss or expense incurred by it, including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties,
or any loss arising from the reemployment of funds at rates lower than the
cost to such Bank of such funds and related costs, which in the case of the
payment or prepayment prior to the end of the Interest Period for any
Committed Eurodollar Loan or Competitive Bid Loan shall include the amount,
if any, by which (i) the interest which such Bank would have received, absent
such payment or prepayment for the applicable Interest Period exceeds
(ii) the interest which such Bank would receive if the amount of such
Committed Eurodollar Loan or Competitive Bid Loan were deposited, loaned, or
placed by such Bank in the interbank eurodollar market on the date of such
payment or prepayment for the remainder of the applicable Interest Period.
Such Bank shall promptly deliver to Borrower and Agent a certificate as to
the amount of such loss or expense, which certificate shall be conclusive in
the absence of manifest error.
SECTION 5.2. Basis for Determining Interest Rate Applicable to Eurodollar
Loans Inadequate. If on or prior to the first day of any Interest Period the
Required Banks advise Agent that the Adjusted Eurodollar Rate as determined by
Agent will not adequately and fairly reflect the cost to such Banks of funding
their Eurodollar Loans for such Interest Period, Agent shall give notice
thereof to Borrower and Banks, whereupon the obligations of Banks to make
Eurodollar Loans shall be suspended until Agent notifies Borrower that the
circumstances giving rise to such suspension no longer exist. Unless Borrower
notifies Agent at least two (2) Domestic Business Days before the date of any
Eurodollar Borrowing for which a Request for Committed Loans or a Competitive
Bid Request requesting Competitive Bid Eurodollar Loans previously been given
that it elects not to borrow on such date, such Borrowing shall instead be
made as a Base Rate Loan.
1.8 Events of Default. Section 11.1 of the Credit Agreement shall be amended
to (a) delete the word "or" at the end of clause (j) thereof, (b) to insert the
word "or" after the semicolon at the end of clause (k) thereof; and (c) to add
a new clause (l) which shall read in full as follows:
"(l) this Agreement or the other Loan Papers shall cease to be in full force
and effect or shall be declared null and void or the validity or enforceability
thereof shall be contested or challenged by Borrower, or Borrower shall deny
that it has any further liability or obligation under any of the Loan Papers to
which it is a party."
1.9 Successors and Assigns. Section 13.10(c) of the Credit Agreement shall be
amended to read in full as follows:
20
"(c) Each Bank may make assignments to the Federal Reserve Bank. Each
Bank may also assign to one or more assignees (each an "Assignee") all or any
part of its rights and obligations under the Loan Papers so long as (i) the
assignor Bank and Assignee execute and deliver to Agent and Borrower for their
consent and acceptance (that may not be unreasonably withheld and will not be
required from Borrower during the existence of a Default) an assignment and
assumption agreement in substantially the form of Exhibit J (an "Assignment and
Assumption Agreement") and assignor Bank pays to Agent a processing fee of
$3,500, (ii) the conditions (including, without limitation, minimum amounts of
the Total Commitment that may be assigned or that must be retained) for that
assignment set forth in the applicable Assignment and Assumption Agreement are
satisfied, and (iii) no Event of Default exists under the Agreement. The
"Effective Date" in each Assignment and Assumption Agreement must (unless a
shorter period is agreeable to Borrower and Agent) be at least five Domestic
Business Days after it is executed and delivered by the assignor Bank and the
Assignee to each Agent and Borrower for acceptance. Once that Assignment and
Assumption Agreement is accepted by Agent and Borrower, then, from and after
the Effective Date stated on it (i) the Assignee automatically becomes a party
to this Agreement and, to the extent provided in that Assignment and Assumption
Agreement, has the rights and obligations of a Bank under the Loan Papers, (ii)
the assignor Bank, to the extent provided in that Assignment and Assumption
Agreement, is released from its obligations under this Agreement and, in the
case of an Assignment and Assumption Agreement covering all of the remaining
portion of the assignor Bank's rights and obligations under the Loan Papers,
that Bank ceases to be a party to the Loan Papers, (iii) Borrower shall
execute and deliver to the assignor Bank and the Assignee the appropriate Notes
in accordance with this Agreement following the transfer, (iv) upon delivery of
the Notes under clause (iii) preceding, the assignor Bank shall return to
Borrower all Notes previously delivered to that Bank under this Agreement, and
(v) Schedule 1 is automatically deemed to be amended to reflect the name,
address, telecopy number and Commitment of the Assignee and the remaining
Commitment (if any) of the assignor Bank, and Agent shall prepare and circulate
to Borrower and Banks an amended Schedule 1 reflecting those changes.
1.10 Exhibits. Exhibits A, B, C, D, E, F, G, H, I and J to the Credit
Agreement shall be amended to read in full as set forth in Exhibits A, B, C, D,
E, F, G, H, I and J, attached hereto.
SECTION 2 Increase in Borrowing Base. Subject to the satisfaction of each
condition precedent set forth in Section 3 hereof and in reliance on the
representations, warranties, covenants and agreements herein contained, the
Banks agree that the Borrowing Base in effect from and including January 21,
1999 until the effective date of the next Redetermination thereafter shall be
$110,000,000.
SECTION 3 Conditions Precedent to Effectiveness of Amendments. The amendments
to the Loan Agreement contained in Section 1 of this Second Amendment and the
increase in the
21
Borrowing Base pursuant to Section 2 of this Second Amendment shall be
effective only upon the delivery to Agent of each of the following:
(a) a Committed Note and a Competitive Bid Note payable to the order of each
Bank, each in the amount of such Bank's Commitment after giving effect to the
Assignment and Assumption Agreements referenced in the recitals hereto;
(b) a copy of the Certificate of Incorporation and all amendments thereto, of
the Borrower accompanied by a certificate that such copy is true, correct and
complete, and dated within twenty (20 days of the Effective Date of this Second
Amendment, issued by the Secretary of State of Delaware, and accompanied by a
certificate of the Secretary of Borrower that such copy is true, correct and
complete on the Effective Date of the Second Amendment;
(c) a copy of the Bylaws, and all amendments thereto, of Borrower accompanied
by a certificate of the Secretary of Borrower that such copy is true, correct
and complete as of the Effective Date of the Second Amendment;
(d) certain certificates and other documents issued by the appropriate
Governmental Authorities of such jurisdictions as Agent has requested relating
to the existence of Borrower and to the effect that Borrower is in good
standing with respect to the payment of franchise and similar Taxes in such
jurisdictions and is duly qualified to transact business in such jurisdictions;
(e) a certificate of incumbency of all officers of Borrower who are authorized
to execute or attest the Notes referenced in Section 3(a) above, this Amendment
and any other Loan Paper, dated the Effective Date of the Second Amendment,
executed by the Secretary of Borrower;
(f) copies of resolutions approving the Notes referenced in Section 3(a) above
and this Second Amendment and authorizing the transactions contemplated by this
Second Amendment, duly adopted by the Board of Directors of Borrower and
accompanied by a certificate, dated the Effective Date of the Second Amendment,
of the Secretary of Borrower that such resolutions are true and correct copies
of resolutions duly adopted at a meeting of or (if permitted by applicable Law
and, if required by such Law, by the Bylaws of Borrower) by the unanimous
written consent of the Board of Directors of Borrower, and that such
resolutions constitute all of the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any respect, and
are in full force and effect as of the date hereof;
(g) an opinion of Nordman, Cormany, Hair & Compton, counsel for Borrower,
dated the Effective Date of the Second Amendment, favorably opining as to the
enforceability of the Second Amendment and each of the Notes referenced in
Section 3(a) above and otherwise in form and substance satisfactory to Agent;
(h) such other documents, instruments, agreements and actions as may
reasonably be required by Agent and each Bank; and
22
(i) payment of all fees to Agent and its Affiliates contemplated by separate
letter agreements by and between Borrower and Agent.
SECTION 4 Representations and Warranties of Borrower. To induce the Banks and
Agent to enter into this Second Amendment, Borrower hereby represents and
warrants to Agent as follows:
4.1 Reaffirmation of Representations and Warranties. Each representation
and warranty of Borrower contained in the Credit Agreement and the other Loan
Papers is true and correct on the date hereof and will be true and correct
after giving effect to the amendments set forth in Section 1 hereof.
4.2 Due Authorization; No Conflicts. The execution, delivery and performance
by Borrower of this Second Amendment are within the Borrower's corporate
powers, have been duly authorized by all necessary action, require no action
by or in request of, or filing with, any governmental body, agency or
official and do not violate or constitute a default under any provision of
applicable law or any Material Agreement binding upon Borrower or the
Subsidiaries of Borrower or result in the creation or imposition of any Lien
upon any of the assets of Borrower or the Subsidiaries of Borrower except
Permitted Encumbrances.
4.3 Validity and Enforceability. This Second Amendment constitutes the valid
and binding obligation of Borrower enforceable in accordance with its terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditor's rights generally, and (ii) the
availability of equitable remedies may be limited by equitable principles
of general application.
SECTION 5 Miscellaneous.
5.1 No Defenses. Borrower hereby represents and warrants to the Banks that
there are no defenses to payment, counterclaims or rights of set-off with
respect to the Obligations existing on the date hereof.
5.2 Reaffirmation of Loan Papers. Any and all of the terms and provisions of
the Credit Agreement and the Loan Papers shall, except as amended and modified
hereby, remain in full force and effect.
5.3 Parties in Interest. All of the terms and provisions of this Second
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
5.4 Legal Expenses. Borrower hereby agrees to pay on demand all reasonable
fees and expenses of counsel to Agent incurred by Agent, in connection with the
preparation, negotiation and execution of this Second Amendment and all related
documents.
23
5.5 Counterparts. This Second Amendment may be executed in counterparts,
and all parties need not execute the same counterpart; however, no party shall
be bound by this Second Amendment until all parties have executed a counterpart.
Facsimiles shall be effective as originals.
5.6 Complete Agreement. THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
5.7 Headings. The headings, captions and arrangements used in this Second
Amendment are, unless specified otherwise, for convenience only and shall not
be deemed to limit, amplify or modify the terms of this Second Amendment, nor
affect the meaning thereof.
24
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be
duly executed by their respective authorized officers on the date and year
first above written.
BORROWER:
BERRY PETROLEUM COMPANY,
a Delaware corporation
By:
Jerry V. Hoffman, Chairman, President and Chief
Executive Officer
By:
Ralph J. Goehring, Senior Vice President and
Chief Financial Officer
AGENT:
NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A.
By: s/s Claire Liu
Name: Claire M. Liu
Title: Managing Director
BANKS:
NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A.
By: s/s Claire Liu
Name: Claire M. Liu
Title: Managing Director
WELLS FARGO BANK (TEXAS), N.A.
By: s/s Greg Petruska
Name: Greg Petruska
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: s/s Randy Osterberg
Name: Randy Osterberg
Title: Vice President
26
SCHEDULE 1
FINANCIAL INSTITUTIONS
Banks Commitment Amount Commitment Percentage
NationsBank, N.A. $68,181,750 45.4545%
Wells Fargo Bank (Texas), N.A. $40,909,050 27.2727%
Union Bank of California, N.A. $40,909,050 27.2727%
Banks Domestic Eurodollar Address
Lending Lending for Notice
NationsBank, 901 Main Street, 901 Main Street, 901 Main Street,
N.A. 64th Floor 64th Floor 64th Floor
Dallas, Texas 75202 Dallas, Texas 75202 Dallas, Texas 75202
Fax No. (214) 508-1285 Fax (214) 508-1285 Fax (214) 508-1285
Wells Fargo 633 17th Street, 633 17th Street, 633 17th Street,
Bank (Texas), 3rd Floor 3rd Floor 3rd Floor
N.A. North Tower North Tower North Tower
Denver, Colorado 80270 Denver, Colorado 80270 Denver, Colorado
80270
Fax No. (303) 293-5120 Fax No. (303) 293-5120 Fax No.
(303) 293-5120
Union Bank Energy Capital Energy Capital Energy Capital
of Services Services Services
California 445 S. Figueroa Street 445 S. Figueroa Street Dallas Office
N.A. 15th Floor 15th Floor 500 N. Akard,
Los Angeles, CA 90071 Los Angeles, CA 90071 Dallas, Texas 75201
Fax No. (213) 236-4096 Fax No. (213) 236-4096 Fax No.
(214) 922-4209
Agent - Address:
901 Main Street, 64th Floor
Dallas, Texas 75202
Attn: ____________________
Fax: (214) 508-1285
Schedule 1-1
<PAGE> 76
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Berry Petroleum Company on Form S-8 (File No. 333-62799
and 333-62873) of our report dated February 19, 1999 on our
audits of the financial statements of Berry Petroleum Company as of
December 31, 1998 and 1997 and for the three years in the period
ended December 31, 1998, which report is included in this Annual
Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 11, 1999
EXHIBIT 23.1
<PAGE> 77
March 12, 1999
Berry Petroleum Company
P.O. Bin X
Taft, California 93268
Gentlemen:
In connection with the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, (the Annual Report) of Berry Petroleum Company (the
Company), we hereby consent to (i) the use of and reference to our report
dated February 16, 1999, entitled "Appraisal Report, as of December 31, 1998,
on Certain Property Interests owned by Berry Petroleum Company," which
pertains to interests of the Company in certain oil and gas properties
located in California, Louisiana, Nevada, Texas, and Wyoming; our report
dated February 19, 1998, entitled "Appraisal Report, as of December 31, 1997,
on Certain Property Interests owned by Berry Petroleum Company," which
pertains to interests of the Company in certain oil and gas properties
located in California, Louisiana, Nevada, Texas and Wyoming; and our report
dated February 12, 1997, entitled "Appraisal Report, as of December 31, 1996,
on Certain Property Interests owned by Berry Petroleum Company," which
pertains to interests of the Company in certain oil and gas properties
located in California, Louisiana, Nevada, and Texas (collectively referred
to as the "Reports"), under the caption "Oil and Gas Reserves" in items 1
and 2 of the Annual Report and under the caption "Supplemental Information
About Oil and Gas Producing Activities (Unaudited) in item 8 of the Annual
Report; and (ii) the use of and reference to the name DeGolyer and
MacNaughton as the independent petroleum engineering firm that prepared the
Reports under such items; provided, however, that since the cash-flow
calculations in the Annual Report include estimated income taxes not
included in the Reports, we are unable to verify the accuracy of the
cash-flow values in the Annual Report.
Very truly yours,
DeGOLYER and MacNAUGHTON
Exhibit 23.2
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778438
<NAME> BERRY PETROLEUM COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,058
<SECURITIES> 710
<RECEIVABLES> 5,495
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,312
<PP&E> 234,960
<DEPRECIATION> 79,389
<TOTAL-ASSETS> 173,804
<CURRENT-LIABILITIES> 8,231
<BONDS> 0
0
0
<COMMON> 220
<OTHER-SE> 106,704
<TOTAL-LIABILITY-AND-EQUITY> 173,804
<SALES> 39,858
<TOTAL-REVENUES> 39,899
<CGS> 0
<TOTAL-COSTS> 27,908
<OTHER-EXPENSES> 5,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,939
<INCOME-PRETAX> 4,250
<INCOME-TAX> 371
<INCOME-CONTINUING> 3,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,879
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
<PAGE> 79
UNDERTAKING FOR FORM S-8 REGISTRATION STATEMENT
For purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
Company hereby undertakes as follows, which undertaking shall be
incorporated by reference into the Company's Registration Statements on
Form S-8 (No. 333-62799 and 333-62873):
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to director, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Exhibit 99.1
