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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-10578
VINTAGE PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1182669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 592-0101
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.005 Par Value New York Stock Exchange
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
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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 the 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 March 17, 1998, 51,636,086 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the Common Stock held by
non-affiliates was approximately $683,917,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997, are incorporated by reference into Parts I and II
of this Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 12, 1998, are incorporated by reference into Part
III of this Form 10-K.
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VINTAGE PETROLEUM, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
Page
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PART I
Items 1
and 2. Business and Properties........................................ 1
Item 3. Legal Proceedings.............................................. 26
Item 4. Submission of Matters to a Vote of
Security-Holders............................................... 27
Item 4A. Executive Officers of the Registrant........................... 27
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................................ 30
Item 6. Selected Financial Data........................................ 30
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 30
Item 8. Financial Statements and Supplementary Data.................... 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 30
PART III
Item 10. Directors and Executive Officers of the Registrant............. 30
Item 11. Executive Compensation......................................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................... 30
Item 13. Certain Relationships and Related Transactions................. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................................ 31
Signatures................................................................. 34
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CERTAIN DEFINITIONS
AS USED IN THIS FORM 10-K:
Unless the context requires otherwise, all references to the "Company"
include Vintage Petroleum, Inc., its consolidated subsidiaries and its
proportionately consolidated general partner interests in various limited
partnerships and joint ventures.
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "Bbl" means barrel, "MBbls" means thousand barrels,
"MMBbls" means million barrels, "BOE" means equivalent barrels of oil, "MBOE"
means thousand equivalent barrels of oil and "MMBOE" means million equivalent
barrels of oil. Unless otherwise indicated in this Form 10-K, gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located and at 60/o/ Fahrenheit. Equivalent barrels of oil are determined using
the ratio of six Mcf of gas to one Bbl of oil. The term "gross" refers to the
total acres or wells in which the Company has a working interest, and "net"
refers to gross acres or wells multiplied by the percentage working interest
owned by the Company. "Net production" means production that is owned by the
Company less royalties and production due others. The terms "net" and "net
production" include 100 percent of the Company's subsidiary Cadipsa S.A. and do
not reflect reductions for minority interest ownership. The term "oil" includes
crude oil, condensate and natural gas liquids.
"Proved reserves" are estimated quantities of oil and 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 reserves" are those reserves which are expected
to be recovered through existing wells with existing equipment and operating
methods. "Proved undeveloped reserves" are those reserves which are expected to
be recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-K INCLUDES CERTAIN STATEMENTS THAT MAY BE DEEMED TO BE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. ALL STATEMENTS IN THIS FORM 10-K, OTHER THAN
STATEMENTS OF HISTORICAL FACTS, THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS
THAT THE COMPANY EXPECTS, BELIEVES OR ANTICIPATES WILL OR MAY OCCUR IN THE
FUTURE, INCLUDING FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE
THEREOF), THE DRILLING OF WELLS, RESERVE ESTIMATES, FUTURE PRODUCTION OF OIL AND
GAS, FUTURE CASH FLOWS, FUTURE RESERVE ACTIVITY AND OTHER SUCH MATTERS ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS
EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS
WITHIN THE BOUNDS OF ITS KNOWLEDGE OF ITS BUSINESS, SUCH STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS INCLUDE: OIL AND GAS PRICES; EXPLOITATION AND
EXPLORATION SUCCESSES; CONTINUED AVAILABILITY OF CAPITAL AND FINANCING; GENERAL
ECONOMIC, MARKET OR BUSINESS CONDITIONS; ACQUISITION OPPORTUNITIES (OR LACK
THEREOF); CHANGES IN LAWS OR REGULATIONS; RISK FACTORS LISTED FROM TIME TO TIME
IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION; AND
OTHER FACTORS. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
GENERAL
Vintage Petroleum, Inc. (the "Company") is an independent oil and gas
company focused on the acquisition of producing oil and gas properties which
contain the potential for increased value through exploitation and development.
The Company, through its experienced management and engineering staff, has been
successful in realizing such potential on prior acquisitions through workovers,
recompletions, secondary recovery operations, operating cost reductions, and the
drilling of development or infill wells. The Company believes that its primary
strengths are its ability to add reserves at attractive prices through property
acquisitions and subsequent exploitation, and its low cost operating structure.
These strengths have allowed the Company to substantially increase reserves,
production and cash flow during the last five years. As the Company has grown
its cash flow and added to its technical staff, exploration has become a larger
focus for its future growth. Planned exploration expenditures for 1998 of
approximately $65 million represent 35 percent of the Company's 1998 capital
budget, excluding acquisitions.
At December 31, 1997, the Company owned and operated producing properties in
10 states, with its domestic proved reserves located primarily in four core
areas: the West Coast, Gulf Coast, East Texas and Mid-Continent areas of the
United States. During 1996 and the first half of 1997, the Company expanded its
Gulf Coast area through the acquisition of the Exxon Properties, the Conoco
Properties and the Burlington Properties. See "--Acquisition Activities." In
addition, the Company established a new core area in 1995 by acquiring 12 oil
concessions, 11 of which are producing and operated by the Company, in the south
flank of the San Jorge Basin in southern Argentina. The Company in 1996 expanded
its South American operations into Bolivia through the acquisition of Vintage
Petroleum Boliviana Ltd. (formerly Shamrock Ventures (Boliviana) Ltd.) ("Vintage
Boliviana") which owns and operates three blocks covering approximately 570,000
acres in the Chaco Plains area of southern Bolivia. During 1997, the Company
enhanced its operations in Bolivia by obtaining the concession rights to the
Naranjillos concession located in the Santa Cruz Province.
As of December 31, 1997, the Company owned interests in 3,815 gross (2,778
net) producing wells in the United States, of which approximately 78 percent are
operated by the Company, 699 gross (686 net) producing wells in Argentina, of
which approximately 98 percent are operated by the Company, and 7 gross (6 net)
producing wells in Bolivia, 100 percent of which are operated by the Company.
As of December 31, 1997, the Company's properties had proved reserves of 279.8
MMBOE, comprised of 187.8 MMBbls of oil and 552.2 Bcf of gas, with a present
value of estimated future net revenues before income taxes (utilizing a 10
percent discount rate) of $1.2 billion and a standardized measure of discounted
future net cash flows of $1.0 billion.
The Company has consistently achieved growth in proved reserves, production
and revenues and has been profitable every full year since its founding in 1983.
From the first quarter of 1995 through the fourth quarter of 1997, the Company
increased its average net daily production from 17,000 Bbls of oil to 44,700
Bbls of oil and from 77,000 Mcf of gas to 129,700 Mcf of gas.
Financial information relating to the Company's industry segments is set
forth in "Note 8 to Consolidated Financial Statements - Segment Information"
which is incorporated by reference from page 45 of the Company's 1997 Annual
Report to Stockholders.
The Company was incorporated in Delaware on May 31, 1983. The Company's
principal office is located at 4200 One Williams Center, Tulsa, Oklahoma 74172,
and its telephone number is (918) 592-0101.
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BUSINESS STRATEGY
The Company's overall goal is to maximize its value through profitable
growth in its oil and gas reserves and production. The Company has been
successful at achieving this goal through its ongoing strategy of (a) acquiring
producing oil and gas properties, at favorable prices, with significant
exploitation potential, (b) focusing on low risk exploitation and development
activities to maximize production and ultimate reserve recovery, (c) exploring
non-producing properties, (d) maintaining a low cost operating structure, and
(e) maintaining financial flexibility. Key elements of the Company's strategy
include:
. Acquisitions of Producing Properties. The Company has an experienced
management and engineering team which focuses on acquisitions of
operated producing properties that meet its selection criteria which
include (a) significant potential for increasing reserves and production
through low risk exploitation and development, (b) attractive purchase
price, and (c) opportunities for improved operating efficiency. The
Company's emphasis on property acquisitions reflects its belief that
continuing consolidation and restructuring activities on the part of
major integrated and large independent oil companies has afforded in
recent years, and should afford in the future, attractive opportunities
to purchase domestic and international producing properties. This
acquisition strategy has allowed the Company to rapidly grow its
reserves at favorable acquisition prices. From January 1, 1995, through
December 31, 1997, the Company acquired 164.4 MMBOE of proved oil and
gas reserves at an average acquisition cost of $2.67 per BOE, which is
significantly below the industry average. The Company replaced through
acquisitions approximately 3.1 times its production of 52.6 MMBOE during
the same period.
. Exploitation and Development. The Company pursues workovers,
recompletions, secondary recovery operations and other production
optimization techniques on its properties, as well as development and
infill drilling, to offset normal production declines and replace the
Company's annual production. From January 1, 1995, through December 31,
1997, the Company spent approximately $227.9 million on exploitation and
development activities. During this period, the Company's recompletion
and workover activities resulted in improved production or operating
efficiencies in approximately 75 percent of these operations, and the
result of all of its exploitation activities, including development and
infill drilling, succeeded in replacing approximately 81 percent of
production during this period. The Company has an extensive inventory of
exploitation and development opportunities including identified projects
which represent an inventory of over 10 years at current activity
levels. The Company anticipates spending approximately $45 million in
the United States and approximately $75 million in Argentina and Bolivia
during 1998 on exploitation and development projects.
. Exploration. The Company's overall exploration strategy balances high
potential international prospects with lower risk drilling in known
formations in the United States and Argentina. This prospect mix and the
Company's practice of risk-sharing with industry partners is intended to
lower the incidence and costs of dry holes. The Company makes extensive
use of geophysical studies, including 3-D seismic, which further reduce
the cost and increase the success of its exploration program. From
January 1, 1995, through December 31, 1997, the Company spent
approximately $64.6 million on exploration activities, including the
drilling of 50 gross (29.95 net) exploration wells, of which
approximately 56 percent gross (60 percent net) were productive. The
Company has increased its exploration budget to approximately $65
million in 1998, with spending planned in its core areas in the United
States and Argentina as well as Bolivia.
. Low Cost Structure. The Company is an efficient operator and capitalizes
on its low cost structure in evaluating acquisition opportunities. The
Company generally achieves substantial reductions in labor and other
field level costs from those experienced by the previous operators. In
addition, the Company targets acquisition candidates which are located
in its core areas and
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provide opportunities for cost efficiencies through consolidation with
other Company operations. The lower cost structure has generally allowed
the Company to substantially improve the cash flow of newly acquired
properties.
. Financial Flexibility. The Company is committed to maintaining
substantial financial flexibility, which management believes is
important for the successful execution of its acquisition, exploitation
and exploration strategy. In conjunction with the purchase of
substantial oil and gas assets in 1990, 1992 and 1995, the Company
completed three public equity offerings, as well as a public debt
offering in 1995. The Company also successfully completed simultaneous
public debt and equity offerings in February 1997. These six offerings
provided the Company with aggregate net proceeds of approximately $416
million. In addition to accessing the public capital markets, the
Company currently has approximately $130 million of availability under
its revolving credit facility.
ACQUISITION ACTIVITIES
Historically, the Company has allocated a substantial portion of its capital
expenditures to the acquisition of producing oil and gas properties. The
Company's emphasis on property acquisitions reflects its belief that continuing
consolidation and restructuring activities on the part of major integrated and
large independent oil companies has afforded in recent years, and should afford
in the future, attractive opportunities to purchase domestic and international
producing properties. The Company's ability to quickly evaluate and complete
acquisitions as well as its financial flexibility allow it to take advantage of
these opportunities as they materialize.
Since the Company's incorporation in May 1983, it has been actively engaged
in the acquisition of producing oil and gas properties primarily in the Gulf
Coast, East Texas and Mid-Continent areas of the United States, and in
California since April 1992. In 1995, a series of acquisitions made by the
Company established a new core area in the San Jorge Basin in southern
Argentina. In late 1996, that core area was expanded into Bolivia.
From January 1, 1995, through December 31, 1997, the Company made oil and
gas property acquisitions involving total costs of approximately $439 million.
As a result of these acquisitions, the Company acquired approximately 164.4
MMBOE of proved oil and gas reserves. The following table summarizes the
Company's acquisition experience during the periods indicated:
<TABLE>
<CAPTION>
Proved Reserves When Acquired Acquisition
------------------------------- Cost Per
Acquisition Oil Gas BOE When
Costs (MBbls) (MMcf) MBOE Acquired
-------------- ---------- --------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Acquisitions
1995.................................. $ 38,896 8,840 39,486 15,421 $2.52
1996.................................. 50,480 8,095 20,787 11,560 4.37
1997.................................. 133,548 24,653 62,253 35,029 3.81
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Total U.S. Acquisitions............ 222,924 41,588 122,526 62,010 3.60
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Argentina Acquisitions
1995.................................. 168,762 65,653 -- 65,653 2.57
1996.................................. 3,754 2,849 -- 2,849 1.32
1997.................................. -- -- -- -- --
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Total Argentina Acquisitions....... 172,516 68,502 -- 68,502 2.52
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Bolivia Acquisitions
1996.................................. 37,048 4,953 57,758 14,579 2.54
1997.................................. 6,201 758 111,212 19,293 0.32
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Total Bolivia Acquisitions......... 43,249 5,711 168,970 33,872 1.28
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Total U.S. and International
Acquisitions.................. $438,689 115,801 291,496 164,384 $2.67
======== ======= ======= =======
</TABLE>
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The following is a brief discussion of significant acquisitions in recent
years:
1995 Acquisitions.
United States. In May 1995, the Company purchased all of Texaco's
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interests in nine oil fields and seven gas fields in California located
primarily in Kern, Ventura, Los Angeles, Orange and Santa Barbara Counties and
the Sacramento Basin area for $26.7 million in cash (the "Texaco Properties").
Netherland, Sewell & Associates, Inc. ("Netherland, Sewell") estimated that
proved reserves attributable to these properties at the date of acquisition were
approximately 7.5 MMBbls of oil and 16.4 Bcf of gas. The Company identified
numerous exploitation opportunities in these properties including development
drilling, recompletions, steam flood expansions as well as lease operating
expense efficiencies.
International. In the third quarter of 1995, the Company closed two
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acquisitions of related properties located in the south flank of the San Jorge
Basin in southern Argentina, establishing a new core area for the Company. On
July 5, 1995, the Company purchased approximately 51.8 percent of the
outstanding common stock of Cadipsa S.A. ("Cadipsa") for 605,616 shares (after
giving effect to the Company's two-for-one common stock split effected on
October 7, 1997) of the Company's common stock (then valued at $5.7 million) and
$7.4 million in cash. Cadipsa's major assets included a 100 percent working
interest in two concessions and a 50 percent working interest in three
additional concessions, all five of which were mature, producing and operated by
Cadipsa, covering approximately 322,000 gross acres. Cadipsa's net daily
production at the date of acquisition was approximately 3,700 Bbls of mid-
gravity oil from multiple zones at depths between 2,500 feet and 5,500 feet. The
Company has subsequently purchased an additional 45 percent of Cadipsa which
increased its total ownership to approximately 97 percent at December 31, 1997.
Effective July 1, 1997, the operations of Cadipsa were merged into Vintage
Argentina, a wholly owned subsidiary of the Company, and Cadipsa is currently
awaiting governmental approval of formal dissolution.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of BG Argentina, S.A. (subsequently renamed Vintage Oil Argentina,
Inc.) ("Vintage Argentina") from British Gas plc, for $37 million in cash.
Vintage Argentina's major assets consist of a 50 percent working interest in
three of the producing concessions previously operated by Cadipsa now operated
by Vintage Argentina.
In November 1995, the Company entered into separate agreements with Astra
Compania Argentina de Petroleo S.A. ("Astra") and Shell Compania Argentina de
Petroleo S.A. ("Shell") to acquire certain producing oil and gas properties in
Argentina (the "Astra/Shell Properties"). On November 30, 1995, the Company
completed the purchase of the Astra portion of the Astra/Shell Properties by
paying $17.9 million in cash for Astra's 35 percent working interest in the
Astra/Shell Properties. On December 27, 1995, the Company completed the purchase
of the remaining 65 percent working interest from Shell for $32.8 million cash
and deferred payments valued at $5.1 million.
The acquisition of the Astra/Shell Properties resulted in the Company
acquiring 100 percent working interests in seven concessions, six of which are
currently producing and all of which are located on the south flank of the San
Jorge Basin in southern Argentina. The concessions cover approximately 450,000
acres and are located in close proximity to the Company's other Argentina
properties.
1996 Acquisitions.
United States. On January 31, 1996, the Company purchased interests in
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two fields located in south-central Louisiana from Conoco Inc. for $13.9 million
(the "Conoco Properties"). Funds were provided by advances under the Company's
revolving credit facility. The Conoco Properties included 26 gross (21 net)
productive wells with daily net production at the time of acquisition of
approximately 1,000 Bbls of oil and 550 Mcf of gas. All of the wells are now
operated by the Company. The primary producing sands include the
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Ortego A, Haas, Tate, Wilcox 1 through 6 and the Middle and Basal Cockfield at
depths ranging from 7,500 feet to 12,000 feet. Exploitation activities include
workovers, recompletions and development drilling.
On November 20, 1996, the Company purchased certain producing oil and gas
properties and facilities from Exxon Company, U.S.A. located in south Alabama
for approximately $29.4 million in cash (the "Exxon Properties"). Funds were
provided by advances under the Company's revolving credit facility. The Exxon
Properties include an interest in two fields totaling approximately 5,000 net
acres with a total of 17 gross (9.9 net) productive wells with net daily
production at the time of acquisition of approximately 1,450 Bbls of oil and
liquids and 2,800 Mcf of gas. All of the wells are now operated by the Company.
The primary producing sands are the Smackover and Norphlet at depths of
approximately 15,000 feet. Exploitation activities include operating cost
reductions, treating plant efficiencies, workovers and infill drilling.
International. In November 1996, the Company agreed to purchase 100
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percent of the outstanding common stock of Vintage Boliviana from affiliates of
Ultramar Diamond Shamrock Corporation for approximately $29.0 million in cash.
In addition, at closing on January 7, 1997, the Company repaid all of Vintage
Boliviana's existing bank debt (approximately $9.2 million). Funds for the
purchase of the stock and the repayment of debt were provided by advances under
the Company's revolving credit facility. Vintage Boliviana's assets included (a)
oil and gas properties valued at $37.0 million (including the effect of
approximately $7.0 million of deferred income taxes recorded under the purchase
method of accounting), and (b) inventory, receivables, cash and other assets net
of liabilities (other than bank debt repaid at closing) of approximately $8.2
million. The acquisition of Vintage Boliviana represented an extension of the
Company's South American operating area that was initially established through a
series of acquisitions in Argentina during 1995.
The oil and gas properties of Vintage Boliviana consist of three blocks,
totaling approximately 570,000 acres, in the Chaco Plains area of southern
Bolivia. This region has experienced the greatest amount of exploration and
currently accounts for the majority of the country's production. The properties
consist of a 100 percent interest in the Chaco and Porvenir blocks and a 50
percent interest in the Nupuco block.
Proved reserves at the time of acquisition, as estimated by Netherland,
Sewell, were 57.8 Bcf of gas and 5.0 MMBbls of oil. Net daily production at the
time of acquisition was approximately 14,500 Mcf of gas and 230 Bbls of
condensate. The average 1997 realized price for natural gas on the properties
was approximately $1.10 per Mcf. The purchase also included a 29 mile gas
pipeline and an interest in a gas processing plant with a capacity of 110 MMcf
per day. Liquids are transferred through the pipeline to the processing plant.
The current market for the gas is Argentina.
The Company believes that the Vintage Boliviana properties contain
substantial upside potential which may be realized through exploitation and
future exploration. Bolivia occupies a strategic position in the area known as
the "Southern Cone" of South America. The Company expects that gas will be the
key energy source for the developing regional economies. The development of the
sizable gas reserves in southern Bolivia will play an important role as a source
of energy for the net importing countries of this region, the most significant
of which is Brazil. Third parties are constructing a gas pipeline from Santa
Cruz, Bolivia to Sao Paulo, Brazil with completion scheduled for early 1999.
The Company has begun work to evaluate the exploration prospects on the Bolivian
properties in order to be ready to take advantage of the increased market for
Bolivian gas that should occur when the pipeline to Brazil is completed.
1997 Acquisitions.
United States. During 1997, the Company acquired, through several
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transactions, oil and gas properties for an aggregate purchase price of
approximately $133.5 million. Based on estimates prepared by the Company,
except with respect to the Burlington Properties described below which estimates
were prepared by Netherland, Sewell, proved reserves as of the dates of the
various acquisitions aggregated
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24.7 MMBbls of oil and 62.3 Bcf of gas, or a total of 35.0 MMBOE. These reserves
were acquired at an average cost of $3.81 per BOE.
On April 1, 1997, the Company purchased certain producing oil and gas
properties and facilities located in the gulf coast of Texas and Louisiana from
subsidiaries of Burlington Resources Inc. (the "Burlington Properties") for
approximately $102.7 million in cash. Funds were provided by advances under the
revolving credit facility. The Burlington Properties consist of several key
onshore fields, five offshore fields and a number of smaller fields covering a
total of 74,547 gross (67,970 net) acres. Approximately 47 percent of this
acreage is associated with offshore fields. The Company now operates the
Burlington Properties with current net daily production of approximately 5,600
Bbls of crude oil and 17,000 Mcf of gas. At April 1, 1997, the Burlington
Properties totaled 24.3 MMBbls of oil and 25.2 Bcf of gas for a total of 28.5
MMBOE of proved reserves as estimated by Netherland, Sewell. The two largest
fields obtained in the purchase of the Burlington Properties are Luling Branyon
and West Ranch. For a brief description of these fields, see "--Oil and Gas
Properties--Gulf Coast Area."
International. On December 10, 1997, the Company entered into a
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contract with the Bolivian government for the concession rights to the
Naranjillos concession located in the Santa Cruz Province of Bolivia. The
Company's contract required a $1.0 million cash payment and a commitment to
perform 17,728 work units within the next three years. The work unit commitment
is guaranteed by the Company through the issuance of an $88.6 million letter of
credit; however, the Company anticipates that it will fulfill its three-year
work unit commitment through approximately $45 to $50 million of various seismic
and drilling capital expenditures.
The Naranjillos concession is located approximately 25 miles west of the
city of Santa Cruz, Bolivia, and contained proved reserves of 116 Bcf of gas
equivalent at the time of acquisition based on estimates prepared by the
Company. The Company believes that this concession contains significant
exploratory prospects and has initiated a 3-D seismic program covering nearly 39
square miles to be followed by drilling a minimum of two wells of varying depths
later in 1998. In addition, the Company plans to begin exploitation work aimed
at producing existing proved reserves under its existing market allocation. The
Company estimates capital expenditures for exploration and development of $17
million during the initial phase of the three-year program.
The Bolivia-to-Brazil gas pipeline is a major project with targeted
deliverability in excess of one Bcf of Bolivian gas per day to meet the growing
gas demand in Brazil. The Company believes that the exploitation potential of
the Naranjillos concession, combined with the exploration prospects it acquired
last year in the Chaco Basin of Bolivia, position the Company to be a
potentially significant beneficiary of the Bolivia-to-Brazil gas pipeline
project.
The Company intends to continue its growth strategy emphasizing reserve
additions through its acquisition efforts. The Company may utilize any one or a
combination of its line of credit with banks, institutional financing, issuance
of debt securities or additional equity securities and internally generated cash
flow to finance its acquisition efforts. No assurance can be given that
sufficient external funds will be available to fund the Company's desired
acquisitions.
The Company does not have a specific acquisition budget since the timing and
size of acquisitions are difficult to forecast. The Company is constantly
reviewing acquisition possibilities. The Company may expand into new domestic
core areas. The Company is also evaluating additional acquisition opportunities
in other countries which the Company believes are politically stable. At the
present time the Company has no binding agreements with respect to any
significant acquisitions.
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EXPLOITATION AND DEVELOPMENT ACTIVITIES
The Company concentrates its acquisition efforts on proved producing
properties which demonstrate a potential for significant additional development
through workovers, behind-pipe recompletions, secondary recovery operations, the
drilling of development or infill wells, and other exploitation techniques. The
Company has pursued an active workover, recompletion and development drilling
program on the properties it has acquired and intends to continue these
activities in the future.
The Company's exploitation staff focuses on maximizing the value of the
properties within its reserve base. The Company's exploitation engineers, who
strive to offset normal production declines and replace the Company's annual
production, have replaced more than 81 percent of the Company's production
during the last three years. The results of their efforts are reflected in
revisions to reserves. Net revisions to reserves for 1997 (before the impact of
lower oil and gas prices) totaled 29.9 MMBOE, or 132 percent of the Company's
production of 22.6 MMBOE. However, the replacement of these reserves was
entirely offset by a 30 MMBOE downward revision of reserves resulting from
sharply lower realized oil and gas prices at year-end 1997 used in the
calculation of proved reserves.
From January 1, 1995, through December 31, 1997, the Company spent
approximately $102.3 million on recompletion and workover operations. A measure
of the overall success of the Company's recompletion and workover operations
during this period (excluding minor equipment repair and replacement) has been
that improved production or operating efficiencies have been achieved from
approximately 75 percent of such operations. However, there can be no assurance
that such results will continue. The Company anticipates spending $22 million on
workover and recompletion operations during 1998. The expenditures required for
this program have historically been, and are expected to continue to be,
financed by internally generated funds.
Development drilling activity is generated both through the Company's
exploration efforts and as a result of the Company's obtaining undeveloped
acreage in connection with producing property acquisitions. In addition, there
are many opportunities for infill drilling on Company leases currently producing
oil and gas. The Company intends to continue to pursue development drilling
opportunities which offer potentially significant returns to the Company.
From January 1, 1995, through December 31, 1997, the Company participated in
the drilling of 199 gross (152.90 net) development wells, of which approximately
91 percent gross (93 percent net) were productive. However, there can be no
assurance that this past rate of drilling success will continue in the future.
The Company is pursuing development drilling in the West Coast, Gulf Coast, Mid-
Continent and East Texas areas as well as its Argentina concessions and
anticipates continued growth in its drilling activities. Additionally, the
Company has numerous infill drilling locations in several East Texas area
fields, specifically South Gilmer (Cotton Valley formation), Southern Pine
(Travis Peak formation), Bethany Longstreet (Hosston formation) and Rosewood
(Cotton Valley formation) fields.
During 1997, the Company participated in the drilling of 90 gross (73.54
net) development wells. At December 31, 1997, the Company's proved reserves
included approximately 138 development or infill drilling locations on its U.S.
acreage and 131 locations on its Argentine acreage. In addition, the Company has
an extensive inventory of development and infill drilling locations on its
existing properties which are not included in proved reserves. The Company
spent approximately $47.7 million on development/infill drilling during 1997.
The Company expects to spend approximately $98 million on development/infill
drilling activities during 1998.
In connection with its exploitation focus, the Company actively pursues
operating cost reductions on the properties it acquires. The Company believes
that its cost structure and operating practices generally result in improved
operating economics. Although each situation is unique, the Company generally
has
-7-
<PAGE>
achieved reductions in labor and other field level costs from those experienced
by the previous operators, particularly in its acquisitions from major oil
companies.
The following is a brief discussion of significant developments in the
Company's recent exploitation and development activities:
West Coast Area. The San Miguelito/Rincon field area, acquired from
Conoco, Santa Fe Energy and Mobil, continues to be a focus area of the Company's
West Coast exploitation efforts. Consolidation of the three acquisition areas
into a single operating unit has significantly reduced operating costs.
Exploitation efforts including artificial lift enhancements, waterflood
optimization, recompletions and sidetracking junked producers have resulted in
sustaining the average field production at levels comparable to that of the
three prior years. During 1997, one well was successfully sidetracked to the
Fourth Grubb zone with resulting gross daily production of 175 Bbls of oil. Six
more sidetracks are planned for 1998. The Company has been able to increase
proved reserves each year in this field area, and believes ongoing reservoir
studies will continue to identify additional exploitation projects in addition
to the 50 projects currently identified.
In addition to the San Miguelito/Rincon field area, exploitation efforts
have been successful in other areas of California. A horizontal well drilled in
the Zaca field has produced at rates in excess of 75 Bbls of oil per day since
its completion in February 1997. This successful well sets up additional
horizontal wells, both extensional and exploratory. Two infill wells were
drilled in the Buena Vista Hills field during the first half of 1997. Electric
submersible pumps are currently being designed for both wells. Test data
indicates that once the wells are equipped, production for each well should be
approximately 200 Bbls of oil per day. The Company has identified several more
infill wells and recompletions in this field. An expansion of the current
three-pattern steamflood pilot on the Carlton Investment property in the North
Antelope Hills field is planned for 1998. Six additional steam injection wells
are planned to be drilled and total steam injection into the heavy-oil Packwood
formation will increase from the current rate of 1,000 Bbls of steam (cold-water
equivalent) per day to over 3,000 Bbls of steam per day. Incremental oil
production from the steamflood expansion is expected to peak at 385 Bbls of oil
per day in approximately two years. Current field production is 320 Bbls of oil
per day. The expansion project is expected to recover net proved oil reserves
of one MMBbls, with an ultimate recovery of 70 percent of the original oil in
place.
Gulf Coast Area. Exploitation of the Burlington Properties had an
aggressive start in 1997, and plans call for the pace to continue into 1998 and
beyond. Activity in 1997 included the recompletion of 28 wells, artificial lift
upgrades in 20 wells and, most recently, the initiation and completion of four
horizontal wells. These activities were successful at replacing oil production
and offsetting the natural decline curve. For 1998, exploitation activities are
expected to increase with the aim of growing oil production. Plans for 1998
include the drilling of several horizontal wells and numerous recompletions and
artificial lift upgrades. In addition to these activities, total operating
costs for properties in the three main fields, Luling Branyon, Darst Creek and
West Ranch, have been reduced by 16 percent, or $2.7 million annually, from the
time the properties were purchased in April 1997. Additional improvements
planned for 1998 should lower these costs an additional five percent. The
inventory of identified exploitation projects provides additional opportunities
for 1999 and beyond.
In the Galveston Bay area of Texas, the Company performed three workovers
during 1997 in the Red Fish Reef field which is 100 percent owned by the Company
and which historically has had good exploitation potential. This work consisted
of workovers and recompletions in the multi-pay Frio zones productive in the
area which resulted in a total gross daily production increase of 68 Bbls of oil
and 2,840 Mcf of gas. During 1997, the Company also performed three
recompletions in the Four Sevens field, owned 90 percent by the Company, which
resulted in gross daily production increases of 63 Bbls of oil and 2,500 Mcf of
gas. The Company also recompleted three wells in the South Pass 24 field
increasing daily gross field production by 225 Bbls of oil and 3,810 Mcf of gas.
In the Fanny Church field in Alabama, oil production was increased by 770 Bbls
per day by removing surface piping restrictions in one well.
-8-
<PAGE>
Mid-Continent Area. Infill drilling in gas fields and waterflooding oil
fields continue to be the major activities of the Company in this area. The
Company participates in a large number of Company-generated and partner-
generated low risk infill projects each year in the many gas fields in this
area. The Company also has ongoing and planned waterfloods in Texas and Kansas.
The four Booker Upper Morrow waterfloods in the panhandle of Texas are expected
to respond to injection during 1998. For additional information regarding
activities in this area, see "--Oil and Gas Properties."
Argentina Concessions. Development and extensional drilling along with the
implementation and optimization of secondary recovery projects have been the
focus of the Company's exploitation efforts in its Argentina properties. The
Company's successful exploitation program has resulted in a gross daily
production increase from 10,200 Bbls of oil in January 1996 to over 18,500 Bbls
of oil currently. Drilling activity commenced during February 1996 and continued
through the end of 1997 with 102 wells having been completed. The three focus
areas for drilling activity to date have been Canadon Minerales with 52 wells,
Canadon Seco with 26 wells, and Meseta Espinosa with 20 wells. Largely due to
the results of this drilling activity, average gross daily oil production on
these three concessions has increased from a total of 6,800 Bbls to 14,400 Bbls.
Drilling activity continues with two drilling rigs currently operating.
During 1996, the Company acquired 48 square miles (124 square kilometers) of
3-D seismic to aid in the optimum placement of drilling locations. Based on the
successful results obtained from the utilization of the 1996 3-D data, the
Company has acquired an additional 99 square miles (256 square kilometers) of 3-
D data during 1997. The Company believes that substantial upside potential that
has historically been overlooked can be economically exploited with the aid of
3-D seismic.
The Company has also continued its endeavor to optimize existing secondary
recovery projects and to initiate new waterfloods. The waterflood work in 1996
and 1997 on Canadon Minerales Block 123A, Canadon Minerales Block 123E, Cerro
Wenceslao Flanco Oriental and Clavada Block 24 has exhibited incremental gross
daily production responses of 970 Bbls of oil. Only a small portion of the
producing areas of the concessions controlled by the Company have been subject
to secondary recovery operations. There are ten new waterflood project areas
that are currently in various stages of development. The Company believes that
numerous other areas presently under primary recovery are amenable to
waterflooding. The Company also believes that the utilization of 3-D seismic
will enhance the ultimate recovery derived from these new waterflood projects
and be a valuable tool in identifying new secondary recovery project areas that
previously would have gone undeveloped.
Bolivia Concessions. The Company initiated its exploitation program in
Bolivia during 1997 with the rework of two wells. Incremental gross daily
production from this work was approximately 7,500 Mcf of gas and 200 Bbls of
condensate. The activity in 1998 will see a dramatic increase as the Bolivia-
to-Brazil pipeline is completed and gas begins to flow into the Brazilian market
in early 1999. In preparation for the opening of the Brazilian market, the
Company has initiated work to upgrade the existing facilities and compression in
Nupuco and Naranjillos. These facility improvements along with planned
additional development drilling should position the Company to take advantage of
this increased gas market opportunity.
A rig has been contracted and drilling is currently underway to test a
Devonian Iquiri sand oil accumulation that was identified by a well drilled in
the early 1960's. More development drilling locations may be identified as a
result of a 3-D seismic survey that is to be completed and interpreted in the
first quarter of 1998.
EXPLORATION
The Company's exploration program is designed to contribute significantly to
its growth. Management divides the strategic objectives of its exploration
program into two parts. First, in the U.S. and in Argentina, the Company's
exploration focus is in its core areas where its geological and engineering
expertise and
-9-
<PAGE>
experience are greatest. State-of-the-art technology, including 3-D seismic,
is employed to identify prospects. Exploration in the U.S. and Argentina is
designed to generate reserve growth in the Company's core areas in combination
with its exploitation activities. The Company's longer-term plans are to
increase the magnitude of this program with a goal of achieving production
replacement through core area exploration. Such exploration is characterized by
numerous individual projects with medium to low risk. Secondly, international
exploration targets significant long-term reserve growth and value creation.
International exploration projects in Ecuador, Bolivia and Yemen are
characterized by higher potential and higher risk. From January 1, 1995, through
December 31, 1997, the Company spent $64.6 million on exploration activities.
The Company plans to spend approximately $65 million on exploration activities
during 1998, approximately $39 million in the U.S. and Argentina and
approximately $26 million in other international areas.
The following is a brief discussion of the primary areas of exploration
activity for the Company:
United States.
Gulf Coast Area. In 1997, the Company successfully drilled and
---------------
completed three wildcat discoveries and one field extension in the geopressured
pay horizons of Galveston Bay in south Texas. All the locations were based on
interpretations derived from the Company's 180 square mile 3-D seismic survey.
The State Tract 75-2 well was a successful extension to the Company's 1996
discovery well, the State Tract 75-1. Wildcats drilled at the Umbrella Point
West, White Heron and White Heron North prospects in the Umbrella Point field
were successful and are currently producing at gross daily rates ranging from 5
MMcf of gas to 15 MMcf of gas along with condensate of up to 600 Bbls per well.
Plans for 1998 include the drilling of five additional wildcats where the
Company's working interests range between 50 percent to 100 percent. In an
attempt to extend the play, the Company is planning to shoot an additional 30
square miles of proprietary 3-D seismic in an adjacent onshore area where lease
options have been secured. For additional information, see "--Oil and Gas
Properties--Gulf Coast Area."
Three potentially significant south Louisiana prospects will be evaluated in
1998. 3-D seismic surveys have been shot and geophysical processing is nearing
completion on both the Lake Washington and Little Lake Deep prospects.
Geological and 2-D seismic leads will be evaluated with potential drilling
planned sometime in 1998. The Company will have working interests ranging from
50 percent to 100 percent. In the Deweyville prospect of south Texas, initial
drilling is expected to commence in the summer of 1998 to evaluate 3-D and
geochemically defined locations in the expanded Yegua trend.
Mid-Continent Area. The Company is participating in a regional 3-D
------------------
Seismic Alliance in which over 625 square miles of non-contiguous, high-quality
3-D seismic has been shot. Several different play concepts are being pursued.
Main objectives include the Hunton, Springer, Morrow and Granite Wash
formations. A potentially significant discovery in the Company's Jayhawk
prospect, the #1 Weise, was recently completed with gross daily production of
4.5 MMcf of gas and 255 Bbls of oil from the Hunton formation. A delineation
well is planned in the first quarter of 1998. Additional 3-D seismic data has
been acquired and is currently being processed. An aggressive drilling program
is anticipated in 1998 on prospects identified in this Alliance.
In the Stagecoach prospect in southern Oklahoma, the Company is pursuing a
multipay gas project in which the Granite Wash as well as multiple shallower
horizons in the Hoxbar and Deese formations are of primary interest.
Preliminary results from the first well are encouraging and two additional
wells, the Ithaca #1 and Travis #1, have been drilled and are being tested. A
100 square mile 3-D seismic survey will be shot in 1998 and is expected to help
evaluate the deeper drilling potential.
West Coast Area. Horizontal drilling will evaluate two potentially
---------------
undrained fault blocks adjacent to the Company's Zaca oil field in 1998. Two
prospects target the Monterrey formation and will attempt to extend production
beyond the limits of the existing field.
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<PAGE>
A 30 square mile 3-D seismic survey covering the Company's Rio Vista field
is currently being evaluated. Multiple pay horizons are potential in this
structurally and stratigraphically complex field that is one of California's
largest gas fields. The Company believes that a detailed geologic and
geophysical evaluation will uncover previously untapped gas reserves in fault
and stratigraphic traps that 2-D seismic could not identify.
International.
South America. The Company is currently pursuing several international
-------------
exploratory projects. The Company believes that its existing projects in Ecuador
and Bolivia have the potential to significantly increase reserves. The Company
has a 30 percent working interest in a project to explore Block 19 in the
Oriente Basin in Ecuador. Numerous commercially productive fields have been
discovered in this basin. Primary targets are the Hollin, Napo "U" and "T" sands
which are productive in other significant fields in this basin. The first of two
planned exploration wells was drilled during 1997. This well was abandoned after
testing at subcommercial rates. Plans are to drill the next exploration well in
1998 or 1999, testing another structure.
Activity in Bolivia during 1997 was relatively modest due to restriction of
the current gas market to Argentina. However, the activity in 1998 will see a
significant increase as the Bolivia-to-Brazil pipeline is completed and gas
begins to flow into the Brazilian market in early 1999. This third-party
pipeline is designed to deliver approximately one Bcf of gas per day, as
compared to the current export market to Argentina of approximately 200 MMcf of
gas per day.
The Company significantly expanded its operations in Bolivia by acquiring
the Naranjillos concession in December 1997. The Company believes this 15,444
acre concession contains significant upside exploration and development
potential which it plans to capitalize upon beginning in 1998. Multiple
exploration well targets have been located and more are expected to follow upon
completion of a 3-D seismic shoot that is currently underway.
In addition to the Naranjillos concession, the Company has exploration plans
in 1998 for its Chaco and Nupuco concessions in Bolivia. A 3-D seismic survey
covering a portion of both of these concessions is to be completed and
interpreted in the first quarter of 1998. At least two new wells are planned
for 1998 and more may follow upon completion of the 3-D seismic interpretation.
Yemen. The Company has entered into a farm-in agreement with
-----
TransGlobe Energy in the expectation of receiving approval by the Republic of
Yemen to explore on the S-1 Damis Block in central Yemen. The block covers
approximately one million acres (4,484 square kilometers). The Company will
receive a 75 percent interest in the S-1 Damis Block for its commitment of $11
million over two and one-half years in the initial exploration phase. The $11
million of expenditures will include a 3-D seismic survey of 58 square miles
(150 square kilometers) and the drilling of three exploration wells.
OIL AND GAS PROPERTIES
At December 31, 1997, the Company owned and operated producing properties in
ten states, with its U.S. proved reserves located primarily in four core areas:
the West Coast, Gulf Coast, East Texas and Mid-Continent areas. In addition, the
Company established a new core area in the San Jorge Basin of Argentina during
1995 and entered Bolivia during 1996. As of December 31, 1997, the Company
operated approximately 3,679 productive wells and also owned non-operating
interests in 842 productive wells. The Company continuously evaluates the
profitability of its oil, gas and related activities and has a policy of
divesting itself of unprofitable leases or areas of operations that are not
consistent with its operating philosophy.
The following table summarizes the Company's proved reserves in its 30
largest fields in the U.S., its five largest concessions in Argentina and its
two largest concessions in Bolivia at December 31, 1997, as
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<PAGE>
estimated by Netherland, Sewell. These fields and concessions represent
approximately 82 percent of the Company's proved reserves on such date.
<TABLE>
<CAPTION>
LOCATION (COUNTY NET NET
OR PARISH, STATE OIL GAS
AREA FIELD/CONCESSION NAME OR PROVINCE) (MBbls) (MMcf) MBOE
---- ------------------------ -------------------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
West Coast.................... San Miguelito Ventura, CA 15,103 3,818 15,740
South Mountain Ventura, CA 5,535 6,305 6,586
Buena Vista Hills Kern, CA 4,122 4,661 4,898
Rincon Ventura, CA 4,054 3,034 4,560
Rio Vista Sacramento, CA 3 26,834 4,475
Ojai-Silverthread Ventura, CA 1,900 8,836 3,372
Pleito Ranch Kern, CA 2,650 1,512 2,902
North Tejon Kern, CA 1,387 7,321 2,607
Sespe Ventura, CA 2,081 3,010 2,583
Santa Maria Valley/Cat Canyon Santa Barbara, CA 2,043 0 2,043
North Antelope Hills Kern, CA 1,664 0 1,664
Lathrop San Joaquin, CA 0 9,224 1,537
Canfield Ranch Kern, CA 1,428 301 1,478
Zaca Santa Barbara, CA 1,452 0 1,452
Gulf Coast.................... Luling Branyon Guadalupe, TX 11,778 418 11,847
West Ranch Jackson, TX 7,248 700 7,365
South Pass 24 Plaquemines, LA 2,842 10,630 4,614
Umbrella Point Chambers, TX 304 20,763 3,764
Flomaton Escambia, AL 1,882 6,232 2,921
Fanny Church Escambia, AL 1,580 3,410 2,148
Tepetate Acadia, LA 2,018 583 2,115
Darst Creek Guadalupe, TX 1,635 103 1,653
Ville Platte Evangeline, LA 939 3,798 1,572
Waveland Hancock, MS 121 8,145 1,478
East Texas.................... South Gilmer Upshur, TX 703 23,863 4,680
Colgrade Winn, LA 3,681 0 3,681
Southern Pine Cherokee, TX 0 18,371 3,062
Fruitvale Van Zandt, TX 21 17,415 2,923
Mid-Continent................. Booker Lipscomb, TX 1,737 283 1,784
Strong City Roger Mills, OK 46 9,118 1,565
San Jorge Basin, Argentina.... Canadon Minerales Santa Cruz Province 27,044 0 27,044
Canadon Seco Santa Cruz Province 15,982 0 15,982
Meseta Espinosa Santa Cruz Province 15,690 0 15,690
Las Heras/Piedra Clavada Santa Cruz Province 12,207 0 12,207
Cerro Wenceslao Santa Cruz Province 7,680 0 7,680
Chaco Basin, Bolivia.......... Naranjillos Santa Cruz Province 845 122,067 21,189
Nupuco Tarija Province 5,313 67,660 16,589
</TABLE>
West Coast Area. The Company expanded its operations to the West Coast in
1992 through two separate acquisitions of properties located in Kern, Ventura,
and Santa Barbara Counties in California. Since 1992, the Company has continued
to expand its operations in the West Coast area through additional property
acquisitions. As of December 31, 1997, the area comprised 25 percent of the
Company's total proved reserves and 43 percent of the Company's U.S. proved
reserves. The Company currently operates 1,168 active wells with current gross
daily production of approximately 9,850 Bbls of mid-gravity oil, 2,300 Bbls of
heavy oil and 29,200 Mcf of gas. In addition, the Company owns an interest in 71
productive wells operated by others.
San Miguelito. The San Miguelito field is located in the west central
-------------
portion of the greater Ventura Avenue field just north of the City of Ventura,
California. Production is from multiple pay intervals in Pliocene-age sands
which span 7,000 vertical feet. Well depths generally range from 7,000 feet to
just over 16,000 feet in the deepest wells. Currently, active waterflood
operations are underway in three of the producing zones. With the field still
producing in excess of 3,000 gross Bbls of oil per day, the Company believes
additional waterflood potential exists in lower sands currently producing on
primary depletion and it has just initiated a program to begin waterflooding a
fourth productive interval. The Company operates this
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<PAGE>
single lease property with a 100 percent working interest and an 87.5 percent
net revenue interest. For additional information regarding this field, see "--
Exploitation and Development Activities--West Coast Area."
South Mountain. The South Mountain field, located just south of
--------------
Santa Paula, California, has become one of the Company's major producing areas.
As a result of the 1995 acquisition of certain producing oil and gas properties
from Texaco, which included certain properties in this field, the Company now
operates 253 active wells in the South Mountain field. Current gross daily
production of 1,100 Bbls of oil and 2,365 Mcf of gas comes from Eocene and
Pliocene sand intervals at depths of 3,000 feet to 10,000 feet. The Company's
working interests in the field range from 50 percent to 100 percent with revenue
interests from 42 percent to 100 percent; however, the properties are
predominantly owned 100 percent. The solution gas and gravity drainage producing
mechanisms are responsible for low decline rates which result in long-life
reserves.
Buena Vista Hills. The Buena Vista Hills field is located
-----------------
approximately 25 miles east of Bakersfield, California. Production is from the
Stevens Upper Channel, Main Massive and Interbed zones at a depth of 5,000 feet
to 5,500 feet. The Company operates 27 productive wells in the field with a 100
percent working interest. The Company drilled two infill wells in the first half
of 1997, testing at rates in excess of 100 Bbls of oil per day. Plans are
underway to install electrical submersible pumps in order to efficiently produce
the wells. Daily rates are anticipated to be in excess of 200 Bbls per well when
installation is complete. In addition, the Company has identified 14 workovers
and recompletions in the field. Current gross daily production is 930 Bbls of
oil. The Company believes that upside reserve potential exists through infill
drilling and recompletions. For additional information regarding this field,
see "--Exploitation and Development Activities--West Coast Area."
Rincon. The Rincon field is located on the western updip end of
------
the greater Ventura Avenue field just north of the City of Ventura, California,
and adjacent to the Company's San Miguelito field properties. Like the San
Miguelito field, production is from multiple pay intervals of Pliocene-age
sands. These intervals span several thousand feet. Producing intervals range in
depth from approximately 3,500 feet to 14,000 feet. The Company operates this
field with a 100 percent working interest and an 80 percent revenue interest.
Current gross daily production is approximately 850 Bbls of oil and 800 Mcf of
gas. The Company has continued its exploitation program on uphole producing
intervals which it began in 1996. The Company believes that significant upside
reserve potential exists in the development of these shallow producing horizons
along with workover and stimulation activity in the presently producing
intervals. For additional information regarding this field, see "--Exploitation
and Development Activities--West Coast Area."
Rio Vista. The Company purchased the Rio Vista Deep field and an
---------
additional 31 percent working interest in the Rio Vista Gas Unit during 1997.
The field, located in Solano County, California, produces dry gas at depths
ranging from 5,500 feet to 11,000 feet. The Rio Vista Deep acquisition added 29
wells which are now operated by the Company. The Company has workover and
drilling plans to exploit the proven reserves as well as other probable and
possible reserve potential in the field. Deep exploration potential is also
being evaluated using the latest 3-D seismic technology. Current gross daily
production from these wells is 3,700 Mcf of gas. The Company owns a 95 percent
working interest in these wells. The Rio Vista Gas Unit, operated by Amerada
Hess, has current gross daily production of approximately 19,000 Mcf of gas from
71 wells.
Ojai-Silverthread and Timber Canyon. The Ojai field, which extends
-----------------------------------
to the Silverthread and Timber Canyon areas, is located in the central portion
of Ventura County, California. Production in this area is from the fractured
Monterey Shale formation which is encountered at depths ranging from 2,000 feet
to 6,000 feet. The Company operates 111 productive wells in the field with a 100
percent working interest and net revenue interests ranging from 83 percent to
100 percent. The properties are mature, characterized by pressure depletion and
gravity drainage, with highly predictable production decline rates. Combined
current gross daily production is approximately 700 Bbls of oil and 3,000 Mcf of
gas.
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<PAGE>
Pleito Ranch. The Pleito Ranch field is located on the southern
------------
end of the San Joaquin Basin. Production is from Miocene-age Chanac and Santa
Margarita sands below the Wheeler Ridge thrust fault. Well depths range from
11,000 feet to 14,000 feet. All productive wells are operated by the Company
with a 100 percent working and net revenue interest. The recovery mechanism is
predominantly gravity drainage and is characterized by low decline, long-life
reserves with current gross daily production of approximately 560 Bbls of oil.
North Tejon. The North Tejon field is located near the southern
-----------
end of the San Joaquin Basin. The field is divided into a series of fault blocks
with productive reservoirs in the lower Miocene, Oligocene, Zemorrian and Eocene
sands. These producing zones range in depth from 5,400 feet to 11,300 feet. All
productive wells are operated by the Company with a 100 percent working
interest. Current gross daily production rates average 250 Bbls of oil and 2,150
Mcf of gas.
Gulf Coast Area. The Gulf Coast area comprised approximately 20 percent of
the Company's December 31, 1997, total proved reserves. Production in this area
is predominantly from structural accumulations in reservoirs of Miocene age.
The depths of producing reservoirs in this area range from 1,200 feet to 14,500
feet. The Company currently operates 821 productive wells and owns an interest
in an additional 434 productive wells in this area. Gross daily operated
production from this area currently averages 14,700 Bbls of oil and 104,700 Mcf
of gas.
The Company's Umbrella Point exploration program in Galveston Bay, in which
the Company generally owns a 50 percent working interest, contributes current
gross daily production of 65,000 Mcf of gas and 1,100 Bbls of condensate of the
above total Gulf Coast production. This project is ongoing with several new
wells currently in the completion stage. Additional development potential
exists from horizontal well drilling in the West Ranch and Luling Branyon fields
which are 100 percent owned by the Company. Recompletion and development
drilling potential also exists in the South Pass 24 (70 percent working
interest) and Southern Pine (92 percent working interest) fields.
Luling Branyon. The Luling Branyon field is located in Caldwell and
--------------
Guadalupe Counties, Texas, and was purchased from Burlington Resources in 1997.
This field produces primarily from the Upper Edwards carbonate at a depth of
2,100 feet. The field produces from a natural water drive with high water
rates. Gross daily production from this field is 2,700 Bbls of oil from 307
producing wells. The Company operates this field with a 100 percent working
interest. Since acquiring this field, the Company has drilled three horizontal
development wells, increasing gross daily oil production by 750 Bbls.
Recompletions and artificial lift upgrades have added another 150 Bbls per day.
Significant reductions in operating costs have also been achieved, including the
shutting in of approximately 40 marginal wells. Upside potential for this field
includes another 28 horizontal drilling locations and additional recompletions
and lift upgrades.
West Ranch. The West Ranch field, purchased from Burlington Resources
----------
in 1997, is located in Jackson County, Texas. Production is from numerous
Miocene and Frio age sands at depths between 2,900 feet and 7,200 feet. Current
gross daily production is 2,000 Bbls of oil and 3,660 Mcf of gas from 140 active
wells. Cumulative field production is over 350 MMBbls of oil and 850 Bcf of
gas. The Company drilled one horizontal well in 1997 making 250 Bbls of oil per
day in the Greta sand, the largest reservoir in the field, and plans on drilling
eight more in 1998, and seven in 1999. Production enhancements, such as
installing larger tubing and improved gas lift design, along with recompletions,
have increased production rates approximately 250 Bbls of oil per day. The
field is also being studied for enhanced oil recovery opportunities. The Company
has a working interest of 100 percent in the field.
South Pass 24. The South Pass 24 field is located in state waters of
-------------
Plaquemines Parish, Louisiana, at shallow water depths averaging 10 feet to 20
feet. The 31 productive oil wells and eight productive gas wells in this field
are operated by the Company and one other operator. The South Pass 24 field
produces hydrocarbons from various members of the Miocene sand series at an
average depth of
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<PAGE>
approximately 7,000 feet. Current gross daily operated production from the field
is 965 Bbls of oil and 7,700 Mcf of gas. Recompletions to new zones in current
wellbores have been very successful in this field. Similar work is planned for
1998 and beyond.
Umbrella Point. This ongoing exploration project in Galveston Bay is a
--------------
top contributor to current producing rates and reserves in the Gulf Coast area.
For additional information regarding this field, see "--Exploration--Gulf Coast
Area."
Flomaton. This field, purchased from Exxon in 1996, is located in
--------
Escambia County, Alabama, and produces from the Norphlet sand at 15,300 feet.
Company operated gross daily production is 588 Bbls of oil and 11,300 Mcf of gas
from nine wells. The Company has had recent success in enhancing production by
installing velocity strings and plans on installing five more in 1998. The
Company owns approximately a 95 percent working interest in this field.
Fanny Church. Fanny Church field, purchased from Exxon in 1996, is
------------
located in Escambia County, Alabama, and produces from the Smackover carbonate
at 15,300 feet. Company operated gross daily production is 1,680 Bbls of oil
and 4,140 Mcf of gas from five wells. In mid-1997, gross oil production was
increased 770 Bbls per day by removing surface piping restrictions in one well.
Additional drilling and/or enhanced oil recovery options are being studied. The
Company owns approximately a 80 percent working interest in this field.
East Texas Area. The East Texas area comprised approximately seven percent
of the Company's December 31, 1997, total proved reserves. The Cotton Valley,
Smackover, Travis Peak and Wilcox formations are the dominant producing
reservoirs on the Company's acreage in this area. The Company currently operates
gross daily production of 1,425 Bbls of oil and 38,700 Mcf of gas from 673
operated productive wells in this area. The Company owns an interest in an
additional 71 productive wells in this area. Significant infill drilling
potential exists on the Company's acreage in the South Gilmer, Southern Pine,
Rosewood, Bethany Longstreet and Bear Grass fields. The Company plans to
continue infill drilling programs in Southern Pine and South Gilmer fields.
South Gilmer. The South Gilmer field, the Company's largest field in
------------
the East Texas area, is located in Upshur County, Texas, and produces from the
Cotton Valley Lime formation at average depths of 11,300 feet to 11,800 feet.
The Company currently operates 20 productive wells and owns interest in two
additional wells in this field. Significant behind-pipe reserves are booked for
the Company's 6,727 gross acres in the Cotton Valley sand formation. Current
gross daily operated production is 6,500 Mcf of gas and 90 Bbls of oil. The
Company owns approximately a 80 percent working interest in this field.
Colgrade. The Colgrade field, located in Winn Parish, Louisiana,
--------
currently produces 1,140 Bbls of oil gross per day from the Wilcox formation at
a depth of 1,400 feet. The Company operates 439 active wells in this field.
During 1996, a pilot project was initiated to increase fluid withdrawal rates
using submersible pumps. To date, 156 electrical submersible pumps have been
installed, increasing oil production 390 Bbls per day. The Company plans to
install 139 additional pumps during the remainder of 1998. These submersible
pumps are low cost and replace conventional rod pump installations. Surface
facilities are being modified to handle the increased rates. The Company
generally has an 85 percent working interest and a 91 percent net revenue
interest in this field due to significant fee mineral ownership.
Southern Pine. The Southern Pine field, located in Cherokee County,
-------------
Texas, produces from the Travis Peak formation at 10,800 feet. The Company
currently operates 25 productive wells in this field with current gross daily
production of 5,300 Mcf of gas. Operating costs were significantly lowered in
1997 by converting a marginal well to salt water disposal. The Company owns a
92 percent working interest in this field.
-15-
<PAGE>
Mid-Continent Area. The Mid-Continent area extends from the Arkoma Basin of
eastern Oklahoma to the Texas panhandle and north to include Kansas. This area
comprised five percent of the Company's total proved reserves as of December 31,
1997. The Company currently operates gross daily production of 3,760 Bbls of
oil and 28,900 Mcf of gas from 328 operated productive wells in this area. The
Company owns an interest in an additional 249 productive wells in this area.
For additional information regarding these operations, see "--Exploitation and
Development Activities--Mid-Continent Area" and "--Exploration--Mid-Continent
Area."
Booker. The Booker field is located in Lipscomb and Ochiltree
------
Counties, in the Texas panhandle. Production from this field is primarily from
four waterflood units adjacent to each other, each targeting the Upper Morrow
sand at depths of approximately 8,000 feet. The Company owns working interests
in these units from 82 percent to 100 percent. Water injection into three of the
units began in 1996. Injection into the fourth unit began in July 1997. Two
analogous Upper Morrow units immediately adjacent to this field have responded
favorably to waterflood operations. First production response from the project
is anticipated in 1998. The Company anticipates the addition of proved reserves
based on the level of success of these secondary recovery projects.
Argentina Concessions. The Argentina properties consist primarily of 12
mature producing concessions located on the south flank of the San Jorge Basin.
These concessions comprised approximately 29 percent of the Company's December
31, 1997, total proved reserves. The Company currently operates 682 productive
wells (100 percent working interest) with gross daily production of 18,500 Bbls
of oil. In addition, the Company owns an interest in 17 productive wells
operated by others. At December 31, 1997, the Company's proved reserves included
approximately 131 development or infill drilling locations and 267 workovers on
its Argentina acreage. In addition, the Company has an extensive inventory of
workovers and development or infill drilling locations on its Argentina
properties which are not included in proved reserves.
Canadon Minerales. The primary oil producing reservoirs of the
-----------------
Canadon Minerales oil concession are the Mina del Carmen and Canadon Seco
formations which are both fluvial channel sand bodies at depths ranging from
3,000 feet to 6,200 feet. This concession currently has 183 producing wells and
36 water injection wells with gross daily production of approximately 6,000 Bbls
of oil. Approximately 20 percent of the concession's daily production is
produced from the Block 123A waterflood, which contains 22 producing wells and
17 water injection wells.
Future development plans at Canadon Minerales include numerous workovers and
development drilling locations. Many of the workovers are expected to return
idle wells back to production by perforating zones not produced by the former
owner. Log cross sections reveal many zones which do not appear to have been
previously tested. In addition, the Company plans to further develop the
significant waterflood potential in four areas of Block 130, Block 125 and two
areas in Block 123 West.
The proved undeveloped locations are generally infill development locations
in areas offsetting existing production. Well depths vary from 3,000 to 6,000
feet. Fifty-two wells have been drilled on this concession during 1996 and 1997.
See "--Exploitation and Development Activities--Argentina Concessions."
Canadon Seco. The primary oil producing reservoirs of the Canadon
------------
Seco oil concession are the Canadon Seco and Mina del Carmen which are fluvial
channel sand bodies at depths ranging from 4,000 feet to 7,000 feet. This
concession currently has 87 producing wells and 20 water injection wells with
gross daily production of approximately 4,000 Bbls of oil.
There are three active waterfloods at Canadon Seco which contain a total of
20 water injection wells. The Block VIIIAo waterflood has additional drilling
and water injection conversions scheduled for early 1998.
-16-
<PAGE>
Twenty-six wells have been drilled on this concession during 1996 and 1997.
Additional development plans at Canadon Seco include numerous workovers and
development drilling locations. Many of the workovers are expected to return
idle wells back to production by perforating additional zones. See "--
Exploitation and Development Activities--Argentina Concessions."
Meseta Espinosa. The primary oil producing reservoirs of the
---------------
Meseta Espinosa oil concession are the Canadon Seco and Mina del Carmen which
are fluvial channel sand bodies with good to moderate sand quality at depths
ranging from 4,000 feet to 7,000 feet. This concession currently has 108
producing wells and 10 water injection wells with gross daily production of
approximately 4,200 Bbls of oil.
There are seven active waterfloods at Meseta Espinosa which contain a total
of 17 producing wells and 10 water injection wells. One new proven waterflood
project was installed during 1996. It will be followed by the implementation of
a second new proven waterflood project. Twenty wells have been drilled on this
concession during 1996 and 1997. Additional development plans at Meseta Espinosa
include several workovers and the drilling of development and extensional wells.
See "--Exploitation and Development Activities--Argentina Concessions."
Las Heras/Piedra Clavada. The primary oil producing reservoirs of
------------------------
the Las Heras/Piedra Clavada oil concession are the Castillo and Bajo Barreal
formations which are both fluvial channel sand bodies with good to moderate sand
quality at depths ranging from 3,500 feet to 7,000 feet. Currently, there are 87
producing wells and five water injection wells with gross daily production of
approximately 1,200 Bbls of oil. There is one active waterflood in Block 24,
which contains 13 producing wells and five water injection wells. In addition to
the activities in Block 24, there are three other waterflood projects scheduled
for development at Las Heras/Piedra Clavada.
Future development plans at Las Heras/Piedra Clavada include numerous
workovers and development drilling locations. Many of these workovers are
expected to return idle wells back to production by perforating additional
zones. Cross sections reveal many zones which do not appear to have been tested.
The proved undeveloped locations are generally infill development locations in
areas offsetting existing production. Seven wells have been drilled on this
concession during 1996 and 1997.
Cerro Wenceslao. The primary oil producing reservoir of the Cerro
---------------
Wenceslao oil concession is the Bajo Barreal which contains sands at depths
ranging from 1,000 feet to 3,000 feet. Currently, there are 122 producing oil
wells and 11 water injection wells with gross daily production of approximately
1,500 Bbls of oil. Two wells have been drilled on this concession during 1996
and 1997.
Future development plans at Cerro Wenceslao include workovers, fracture
stimulations, and development drilling on several locations. In addition, the
Company plans to further develop the significant waterflood potential in Block
2, Block 5 and the East Flank Block.
Bolivia Concessions. The Bolivia properties consist of three producing
concessions and one exploration concession located in the Chaco Plains area of
southern Bolivia. The Company has a 100 percent working interest in the Chaco
exploration concession, the Porvenir producing concession and the Naranjillos
producing concession. In the other concession, Nupuco, the Company has a 50
percent working interest. The Company operates all four concessions. These
concessions comprise approximately 14 percent of the Company's December 31,
1997, total proved reserves and include 7 gross (6 net) active producing wells,
all of which are operated by the Company. The current gross daily production is
approximately 30,850 Mcf of gas and 800 Bbls of condensate.
Naranjillos. The Naranjillos concession is located approximately 25
-----------
miles west of the city of Santa Cruz, in the Santa Cruz Province. The
concession was shut in prior to the Company assuming operations. The Company
believes that the potential exists to significantly increase production above
historic
-17-
<PAGE>
levels through gas compression and recompletion of wells. This potential will be
evaluated through testing operations, which are scheduled to begin in the second
quarter of 1998. The Company believes that significant exploration potential
also exists.
There are three exploration concepts to be tested in Naranjillos during
1998, the most significant of which is the Upper Devonian Iquiri formation. The
Iquiri sands appear to be trapped between two major thrust faults. Two previous
wells penetrated this formation but were not tested due to abnormally high
pressures. To evaluate this potential, the Company is currently shooting a 3-D
seismic survey which will cover the entire concession. This survey is scheduled
for completion by the end of April 1998. The data from this survey will be used
to select locations for drilling in 1998 and 1999. A total of five drilling
well locations have already been identified, without the aid of 3-D; drilling is
scheduled to begin in the second quarter of 1998. In preparation for the
opening of the Brazilian market, the Company has also initiated work to upgrade
existing facilities so that the Company's proved reserves can be delivered to
the new market.
Nupuco. The Nupuco concession is located in the southern part of
------
Bolivia approximately 230 miles south of the city of Santa Cruz and
approximately 60 miles north of the border with Argentina. The primary gas
producing reservoirs are the Triassic-age Cangapi and the Carboniferious-age San
Telmo and Escarpment. This concession currently has two gross (one net) active
producing wells with gross daily production of approximately 25,000 Mcf of gas
and 675 Bbls of condensate. A study is currently underway to install gas
compression and plans are to have this installation completed by the end of the
year in anticipation of the opening of the Bolivia-to-Brazil gas pipeline.
MARKETING
The Company's gas production and gathered gas are sold primarily on the spot
market or under market-sensitive, long-term agreements with a variety of
purchasers, including intrastate and interstate pipelines, their marketing
affiliates, independent marketing companies and other purchasers who have the
ability to move the gas under firm transportation agreements. Because an
insignificant amount of the Company's gas is committed to long-term fixed-price
contracts, the Company is positioned to take advantage of rising prices for gas
but it is also subject to gas price declines.
In order to more efficiently handle spot market transactions, the Company's
domestic gas marketing activities are handled by Vintage Gas, Inc., its wholly-
owned gas marketing affiliate, which commenced operation on May 1, 1991. This
marketing affiliate purchases gas on the spot market from the Company and third
parties. Generally, the marketing affiliate purchases this gas on a month-to-
month basis at a percentage of resale prices.
Generally, the Company's domestic oil production is sold under short-term
contracts at posted prices plus a premium in some cases. The Company's Argentina
oil production is currently sold at port to ESSO SAPA, ARCO and Shell at West
Texas Intermediate spot prices less a specified differential.
The most significant purchaser of the Company's oil during 1997 was Texaco
Trading and Transportation, Inc. Such oil purchases amounted to approximately 10
percent of the Company's total revenues for 1997. No other purchaser of the
Company's oil or gas during 1997 exceeded 10 percent of the Company's total
revenues.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. The Company had no oil or gas
hedges in place at December 31, 1997.
-18-
<PAGE>
GATHERING SYSTEMS
The Company owns 100 percent interests in two oil and gas gathering systems
located in Pottawatomie County, Oklahoma and Harris and Chambers Counties,
Texas. In addition, the Company owns 100 percent interests in 24 gas gathering
systems located in active producing areas of California, Kansas, Texas and
Oklahoma. All of these gathering systems are operated by the Company. Together,
these systems comprise approximately 300 miles of varying diameter pipe with a
combined capacity in excess of 255 MMcf of gas per day. At December 31, 1997,
there were 360 wells (most of which are operated by the Company) connected to
these systems. Generally, the gathering systems buy gas at the wellhead on the
basis of a percentage of the resale price under contracts containing terms of
one to ten years.
RESERVES
At December 31, 1997, the Company had proved reserves, as estimated by
Netherland, Sewell, of 279.8 MMBOE, comprised of 187.8 MMBbls of oil and 552.2
Bcf of gas. The following table sets forth, at December 31, 1997, the present
value of future net revenues (revenues less production and development costs)
before income taxes attributable to the Company's proved reserves at such date
(in thousands):
Proved Reserves:
Future net revenues......................................... $1,981,616
Present value of future net revenues before income taxes,
discounted at 10 percent.................................. 1,222,560
Standardized measure of discounted future net cash flows.... 1,016,645
Proved Developed Reserves:
Future net revenues......................................... 1,405,821
Present value of future net revenues before income taxes,
discounted at 10 percent.................................. 934,899
In computing this data, assumptions and estimates have been utilized, and
the Company cautions against viewing this information as a forecast of future
economic conditions. The historical future net revenues are determined by using
estimated quantities of proved reserves and the periods in which they are
expected to be developed and produced based on December 31, 1997, economic
conditions. The estimated future production is priced at prices prevailing at
December 31, 1997, except where fixed and determinable price escalations are
provided by contract. The resulting estimated future gross revenues are reduced
by estimated future costs to develop and produce the proved reserves, based on
December 31, 1997, cost levels, but such costs do not include debt service,
general and administrative expenses and income taxes. For additional information
concerning the historical discounted future net revenues to be derived from
these reserves and the disclosure of the Standardized Measure information in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities," see "Note 11 to
Consolidated Financial Statements--Supplementary Financial Information for Oil
and Gas Producing Activities" which is incorporated by reference from pages 47
through 52 of the Company's 1997 Annual Report to Stockholders.
Oil and gas prices have declined from the year-end prices used in
determining the Standardized Measure at December 31, 1997. Such declines may
reduce the Standardized Measure at March 31, 1998, to an extent that a writedown
of the Company's capitalized oil and gas costs would be required.
-19-
<PAGE>
The following table sets forth estimates of the proved oil and gas reserves
of the Company at December 31, 1997, as evaluated by Netherland, Sewell:
<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF)
---------------------------------- --------------------------------- MBOE
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL TOTAL
--------- ----------- ------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
West Coast......... 40,862 10,487 51,349 94,548 11,454 106,002 69,016
Gulf Coast......... 29,278 8,283 37,561 100,452 11,686 112,138 56,251
East Texas......... 4,930 365 5,295 77,415 14,536 91,951 20,620
Mid-Continent...... 4,424 1,305 5,729 43,890 6,866 50,756 14,188
------- ------ ------- ------- ------ ------- -------
Total U.S......... 79,494 20,440 99,934 316,305 44,542 360,847 160,075
Argentina.......... 47,806 33,845 81,651 -- -- -- 81,651
Bolivia............ 1,503 4,680 6,183 140,124 51,192 191,316 38,069
------- ------ ------- ------- ------ ------- -------
Total Company..... 128,803 58,965 187,768 456,429 95,734 552,163 279,795
======= ====== ======= ======= ====== ======= =======
</TABLE>
Estimates of the Company's 1997 proved reserves set forth above have not
been filed with, or included in reports to, any Federal authority or agency,
other than the Securities and Exchange Commission.
The Company's non-producing proved reserves are largely behind-pipe in
fields which it operates. Undeveloped proved reserves are predominantly infill
drilling locations and secondary recovery projects. Approximately 82 percent of
the December 31, 1997, U.S. proved reserves associated with infill drilling
locations are located in the Company's 30 largest U.S. fields.
The reserve data set forth in this Form 10-K represent only estimates.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers often vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of oil and gas that are ultimately recovered. The meaningfulness of
such estimates is highly dependent upon the accuracy of the assumptions upon
which they were based.
For further information on reserves, costs relating to oil and gas
activities and results of operations from producing activities, see "Note 11 to
Consolidated Financial Statements--Supplementary Financial Information for Oil
and Gas Producing Activities" which is incorporated by reference from pages 47
through 52 of the Company's 1997 Annual Report to Stockholders.
PRODUCTIVE WELLS; DEVELOPED ACREAGE
The following table sets forth the Company's productive wells and developed
acreage assignable to such wells at December 31, 1997:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
--------------------------------------------------
DEVELOPED ACREAGE OIL GAS TOTAL
---------------------- --------------- ------------ --------------
GROSS NET GROSS NET GROSS NET GROSS NET
--------- --------- ----- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.............. 666,069 407,428 2,804 2,304 1,011 474 3,815 2,778
Argentina........ 1,008,339 844,372 699 686 -- -- 699 686
Bolivia.......... 99,458 88,339 -- -- 7 6 7 6
--------- --------- ----- ----- ----- --- ----- -----
Total.......... 1,773,866 1,340,139 3,503 2,990 1,018 480 4,521 3,470
========= ========= ===== ===== ===== === ===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections to commence deliveries and oil
wells awaiting connection to production facilities.
-20-
<PAGE>
Wells which are completed in more than one producing horizon are counted as one
well. Of the gross wells reported above, two had multiple completions.
PRODUCTION; UNIT PRICES; COSTS
The following table sets forth information with respect to production and
average unit prices and costs for the periods indicated:
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------- ------- -------
PRODUCTION:
Oil (MBbls)-
U.S....................... 9,692 7,694 6,647
Argentina................. 5,630 4,245 961
Bolivia................... 135 -- --
Total..................... 15,457 11,939 7,608
Gas (MMcf)-
U.S....................... 36,623 32,366 30,610
Bolivia................... 6,068 -- --
Total..................... 42,691 32,366 30,610
Total MBOE................... 22,573 17,333 12,710
AVERAGE SALES PRICES:
Oil (per Bbl)-
U.S....................... $ 17.23 $ 17.19(b) $ 15.44
Argentina................. 16.67(a) 15.91(b) 13.98
Bolivia................... 16.52 -- --
Total..................... 17.02(a) 16.73(b) 15.26
Gas (per Mcf)-
U.S....................... 2.33 1.81 --
Bolivia................... 1.10 -- --
Total..................... 2.16 1.81 1.46
PRODUCTION COSTS (PER BOE):
U.S....................... $ 5.64 $ 5.42 $ 5.24
Argentina................. 4.29 4.93 5.42
Bolivia................... 1.00 -- --
Total..................... 5.07 5.30 5.25
- --------------
(a) Reflects the impact of oil hedges which reduced the Company's 1997 Argentina
and total average oil prices per Bbl by 66 cents and 24 cents, respectively.
(b) Reflects the impact of oil hedges which reduced the Company's 1996 U.S.,
Argentina and total average oil prices per Bbl by $1.47, $2.96 and $2.00,
respectively.
The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but generally
include production taxes, maintenance and repairs, labor and utilities.
UNDEVELOPED ACREAGE
At December 31, 1997, the Company held the following undeveloped acres
located in the United States, Bolivia and Ecuador. With respect to such United
States acreage held under leases, 113,438 gross
-21-
<PAGE>
(44,551 net) acres are held under leases with primary terms that expire at
varying dates through December 31, 2001, unless commercial production is
commenced. The Bolivia and Ecuador acreage are held under concessions with
primary terms that expire at varying dates in 1999 and 2000. Although
substantial undeveloped acreage exists in the Company's concessions in
Argentina, the concessions in their entirety are held by production.
STATE/COUNTRY GROSS ACRES NET ACRES
------------- ----------- ---------
California........... 8,366 7,966
Kansas............... 2,020 2,020
Louisiana............ 2,353 2,330
Mississippi.......... 40 1
Montana.............. 9,811 4,425
New Mexico........... 8,285 1,011
Oklahoma............. 30,004 12,508
Texas................ 57,490 18,595
--------- -------
Total U.S.......... 118,369 48,856
Bolivia.............. 485,552 485,552
Ecuador.............. 494,226 148,268
--------- -------
Total Company...... 1,098,147 682,676
========= =======
DRILLING ACTIVITY
During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------- ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
DEVELOPMENT:
United States-
Productive........... 30 15.74 22 12.67 36 19.26
Non-Productive....... 3 0.80 5 2.94 5 3.49
Argentina-
Productive........... 55 55.00 39 39.00 -- --
Non-Productive....... 2 2.00 2 2.00 -- --
--- ----- --- ----- --- -----
Total.............. 90 73.54 68 56.61 41 22.75
=== ===== === ===== === =====
EXPLORATORY:
United States-
Productive........... 7 3.01 6 3.00 13 9.84
Non-Productive....... 6 2.87 7 3.12 5 2.69
Argentina-
Productive........... -- -- 2 2.00 -- --
Non-Productive....... 1 1.00 1 1.00 -- --
Other International- -- -- -- -- -- --
Productive........... -- -- -- -- -- --
Non-Productive....... 1 0.42 1 1.00 -- --
--- ----- --- ----- --- -----
Total.............. 15 7.30 17 10.12 18 12.53
=== ===== === ===== === =====
TOTAL:
Productive............. 92 73.75 69 56.67 49 29.10
Non-Productive......... 13 7.09 16 10.06 10 6.18
--- ----- --- ----- --- -----
Total.............. 105 80.84 85 66.73 59 35.28
=== ===== === ===== === =====
-22-
<PAGE>
The above well information excludes wells in which the Company has only a
royalty interest.
At December 31, 1997, the Company was a participant in the drilling or
completion of 26 gross (20.84 net) wells. All of the Company's drilling
activities are conducted with independent contractors. The Company owns no
drilling equipment.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to
seasonal fluctuations in the price for gas. Gas prices have been generally
higher in the fourth and first quarters. Due to these seasonal fluctuations,
results of operations for individual quarterly periods may not be indicative of
results which may be realized on an annual basis.
COMPETITION
Competition in the oil and gas industry is intense. Both in seeking to
obtain and acquire desirable producing properties, new leases and exploration
prospects, and in marketing oil and gas, the Company faces competition from both
major and independent oil and gas companies, as well as from numerous
individuals and drilling programs. Many of these competitors have financial and
other resources substantially in excess of those available to the Company.
Increases in worldwide energy production capability have brought about
substantial surpluses in energy supplies in recent years. This, in turn, has
resulted in substantial competition for markets historically served by domestic
gas resources from alternative sources of energy, such as residual fuel oil, and
among domestic gas suppliers. Changes in government regulations relating to the
production, transportation and marketing of gas have also resulted in
significant changes in the historical marketing patterns of the industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of gas, the development by gas producers of
their own marketing programs to take advantage of new regulations requiring
pipelines to transport gas for regulated fees, and the emergence of various
types of marketing companies and other aggregators of gas supplies. As a
consequence, gas prices, which were once effectively determined by government
regulations, are now largely established by competition. Competitors of the
Company in this market include other producers, gas pipelines and their
affiliated marketing companies, independent marketers, and providers of
alternate energy supplies, such as residual fuel oil.
Exploration for and production of oil and gas are affected by the
availability of pipe, casing and other tubular goods and certain other oil field
equipment, including drilling rigs and tools. The Company is dependent upon
independent drilling contractors to furnish rigs, equipment and tools to drill
the wells it operates. The Company has not experienced and does not anticipate
difficulty in obtaining supplies, materials, drilling rigs, equipment or tools.
Higher prices for oil and gas production, however, may cause competition for
these items to increase and may result in increased costs of operations.
RISKS OF INTERNATIONAL OPERATIONS
International investments represent approximately 43 percent of the
Company's total proved reserves at December 31, 1997, and are expected to
represent a significant portion of the Company's total assets in the future.
The Company continues to evaluate international investment opportunities but
currently has no binding agreements or commitments to make any material
international acquisitions.
The Company's foreign properties, operations or investments may be adversely
affected by local political and economic developments, exchange controls,
currency fluctuations, royalty and tax increases, retroactive tax claims,
expropriation, civil unrest or war, import and export regulations and other
foreign laws or policies as well as by laws and policies of the United States
affecting foreign trade, taxation and investment.
-23-
<PAGE>
In addition, in the event of a dispute arising from foreign operations, the
Company may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of the
courts in the United States. The Company may also be hindered or prevented from
enforcing its rights with respect to a governmental instrumentality because of
the doctrine of sovereign immunity.
The Company's operations in Argentina and Bolivia are subject to various
laws and regulations in those countries. These laws and regulations as
currently imposed are not anticipated to have a material adverse effect upon the
Company's operations.
REGULATION
The domestic oil and gas industry is extensively regulated by federal, state
and local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations affecting the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
Exploration and Production. Exploration and production operations of the
Company are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells, and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation regulations, including regulation of the size of drilling
and spacing units or proration units, the density of wells which may be drilled
and the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of lands and leases to facilitate
exploration, while other states rely on voluntary pooling of lands and leases.
In addition, state conservation laws establish maximum, quarterly and/or daily
allowable rates of production from oil and gas wells, generally prohibit the
venting or flaring of gas and impose certain requirements regarding the
ratability of production. The effect of these regulations is to limit the
amounts of oil and gas the Company can produce from its wells and the number of
wells or the locations at which the Company can drill.
Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect exploration, development and production operations
of the Company. For example, the discharge or substantial threat of a discharge
of oil by the Company into United States waters or onto an adjoining shoreline
may subject the Company to liability under the Oil Pollution Act of 1990 and
similar state laws. While liability under the Oil Pollution Act of 1990 is
limited under certain circumstances, such limits are so high that the maximum
liability would likely have a significant adverse effect on the Company. The
Company's operations generally will be covered by insurance which the Company
believes is adequate for these purposes. However, there can be no assurance
that such insurance coverage will always be in force or that, if in force, it
will adequately cover any losses or liability the Company may incur. The
Company is also subject to laws and regulations concerning occupational safety
and health. It is not anticipated that the Company will be required in the near
future to expend amounts that are material in the aggregate to the Company's
overall operations by reason of environmental or occupational safety and health
laws and regulations, but because such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation of
royalty payments to the federal government. The Mineral Lands Leasing Act of
1920 places limitations on the number
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of acres under federal leases that may be owned in any one state. While subject
to this law, the Company does not have a substantial federal lease acreage
position in any state or in the aggregate. The Mineral Lands Leasing Act of 1920
and related regulations also may restrict a corporation from the holding of a
federal onshore oil and gas lease if stock of such corporation is owned by
citizens of foreign countries which are not deemed reciprocal under such Act.
Reciprocity depends, in large part, on whether the laws of the foreign
jurisdiction discriminate against a United States person's ownership of rights
to minerals in such jurisdiction. The purchase of shares in the Company by
citizens of foreign countries who are not deemed to be reciprocal under such Act
could have an impact on the Company's ownership of federal leases.
Marketing, Gathering and Transportation. Federal legislation and regulatory
controls have historically affected the price of the gas produced and sold by
the Company and the manner in which such production is marketed. Historically,
the transportation and sale for resale of gas in interstate commerce have been
regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the Natural Gas
Policy Act of 1978 (the "NGPA") and the regulations promulgated thereunder by
the Federal Energy Regulatory Commission ("FERC"). On July 26, 1989, the
Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol Act") was enacted.
The Decontrol Act amended the NGPA to remove as of January 1, 1993, all
remaining natural gas wellhead pricing, sales, certificate and abandonment
regulation of first sales that had been regulated by the FERC.
Commencing in 1985, the FERC through Order Nos. 436, 500 and 636 promulgated
changes that significantly affect the transportation and marketing of gas.
These changes have been intended to foster competition in the gas industry by,
among other things, inducing or mandating that interstate pipeline companies
provide nondiscriminatory transportation services to producers, distributors,
buyers and sellers of gas and other shippers (so-called "open access"
requirements). The FERC has also sought to expedite the certification process
for new services, facilities, and operations of those pipeline companies
providing "open access" services.
In 1992 the FERC issued Order 636. Among other things, Order 636 required
each interstate pipeline company to "unbundle" its traditional wholesale
services and create and make available on an open and nondiscriminatory basis
numerous constituent services (such as gathering services, storage services,
firm and interruptible transportation services, and stand-by sales services) and
to adopt a new rate making methodology to determine appropriate rates for those
services. Each pipeline company had to develop the specific terms of service in
individual proceedings. The new rules and various pipeline compliance filings
are the subject of appeals and resulting remand proceedings concerning certain
issues. The Company cannot predict whether and to what extent further FERC
remand proceedings and judicial review will affect these matters. Although the
new regulations do not directly regulate gas producers such as the Company, the
availability of non-discriminatory transportation services and the ability of
pipeline customers to modify or terminate their existing purchase obligations
under these regulations have greatly enhanced the ability of producers to market
their gas directly to end users and local distribution companies. In this
regard, access to markets through interstate gas pipelines is critical to the
marketing activities of the Company.
The FERC has issued a new policy regarding the use of nontraditional methods
of setting rates for interstate gas pipelines in certain circumstances as
alternatives to cost-of-service based rates. A number of pipelines have
obtained FERC authorization to charge negotiated rates as one such alternative.
Under the NGA, gas gathering facilities are generally exempt from FERC
jurisdiction. Interstate transmission facilities are, on the other hand,
subject to FERC jurisdiction. The FERC has historically distinguished between
these types of activities on a very fact-specific basis which makes it difficult
to predict with certainty the status of the Company's gathering facilities.
While the FERC has not issued any order or opinion declaring the Company's
facilities as gathering rather than transmission facilities, the Company
believes that these systems meet the traditional tests that the FERC has used to
establish a pipeline status as a gatherer. Further, while some states provide
for the rate regulation of pipelines engaged in the intrastate
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<PAGE>
transportation of gas, such regulation has not generally been applied against
gatherers of gas. The Company's gathering systems could be adversely affected
should they be subjected in the future to the application of such state or
federal regulation.
As a result of Order 636 a number of interstate pipeline companies have (i)
"spun down" their gathering systems from regulated pipeline transportation
companies to unregulated affiliates, (ii) "spun-off" gathering systems to non-
related entities, and/or (iii) "refunctionalized" portions of their pipeline
facilities from transmission to gathering. In 1994 FERC ruled that it generally
does not have jurisdiction over gathering facilities absent abuse involving the
pipeline-affiliate relationship. In addition, the interstate pipeline must seek
authority under Section 7(b) of the NGA to abandon certified gathering
facilities and must file for authority under Section 4 of the NGA to terminate
gathering service from both certified and uncertified facilities. A consequence
of this divestiture of gathering facilities could be separate, and higher,
gathering fees.
With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order 561 to fulfill the requirements of Title
XVIII of the Energy Policy Act of 1992. Order 561 established an indexing
system, effective January 1, 1995, under which oil pipelines will be able to
readily change their rates to track changes in the Producer Price Index for
Finished Goods (PPI-FG), minus one percent. This index established ceiling
levels for rates. Order 561 also permits cost-of-service proceedings to
establish just and reasonable rates. The order does not alter the right of a
pipeline to seek FERC authorization to charge market-based rates. However,
until the FERC makes the finding that the pipeline does not exercise significant
market power, the pipeline's rates cannot exceed the applicable index ceiling
level or a level justified by the pipeline's cost of service.
EMPLOYEES
The Company employs approximately 210 people in its Tulsa office whose
functions are associated with management, engineering, geology, land and legal,
accounting, financial planning, and administration. In addition, approximately
228 full time employees are responsible for the supervision and operation of its
U.S. field activities. The Company also has approximately 142 employees located
in South America for the management and operation of its properties in Argentina
and Bolivia. The Company believes its relations with its employees are
excellent.
ITEM 3. LEGAL PROCEEDINGS.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa in the Corte Suprema de Justicia de la Nacion (the Supreme Court
of Justice of the Argentine Republic, Buenos Aires, Argentina), Dossier No. s-
1451, seeking to recover approximately $10.6 million (which sum includes
interest) allegedly due as additional royalties on four concessions granted in
1990 in which the Company currently owns a 100 percent working interest. The
Company and its predecessors in title have been paying royalties at an eight
percent rate; the Province of Santa Cruz claims the rate should be 12 percent.
The amount of such claim will increase at the differential of these royalty
rates until this claim is resolved. With respect to the 50 percent interest in
the two concessions that the Company acquired from British Gas, plc, the Company
believes that it is entitled to indemnification by British Gas, plc for any loss
sustained by the Company as a result of this claim. Such indemnification equals
approximately $4.4 million of the current $15.1 million claim. The Company has
no indemnification from its predecessors in title with respect to the payment of
royalties on the other two concessions. Although the Company cannot predict the
outcome of this litigation, based upon the advice of counsel, the Company does
not expect this claim to have a material adverse impact on the Company's
financial position or results of operations.
On April 4, 1997, Mr. Patrick I. Chapman of Hockley, Texas, former Vice
President-Marketing for the Company, sued the Company in the United States
District Court for the Southern District of Texas, alleging actual and exemplary
damages for breach of his employment contract with the Company and fraud. The
case
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was transferred to the United States District Court for the Northern District of
Oklahoma on the motion of the Company. On February 26, 1998, this action was
settled by the parties. The settlement consisted of the purchase by the Company
of Mr. Chapman's interest in assets jointly owned by Mr. Chapman and the Company
for an amount that was less than the total of the fair market value of the
assets plus the costs of litigating this matter further.
The Company is also a named defendant in other lawsuits and is a party in
governmental proceedings from time to time arising in the ordinary course of
business. While the outcome of such other lawsuits or proceedings against the
Company cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
There were no matters submitted to the Company's stockholders during the
fourth quarter of the fiscal year ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the executive
officers of the Company. Officers are elected annually by the Board of Directors
and serve at its discretion.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------------
<S> <C> <C>
Charles C. Stephenson, Jr.. 61 Director and Chairman of the Board of Directors
Jo Bob Hille............... 56 Director and Vice Chairman of the Board of Directors
S. Craig George............ 45 Director, President and Chief Executive Officer
William L. Abernathy....... 46 Executive Vice President and Chief Operating Officer
William C. Barnes.......... 43 Director, Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
William E. Dozier.......... 45 Senior Vice President--Operations
Robert W. Cox.............. 52 Vice President--General Counsel
Andy R. Lowe............... 46 Vice President--Marketing
Michael F. Meimerstorf..... 41 Vice President and Controller
Robert E. Phaneuf.......... 51 Vice President--Corporate Development
Barry D. Quackenbush....... 56 Vice President--Production
Larry W. Sheppard.......... 43 Vice President--International
Martin L. Thalken.......... 37 Vice President--Acquisitions
</TABLE>
Mr. Stephenson, a co-founder of the Company, has been a Director since June
1983 and Chairman of the Board of Directors of the Company since April 1987. He
was also Chief Executive Officer of the Company from April 1987 to March 1994
and President of the Company from June 1983 to May 1990. From October 1974 to
March 1983, he was President of Santa Fe-Andover Oil Company (formerly Andover
Oil Company), an independent oil and gas company ("Andover"), and from January
1973 to October 1974, he was Vice President of Andover. Mr. Stephenson also
serves as a Director of AAON, Inc. Mr. Stephenson has a B.S. Degree in
Petroleum Engineering from the University of Oklahoma, and has approximately 38
years of oil and gas experience.
Mr. Hille, the other co-founder of the Company, has been a Director since
June 1983 and Vice Chairman of the Board of Directors of the Company since
September 1995. He was also President of the Company from May 1990 to September
1995, Chief Executive Officer of the Company from March 1994 to December 1997,
Chief Operating Officer of the Company from April 1987 to March 1994, Executive
Vice
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<PAGE>
President of the Company from June 1983 to May 1990 and Treasurer and Secretary
of the Company from June 1983 to April 1987. From August 1972 to March 1983, Mr.
Hille was employed by Andover where he served at various times primarily as
Executive Vice President and Vice President--Operations. Mr. Hille has a B.S.
Degree in Petroleum Engineering from the University of Tulsa, and has
approximately 32 years of oil and gas experience.
Mr. George has been a Director since October 1991, President of the Company
since September 1995 and Chief Executive Officer of the Company since December
1997. He was also Chief Operating Officer of the Company from March 1994 to
December 1997, an Executive Vice President of the Company from March 1994 to
September 1995 and a Senior Vice President of the Company from October 1991 to
March 1994. From April 1991 to October 1991, Mr. George was Vice President of
Operations and International with Santa Fe Minerals, Inc., an independent oil
and gas company ("Santa Fe Minerals"). From May 1981 to March 1991, he served in
various other management and executive capacities with Santa Fe Minerals and its
subsidiary, Andover. From December 1974 to April 1981, Mr. George held various
management and engineering positions with Amoco Production Company. He has a
B.S. Degree in Mechanical Engineering from the University of Missouri-Rolla.
Mr. Abernathy has been an Executive Vice President and Chief Operating
Officer of the Company since December 1997. He was Senior Vice President--
Acquisitions of the Company from March 1994 to December 1997, Vice President--
Acquisitions of the Company from May 1990 to March 1994 and Manager--
Acquisitions of the Company from June 1987 to May 1990. From June 1976 to June
1987, Mr. Abernathy was employed by Exxon Company USA, where he served at
various times as Senior Staff Engineer, Senior Supervising Engineer and in other
engineering capacities, with assignments in drilling, production and reservoir
engineering in the Gulf Coast and offshore. He has B.S. and M.S. Degrees in
Mechanical Engineering from Auburn University.
Mr. Barnes, a certified public accountant, has been a Director, Treasurer
and Secretary of the Company since April 1987, an Executive Vice President of
the Company since March 1994 and Chief Financial Officer of the Company since
May 1990. He was also a Senior Vice President of the Company from May 1990 to
March 1994 and Vice President--Finance of the Company from January 1984 to May
1990. From November 1982 to December 1983, Mr. Barnes was an audit manager for
Arthur Andersen & Co., an independent public accounting firm, where he dealt
primarily with clients in the oil and gas industry. He was Assistant Controller-
- -Finance of Andover from December 1980 to November 1982. From June 1976 to
December 1980, he was an auditor with Arthur Andersen & Co., where he dealt
primarily with clients in the oil and gas industry. Mr. Barnes has a B.S. Degree
in Business Administration from Oklahoma State University.
Mr. Dozier has been Senior Vice President--Operations of the Company since
December 1997. He was Vice President--Operations of the Company from May 1992 to
December 1997. From June 1983 to April 1992, he was employed by Santa Fe
Minerals where he held various engineering and management positions serving most
recently as Manager of Operations Engineering. From January 1975 to May 1983, he
was employed by Amoco Production Company serving in various positions where he
worked on all phases of production, reservoir evaluations, drilling and
completions in the Mid-Continent and Gulf Coast areas. He has a B.S. Degree in
Petroleum Engineering from the University of Texas.
Mr. Cox has been Vice President--General Counsel of the Company since March
1988. From August 1982 to March 1988, he was employed by Santa Fe Minerals and
its subsidiary, Andover, where he served at various times as Vice President--Law
and Regional Attorney. From April 1982 to August 1982, he was employed as
Corporate Attorney by Andover. Prior to that time, Mr. Cox was employed by
Amerada Hess Corporation, a major oil company, served as General Counsel and
Secretary of Kissinger Petroleum Corporation, an independent oil and gas
company, and served on the legal staff of Champlin Petroleum Company, an
independent oil and gas company. He has a B.S. Degree in Business Administration
with a
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<PAGE>
major in Petroleum Marketing from the University of Tulsa, and a Juris Doctor
from the University of Michigan Law School.
Mr. Lowe has been Vice President--Marketing of the Company since December
1997. He was General Manager--Marketing of the Company from July 1992 to
December 1997. From September 1983 to November 1990, he was employed by Maxus
Energy Corporation, formerly Diamond Shamrock Exploration Company, serving as
Manager--Marketing and in various other management and supervisory capacities.
From 1981 to October 1983, he was employed by American Quasar Exploration
Company as Manager--Oil and Gas Marketing. From 1978 to 1981, he was employed by
Texas Pacific Oil Company serving in various positions in production and
marketing. He has a B.S. Degree in Education from Texas Tech University.
Mr. Meimerstorf, a certified public accountant, has been Controller of the
Company since January 1988 and a Vice President of the Company since May 1990.
He was Accounting Manager of the Company from February 1984 to January 1988.
From April 1981 to February 1984, he was the Financial Reporting Supervisor for
Andover. From June 1979 to April 1981, he was an auditor with Arthur Andersen &
Co. He has a B.S. Degree in Accounting from Arkansas Tech University and an
M.B.A. Degree from the University of Arkansas.
Mr. Phaneuf has been Vice President--Corporate Development of the Company
since October 1995. From June 1995 to October 1995, he was employed in the
Corporate Finance Group of Arthur Andersen LLP, specializing in energy industry
corporate finance activities. From April 1993 to August 1994, he was Senior Vice
President and head of the Energy Research Group at Kemper Securities, an
investment banking firm. From 1988 until April 1993, he was employed by
Rauscher, Pierce Refsnes, Inc., an investment banking firm, as a Senior Vice
President, serving as an energy analyst involved in equity research. From 1978
to 1988, Mr. Phaneuf was Vice President of Kidder, Peabody, & Co., an investment
banking firm, serving as an energy analyst in the Research Department. From 1976
to 1978, he was employed by Schneider, Bernet, and Hickman, serving as an energy
analyst in the Research Department. From 1972 to 1976, he held the position of
Investment Advisor for First International Investment Management, a subsidiary
of NationsBank. He holds a B.A. Degree in Psychology and an M.B.A. Degree from
the University of Texas.
Mr. Quackenbush has been Vice President--Production of the Company since May
1990. He was Manager--Production of the Company from November 1989 to May 1990.
From May 1970 to July 1989, Mr. Quackenbush was employed by Tenneco Oil Co., an
oil and gas company, where he served as Acquisition Manager and in various
engineering positions. He has a B.S. Degree in Petroleum Engineering from the
Colorado School of Mines.
Mr. Sheppard has been Vice President--International of the Company since
November 1994. From June 1984 to August 1994, he was employed by Santa Fe
Minerals serving as Manager--Acquisitions & Special Projects, Manager--
International Operations, and in various other management and supervisory
capacities. From August 1977 to June 1984, he was employed by Amoco Production
Company serving in various engineering and supervisory capacities. He has a B.S.
Degree in Petroleum Engineering from Texas Tech University.
Mr. Thalken has been Vice President--Acquisitions of the Company since
December 1997. He was Acquisitions Technical Manager of the Company from May
1995 to December 1997 and an acquisitions engineer with the Company from January
1992 to May 1995. From October 1990 to December 1991, he was employed by Enron
Oil and Gas Company, serving as a production engineer. From May 1983 to
September 1990, he was employed by Exxon Company, USA, in various engineering
and supervisory capacities. He has a B.S. Degree in Mechanical Engineering from
Kansas University.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated by reference from the
sections on page 54 of the Company's 1997 Annual Report to Stockholders entitled
"Stock Price Information," "Dividend Policy" and "Number of Stockholders."
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference from page
28 of the Company's 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated by reference from
pages 29 through 33 of the Company's 1997 Annual Report to Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference from
pages 34 through 53 of the Company's 1997 Annual Report to Stockholders.
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 required by this Item with respect to the Company's
directors is incorporated by reference from the sections of the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders (the
"Proxy Statement") entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance." The information required by this
Item with respect to the Company's executive officers appears at Item 4A of Part
I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Principal Stockholders and Security
Ownership of Management."
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
section of the Proxy Statement entitled "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
The financial statements of the Company and its subsidiaries and report of
independent public accountants listed below are incorporated by reference from
the following pages of the Company's 1997 Annual Report to Stockholders:
Annual Report
Page
-------------
Consolidated Balance Sheets as of December 31, 1997 and 1996..... 34
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995................................ 35
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995............ 36
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995................................ 37
Notes to Consolidated Financial Statements for the years ended
December 31, 1997, 1996 and 1995 ............................... 38 through 52
Report of Independent Public Accountants......................... 53
(2) Financial Statement Schedules:
All schedules are omitted as inapplicable or because the required
information is contained in the financial statements or included in the notes
thereto.
(3) Exhibits:
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
3.1 Restated Certificate of Incorporation, as amended, of the Company
(Filed as Exhibit 3.2 to the Company's report on Form 10-Q for the
quarter ended June 30, 1997, filed August 13, 1997).
3.2 Restated By-laws of the Company (Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1, Registration No.
33-35289 (the "S-1 Registration Statement")).
4.1 Form of stock certificate for Common Stock, par value $.005 per
share (Filed as Exhibit 4.1 to the S-1 Registration Statement).
4.2 Indenture dated as of December 20, 1995, between Chemical Bank, as
Trustee, and the Company (Filed as Exhibit 99.1 to the Company's
report on Form 8-K filed January 16, 1996).
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<PAGE>
4.3 Indenture dated as February 5, 1997, between The Chase Manhattan
Bank, as Trustee, and the Company (Filed as Exhibit 4.3 to the
Company's report on Form 10-K for the year ended December 31, 1996,
filed March 27, 1997).
10.1* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Charles C. Stephenson, Jr. (Filed as Exhibit
10.19 to the S-1 Registration Statement).
10.2* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Jo Bob Hille (Filed as Exhibit 10.20 to the
S-1 Registration Statement).
10.3* Form of Indemnification Agreement between the Company and certain of
its officers and directors (Filed as Exhibit 10.23 to the S-1
Registration Statement).
10.4* Vintage Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 4(d) to
the Company's Registration Statement on Form S-8, Registration No.
33-37505).
10.5* Amendment No. 1 to Vintage Petroleum, Inc. 1990 Stock Plan,
effective January 1, 1991 (Filed as Exhibit 10.15 to the Company's
report on Form 10-K for the year ended December 31, 1991, filed
March 30, 1992).
10.6* Amendment No. 2 to Vintage Petroleum, Inc. 1990 Stock Plan dated
February 24, 1994 (Filed as Exhibit 10.15 to the Company's report on
Form 10-K for the year ended December 31, 1993, filed March 29,
1994).
10.7* Amendment No. 3 to Vintage Petroleum, Inc. 1990 Stock Plan dated
March 15, 1996 (Filed as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders dated April 1, 1996).
10.8* Vintage Petroleum, Inc. 401(k) Plan (Filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-8, Registration No.
33-55706).
10.9* Vintage Petroleum, Inc. Non-Management Director Stock Option Plan
(Filed as Exhibit 10.18 to the Company's report on Form 10-K for the
year ended December 31, 1992, filed March 31, 1993 (the "1992 Form
10-K")).
10.10* Form of Incentive Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the
Company's report on Form 10-K for the year ended December 31, 1990,
filed April 1, 1991).
10.11* Form of Non-Qualified Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the 1992
Form 10-K).
10.12 Amended and Restated Credit Agreement dated December 8, 1997, among
the Company, as borrower, certain commercial lending institutions,
as lenders, and Bank of Montreal, as agent.
10.13 Purchase and Sale Agreement dated as of February 12, 1997, among the
Company, Burlington Resources Oil & Gas Company and Glacier Park
Company, and Amendments thereto dated March 11, 1997, and March 20,
1997 (filed as Exhibit 2 to the Company's report on Form 8-K filed
April 16, 1997).
13. Portions of the Company's 1997 Annual Report to Stockholders.
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<PAGE>
21. Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27.1 Financial Data Schedule for fiscal 1997.
27.2 Restated Financial Data Schedule for fiscal 1997 interim periods.
27.3 Restated Financial Data Schedule for fiscal 1996 and fiscal 1996
interim periods.
99.1 Letter of Netherland, Sewell & Associates, Inc. dated March 18,
1998, regarding U.S. oil and gas reserve information.
99.2 Letter of Netherland, Sewell & Associates, Inc. dated March 19,
1998, regarding South American oil and gas reserve information.
____________________
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Form 8-K was filed October 16, 1997, to report under Item 5 (a) the
Company's two-for-one common stock split effected on October 7, 1997, and (b)
certain pro forma financial information of the Company.
No other reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VINTAGE PETROLEUM, INC.
Date: March 27, 1998 By: /s/ C. C. Stephenson, Jr.
----------------------------
C. C. Stephenson, Jr.
Chairman of the Board
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 and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. C. Stephenson, Jr. Director and Chairman March 27, 1998
- ---------------------------- of the Board
C. C. Stephenson, Jr.
/s/ Jo Bob Hille Director and Vice March 27, 1998
- ---------------------------- Chairman of the Board
Jo Bob Hille
/s/ S. Craig George Director, President and March 27, 1998
- --------------------------- Chief Executive Officer
S. Craig George (Principal Executive Officer)
/s/ William C. Barnes Director, Executive Vice March 27, 1998
- ---------------------------- President, Chief Financial
William C. Barnes Officer and Treasurer
(Principal Financial Officer)
/s/ Bryan H. Lawrence Director March 27, 1998
- ----------------------------
Bryan H. Lawrence
/s/ John T. McNabb, II Director March 27, 1998
- ----------------------------
John T. McNabb, II
/s/ Michael F. Meimerstorf Vice President and Controller March 27, 1998
- ---------------------------- (Principal Accounting Officer)
Michael F. Meimerstorf
-34-
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated Certificate of Incorporation, as amended, of the Company
(Filed as Exhibit 3.2 to the Company's report on Form 10-Q for the
quarter ended June 30, 1997, filed August 13, 1997).
3.2 Restated By-laws of the Company (Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1, Registration No.
33-35289 (the "S-1 Registration Statement")).
4.1 Form of stock certificate for Common Stock, par value $.005 per
share (Filed as Exhibit 4.1 to the S-1 Registration Statement).
4.2 Indenture dated as of December 20, 1995, between Chemical Bank, as
Trustee, and the Company (Filed as Exhibit 99.1 to the Company's
report on Form 8-K filed January 16, 1996).
4.3 Indenture dated as February 5, 1997, between The Chase Manhattan
Bank, as Trustee, and the Company (Filed as Exhibit 4.3 to the
Company's report on Form 10-K for the year ended December 31, 1996,
filed March 27, 1997).
10.1* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Charles C. Stephenson, Jr. (Filed as Exhibit
10.19 to the S-1 Registration Statement).
10.2* Employment and Noncompetition Agreement dated January 7, 1987,
between the Company and Jo Bob Hille (Filed as Exhibit 10.20 to the
S-1 Registration Statement).
10.3* Form of Indemnification Agreement between the Company and certain of
its officers and directors (Filed as Exhibit 10.23 to the S-1
Registration Statement) .
10.4* Vintage Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 4(d) to
the Company's Registration Statement on Form S-8, Registration No.
33-37505).
10.5* Amendment No. 1 to Vintage Petroleum, Inc. 1990 Stock Plan,
effective January 1, 1991 (Filed as Exhibit 10.15 to the Company's
report on Form 10-K for the year ended December 31, 1991, filed
March 30, 1992).
10.6* Amendment No. 2 to Vintage Petroleum, Inc. 1990 Stock Plan dated
February 24, 1994 (Filed as Exhibit 10.15 to the Company's report on
Form 10-K for the year ended December 31, 1993, filed March 29,
1994).
10.7* Amendment No. 3 to Vintage Petroleum, Inc. 1990 Stock Plan dated
March 15, 1996 (Filed as Exhibit A to the Company's Proxy Statement
for Annual Meeting of Stockholders dated April 1, 1996).
10.8* Vintage Petroleum, Inc. 401(k) Plan (Filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-8, Registration No.
33-55706).
<PAGE>
10.9* Vintage Petroleum, Inc. Non-Management Director Stock Option Plan
(Filed as Exhibit 10.18 to the Company's report on Form 10-K for the
year ended December 31, 1992, filed March 31, 1993 (the "1992 Form
10-K")).
10.10* Form of Incentive Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the
Company's report on Form 10-K for the year ended December 31, 1990,
filed April 1, 1991).
10.11* Form of Non-Qualified Stock Option Agreement under the Vintage
Petroleum, Inc. 1990 Stock Plan (Filed as Exhibit 10.20 to the 1992
Form 10-K).
10.12 Amended and Restated Credit Agreement dated December 8, 1997, among
the Company, as borrower, certain commercial lending institutions,
as lenders, and Bank of Montreal, as agent.
10.13 Purchase and Sale Agreement dated as of February 12, 1997, among the
Company, Burlington Resources Oil & Gas Company and Glacier Park
Company, and Amendments thereto dated March 11, 1997, and March 20,
1997 (filed as Exhibit 2 to the Company's report on Form 8-K filed
April 16, 1997).
13. Portions of the Company's 1997 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27.1 Financial Data Schedule for fiscal 1997.
27.2 Restated Financial Data Schedule for fiscal 1997 interim periods.
27.3 Restated Financial Data Schedule for fiscal 1996 and fiscal 1996
interim periods.
99.1 Letter of Netherland, Sewell & Associates, Inc. dated March 18,
1998, regarding U.S. oil and gas reserve information.
99.2 Letter of Netherland, Sewell & Associates, Inc. dated March 19,
1998, regarding South American oil and gas reserve information.
_____________________
* Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10.12
U.S. $500,000,000
AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 8, 1997
among
VINTAGE PETROLEUM, INC.,
as the Borrower,
and
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
as the Lenders,
and
BANK OF MONTREAL,
acting through certain U.S. branches or agencies,
as the Agent for the Lenders.
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
I DEFINITIONS AND ACCOUNTING TERMS...................... 2
1.1. Defined Terms................................ 2
1.2. Use of Defined Terms......................... 17
1.3. Cross-References............................. 17
1.4. Accounting and Financial Determinations...... 17
II COMMITMENTS, BORROWING PROCEDURES AND NOTES............ 18
2.1. Commitments................................... 18
2.1.1. Revolving Loan Commitment..................... 18
2.1.2. Term Loan Commitment.......................... 18
2.1.3. Commitment to Issue Letters of Credit......... 18
2.1.4. Lenders Not Permitted or Required To Make
Loans or Issue or Participate in Letters
of Credit Under Certain Circumstances......... 19
2.2. Termination and Reduction of Commitment
Amounts....................................... 19
2.2.1. Optional...................................... 19
2.2.2. Mandatory as to Revolving Loans............... 19
2.2.3. Mandatory as to Term Loans.................... 20
2.3. Borrowing Procedure........................... 20
2.4. Continuation and Conversion Elections......... 20
2.5. Funding....................................... 21
2.6. Notes......................................... 21
2.7. Determination of the Borrowing Base........... 21
2.7.1. Annual Scheduled Determinations of the
Borrowing Base................................ 21
2.7.2. Semi-Annual Scheduled Determination of the
Borrowing Base................................ 22
2.7.3. Discretionary Determination of the
Borrowing Base................................ 23
2.7.4. Reduction of the Borrowing Base Upon Sales
of Oil and Gas Properties..................... 23
2.8. Letters of Credit............................. 23
2.8.1. Issuance Requests............................. 23
2.8.2. Issuances..................................... 23
2.8.3. Aggregate Amount Available Under Letters
of Credit..................................... 23
2.8.4. Other Lenders' Participation.................. 24
2.8.5. Disbursements................................. 25
2.8.6. Reimbursement................................. 25
2.8.7. Deemed Disbursements.......................... 26
2.8.8. Nature of Reimbursement Obligations........... 27
2.8.9. Increased Costs; Indemnity.................... 27
2.8.10. Letter of Credit Collateral Account........... 28
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES............. 29
3.1. Repayments and Prepayments.................... 29
3.1.1. Repayments.................................... 29
3.1.2. Mandatory Prepayments on Loans................ 29
3.1.3. Repayment Upon Acceleration................... 30
3.1.4. Voluntary Repayments.......................... 30
3.2. Interest Provisions........................... 31
3.2.1. Rates......................................... 31
3.2.2. Post-Maturity Rates........................... 32
3.2.3. Payment Dates................................. 32
3.3. Fees.......................................... 32
3.3.1. Commitment Fee................................ 32
3.3.2. Agent's Fee................................... 33
3.3.3. Letter of Credit Face Amount Fee.............. 33
IV CERTAIN LIBO RATE AND OTHER PROVISIONS................. 33
4.1. If LIBO Rate Lending Unlawful................. 33
4.2. If Deposits Unavailable....................... 33
4.3. Increased LIBO Rate Loan Costs, etc........... 34
4.4. Funding Losses................................ 34
4.5. Increased Capital Costs....................... 34
4.6. Taxes......................................... 35
4.7. Payments, Computations, etc................... 36
4.8. Sharing of Payments........................... 36
4.9. Setoff........................................ 37
4.10. Use of Proceeds............................... 37
V CONDITIONS TO BORROWING................................ 37
5.1. Continuation of Original Loans;
Initial Borrowing............................. 37
5.1.1. Resolutions, etc.............................. 38
5.1.2. Delivery of Notes............................. 38
5.1.3. [Reserved].................................... 38
5.1.4. Compliance with Representations and
Warranties.................................... 38
5.1.5. Opinions of Counsel........................... 38
5.1.6. Closing Fees, Expenses, etc................... 38
5.2. Conditions Precedent to Revolving Loans....... 38
5.2.1. Compliance with Warranties, No Default, etc... 38
5.2.2. Borrowing Request............................. 39
5.2.3. Satisfactory Legal Form....................... 39
5.3. Conditions Precedent to the Making of the
Term Loans.................................... 39
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
VI REPRESENTATIONS AND WARRANTIES......................... 40
6.1. Organization, etc............................. 40
6.2. Due Authorization, Non-Contravention, etc..... 40
6.3. Government Approval, Regulation, etc.......... 40
6.4. Validity, etc................................. 41
6.5. Financial Information......................... 41
6.6. No Material Adverse Change.................... 41
6.7. Litigation, Labor Controversies, etc.......... 41
6.8. Subsidiaries.................................. 41
6.9. Ownership of Properties....................... 41
6.10. Taxes......................................... 42
6.11. Pension and Welfare Plans..................... 42
6.12. Environmental Warranties...................... 42
6.13. Regulations G, U and X........................ 43
6.14. Accuracy of Information....................... 43
6.15. No Default.................................... 44
6.16. No Violation of Applicable Law................ 44
6.17. Permits ...................................... 44
VII COVENANTS.............................................. 45
7.1. Affirmative Covenants......................... 45
7.1.1. Financial Information, Reports,
Notices, etc.................................. 45
7.1.2. Compliance with Laws, etc..................... 46
7.1.3. Maintenance of Properties..................... 46
7.1.4. Insurance..................................... 47
7.1.5. Books and Records............................. 47
7.1.6. Environmental Covenant........................ 47
7.1.7. Employee Benefit Plans........................ 47
7.1.8. Designated Senior Indebtedness................ 48
7.2. Negative Covenants............................ 48
7.2.1. Business Activities........................... 48
7.2.2. Indebtedness.................................. 48
7.2.3. Liens......................................... 49
7.2.4. Financial Condition........................... 50
7.2.5. Take or Pay Contracts......................... 50
7.2.6. Consolidation, Merger, etc.................... 50
7.2.7. Asset Dispositions, etc....................... 51
7.2.8. Guaranties, Loans or Advances................. 51
7.2.9. Other Agreements.............................. 52
7.2.10. Transactions with Affiliates.................. 52
7.2.11. Negative Pledges, Restrictive Agreements,
etc........................................... 52
7.2.12. Investment in Subsidiaries.................... 53
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
VIII EVENTS OF DEFAULT...................................... 53
8.1. Listing of Events of Default.................. 53
8.1.1. Non-Payment of Obligations.................... 53
8.1.2. Breach of Warranty............................ 53
8.1.3. Non-Performance of Certain Covenants
and Obligations............................... 54
8.1.4. Non-Performance of Other Covenants and
Obligations................................... 54
8.1.5. Default on Other Indebtedness................. 54
8.1.6. Other Material Obligations.................... 54
8.1.7. Judgments..................................... 54
8.1.8. Pension Plans................................. 54
8.1.9. Bankruptcy, Insolvency, etc................... 55
8.1.10. Change of Control............................. 55
8.2. Action if Bankruptcy.......................... 55
8.3. Action if Other Event of Default.............. 56
IX THE AGENT.............................................. 56
9.1. Actions....................................... 56
9.2. Funding Reliance, etc......................... 57
9.3. Exculpation................................... 57
9.4. Successor..................................... 57
9.5. Loans by Bank of Montreal..................... 58
9.6. Credit Decisions.............................. 58
9.7. Copies, etc. ................................. 58
X MISCELLANEOUS PROVISIONS............................... 59
10.1. Waivers, Amendments, etc...................... 59
10.2. Notices....................................... 59
10.3. Payment of Costs and Expenses................. 60
10.4. Indemnification............................... 60
10.5. Survival...................................... 61
10.6. Severability.................................. 61
10.7. Headings...................................... 61
10.8. Execution in Counterparts, Effectiveness,
etc........................................... 61
10.9. Governing Law; Entire Agreement............... 61
10.10. Successors and Assigns........................ 62
10.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes............. 62
10.11.1. Assignments................................... 62
10.11.2. Participations................................ 63
10.12. Other Transactions............................ 64
10.13. Sale and Purchase of Loans.................... 64
10.14. Forum Selection and Consent to Jurisdiction... 65
10.15. Waiver of Jury Trial.......................... 66
iv
<PAGE>
SCHEDULE I - Disclosure Schedule*
EXHIBIT A - Form of Note
EXHIBIT B - Form of Borrowing Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Lender Assignment Agreement
EXHIBIT E-1 - Form of Opinion of Counsel to the Borrower*
EXHIBIT E-2 - Form of Opinion of Counsel to the Borrower*
EXHIBIT F-1 - Commitments*
EXHIBIT F-2 - Schedule of Outstandings and Commitments*
EXHIBIT G - Form of Issuance Request
EXHIBIT H - Exxon Properties*
- ---------------------
* Omitted. The Registrant agrees to furnish supplementally a copy of any
such omitted schedules or exhibits to the Securities and Exchange
Commission upon its request.
v
<PAGE>
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 8,
1997, among VINTAGE PETROLEUM, INC., a Delaware corporation (the "Borrower"),
the various financial institutions as are or may become parties hereto
(collectively, the "Lenders"), and BANK OF MONTREAL, acting through certain of
its U.S. branches or agencies ("Bank of Montreal"), as agent (the "Agent") for
the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower is engaged directly and through its various
Subsidiaries in the businesses of exploration for and production of oil and gas,
oil and gas gathering and marketing, and related activities; and
WHEREAS, the Borrower, various financial institutions (the "Original
Lenders") and Bank of Montreal in its capacity as Agent, heretofore entered into
a Credit Agreement dated as of August 29, 1996 (such agreement, as previously
amended, the "Original Credit Agreement") pursuant to which the lenders party to
the Original Credit Agreement agreed to make loans (therein referred to as the
"Original Loans") to the Borrower; and
WHEREAS, the Borrower would like to obtain Commitments from the Lenders
pursuant to which Revolving Loans and Term Loans, in a maximum aggregate
principal amount at any one time outstanding not to exceed the amounts
hereinafter provided, will be made to the Borrower from time to time prior to
the applicable Commitment Termination Dates for such Commitments; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
Commitments and make such Loans to the Borrower; and
WHEREAS, the proceeds of such Loans will be used (a) for acquisitions
of oil and gas properties, gathering systems and related assets; and (b) for
general corporate purposes and working capital purposes of the Borrower and its
Subsidiaries; and
WHEREAS, certain financial institutions not previously a party to the
Original Credit Agreement intend to become a party to the credit facilities
extended to the Borrower as more fully described in the next succeeding
paragraph; and
WHEREAS, the Borrower has requested that the Lenders, and the Lenders
have agreed to, restructure, rearrange, renew, extend and refinance all
indebtedness evidenced by and outstanding under the Original Credit Agreement as
of the Effective Date (the "Prior Indebtedness") into obligations and
commitments hereunder; and
WHEREAS, as part of the restructuring and rearranging of the Prior
Indebtedness, the Lenders shall modify their respective commitments under the
Original Credit Agreement such that on the
<PAGE>
Effective Date each Lender shall be obligated hereunder, subject to the terms
hereof, to the Commitment stated on Schedule F-1 for such Lender; and
WHEREAS, any loans outstanding under the Original Credit Agreement on
the Effective Date bearing interest at a LIBO Rate (as defined therein) shall be
deemed continued as Loans under this Agreement at such LIBO Rate and for the
Interest Period with respect thereto under the Original Credit Agreement; and
WHEREAS, the Borrower, the Lenders, and the Agent intend to amend and
restate the Original Credit Agreement in its entirety as hereinafter set forth;
and
WHEREAS, the parties hereto intend that upon the effectiveness hereof
pursuant to Article V, the Commitments, outstanding Notes, and Loans under the
Original Credit Agreement shall become Commitments, Notes, and Loans,
respectively, hereunder and interest accrued on the Loans and Commitment fees
accrued under the Original Credit Agreement through the effective date hereof
shall be deemed due and payable hereunder.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower or any of the Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets or otherwise or (ii) directly or indirectly
acquires (in one transaction or as the most recent transaction in a series of
transactions) at least a controlling interest of the ownership of a Person.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power (a)
to vote 10% or more of the securities (on a fully diluted basis)
2
<PAGE>
having ordinary voting power for the election of directors or managing general
partners; or (b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agent" is defined in the preamble and includes each other Person as
shall have subsequently been appointed as the successor Agent pursuant to
Section 9.4.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a)
the rate of interest most recently announced by Bank of Montreal at its Domestic
Office as its base rate for Dollar loans made in the United States; and (b) the
Federal Funds Rate most recently determined by the Agent plus 1/2%. The
Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by Bank of Montreal in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Agent will give notice promptly to the Borrower and the Lenders
of changes in the Alternate Base Rate.
"Applicable Lenders" means, for any determination of the Borrowing
Base, Lenders (including the Agent) with an aggregate Percentage of at least
75%.
"Assignee Lender" is defined in Section 10.11.1.
"Authorized Officer" means, relative to the Borrower, those of its
officers whose signatures and incumbency shall have been certified to the Agent
and the Lenders pursuant to Section 5.1.1.
"Bank of Montreal" is defined in the preamble.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Base Rate Applicable Margin" means (a) on any date for which it is
determined and on which the outstanding principal balance of Senior Debt,
including any Term Loans, shall be less than or equal to the Borrowing Base then
in effect, zero percent (0%); and (b) on any date on which the outstanding
principal balance of Senior Debt, including all Loans, exceeds the Borrowing
Base then in effect, one-half of one percent (.5%).
"Borrower" is defined in the preamble.
3
<PAGE>
"Borrowing" means (i) the Loans of the same type and, in the case of
LIBO Rate Loans, having the same Interest Period made by all Lenders on the same
Business Day and pursuant to the same Borrowing Request in accordance with
Section 2.1 and (ii) Letters of Credit issued pursuant to Section 2.1.3.
"Borrowing Base" is defined in Section 2.7.1.
"Borrowing Request" means a loan request and certificate duly executed
by an Authorized Officer of the Borrower, substantially in the form of Exhibit B
hereto.
"Business Day" means (a) any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed in
Chicago, Illinois; and (b) relative to the making, continuing, prepaying or
repaying of any LIBO Rate Loans, any day described in clause (a) which is also a
day on which dealings in Dollars are carried on in the London interbank market.
"Cadipsa" means Cadipsa S.A., a Republic of Argentina corporation.
"Capital Stock" in any Person means, for purposes of the definitions of
"Voting Stock" and "Change of Control," any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person; provided that Capital Stock of such Person shall not
include any equity security of such Person that by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable) or
otherwise (including upon the happening of any event), is or could become
required to be redeemed for cash or other property or is or could become
redeemable for cash or other property at the option of the holder thereof, in
whole or in part, or is or could become exchangeable at the option of the holder
thereof for Indebtedness at any time, in whole or in part, in each case on or
prior to the first anniversary of the Stated Maturity (as defined in the
Indenture) for the payment of principal of the Subordinated Debt permitted by
clause (p) of Section 7.2.2, but "Capital Stock" shall not exclude any equity
security by virtue of the fact that it may be converted or exchanged at the
option of the holder for Capital Stock of the Borrower having no preference as
to dividends or liquidation over any other Capital Stock of the Borrower.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such
4
<PAGE>
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 50% or
more of the total voting power of all classes of the Voting Stock of the
Borrower and/or warrants or options to acquire such Voting Stock, calculated on
a fully diluted basis, (ii) the sale, lease, conveyance or transfer of all or
substantially all of the assets of the Borrower (other than to any Restricted
Subsidiary which is wholly-owned by the Borrower or another wholly-owned
Restricted Subsidiary) shall have occurred, (iii) the stockholders of the
Borrower shall have approved any plan of liquidation or dissolution of the
Borrower, (iv) the Borrower consolidates with or merges into another Person or
any Person consolidates with or merges into the Borrower in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Borrower
is reclassified into or exchanged for cash, securities or other property, other
than any such transaction where (A) the outstanding Voting Stock of the Borrower
is reclassified into or exchanged for Voting Stock of the surviving corporation
that is Capital Stock and (B) the holders of the Voting Stock of the Borrower
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving corporation immediately after
such transaction in substantially the same proportion as before the transaction,
or (v) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Borrower's Board of Directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by the stockholders of the Borrower was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Borrower's Board of Directors then in office. For purposes of
this definition, a wholly-owned Subsidiary means any Subsidiary all of the
Voting Stock of which (except for director's qualifying shares) is owned
directly or indirectly by the Borrower and its other wholly-owned Subsidiaries.
Nothing set forth in this definition shall be construed to permit any
transaction which is prohibited by this Agreement, including any transaction not
permitted by Section 7.2.6.
5
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, as the context may require, a Lender's Revolving
Loan Commitment or Term Loan Commitment.
"Commitment Amount" means, as the context may require, either the
Revolving Period Commitment Amount or the Term Period Commitment Amount.
"Commitment Termination Date" means, as the context may require, either
the Revolving Period Commitment Termination Date or the Term Period Commitment
Termination Date.
"Commitment Termination Event" means (a) the occurrence of any Default
described in clauses (a) through (d) of Section 8.1.9 with respect to the
Borrower or any of its Subsidiaries; or (b) the occurrence and continuance of
any other Event of Default and either (i) the declaration of the Loans to be due
and payable pursuant to Section 8.3 or the demand by an Issuer that the Borrower
deliver cash collateral pursuant to Section 2.8.7, or (ii) in the absence of
such declaration or demand, the giving of notice by the Agent, acting at the
direction of the Required Lenders, to the Borrower that the Commitments have
been terminated.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum principal amount, if larger) of the debt,
obligation or other liability guaranteed thereby.
"Continuation/Conversion Notice" means a notice of continua tion or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit C hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"Current Ratio" means the ratio of (a) consolidated current assets of
the Borrower and its Subsidiaries to (b) consolidated
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current liabilities (excluding the current portion of Senior Debt) of the
Borrower and its Subsidiaries. For purposes of the definition of "Current
Ratio", any unused portion of the Revolving Period Commitment Amount is deemed
to be a current asset of the Borrower.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event of
Default.
"Disbursement" is defined in Section 2.8.5.
"Disbursement Date" is defined in Section 2.8.5.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Agent and the Required
Lenders.
"Documentary Letter of Credit" means a letter of credit which is a
short term, self-liquidating trade-related contingency.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement, or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 10.8.
"Environmental Laws" means all applicable Argentina, U.S. federal, or
state or local statutes, laws, ordinances, codes, rules and regulations
(including consent decrees and administrative orders) relating to public health
and safety and protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 8.1.
"Exchange Act" means the United States Securities Exchange Act of 1934
and any successor statute thereto, in each case as amended from time to time.
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"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to (a) the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York; or (b) if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by Bank of Montreal from three federal funds brokers
of recognized standing selected by it.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on December 31st; references to a Fiscal Year with a number corresponding
to any calendar year (e.g., the "1996 Fiscal Year") refer to the Fiscal Year
ending on December 31st, occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP" is defined in Section 1.4.
"Hazardous Material" means (a) any "hazardous substance", as defined by
CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and
Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material or substance
within the meaning of any other applicable Argentina, U.S. federal, or state or
local law, regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, all
as amended or hereafter amended.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, currency exchange rates or commodity prices.
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern"
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or similar nature; (b) which relates to the limited scope of examination of
matters relevant to such financial statement; or (c) which relates to the
treatment or classification of any item in such financial statement and which,
as a condition to its removal, would require an adjustment to such item the
effect of which would be to cause the Borrower to be in default of any of its
obligations under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication: (a) all
obligations of such Person for borrowed money and all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (b) all
obligations, contingent or otherwise, relative to the face amount of all letters
of credit, whether or not drawn, and banker's acceptances issued for the account
of such Person; (c) all obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities; (d) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of such
Person as of the date at which Indebtedness is to be determined; (e) net
liabilities of such Person under all Hedging Obligations; (f) whether or not so
included as liabilities in accordance with GAAP, all obligations of such Person
to pay the deferred purchase price of property or services, and indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse; and (g) all
Contingent Liabilities of such Person in respect of any of the foregoing. For
all purposes of this Agreement, the Indebtedness of any Person shall include the
Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Indenture" means that certain Indenture of the Borrower to Chemical
Bank as Trustee entered into with respect to the Subordinated Debt permitted by
clause (p) of Section 7.2.2, as such Indenture may from time to time be amended,
supplemented or otherwise modified.
"Interest Period" means, relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such LIBO
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Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant
to Section 2.3 or 2.4 and shall end on (but exclude) the day which numerically
corresponds to such date one, two, three or six months thereafter (or, if such
month has no numerically corresponding day, on the last Business Day of such
month), in either case as the Borrower may select in its relevant notice
pursuant to Section 2.3 or 2.4; provided, however, that (a) the Borrower shall
not be permitted to select Interest Periods to be in effect at any one time
which have expiration dates occurring on more than five different dates; (b)
Interest Periods commencing on the same date for Loans comprising part of the
same Borrowing shall be of the same duration; (c) if such Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period shall
end on the next following Business Day (unless such next following Business Day
is the first Business Day of a calendar month, in which case such Interest
Period shall end on the Business Day next preceding such numerically
corresponding day); and (d) no Interest Period for a Revolving Loan may end
later than the date six months after the Revolving Period Commitment Termination
Date, and no Interest Period for a Term Loan may end after the Stated Maturity
Date for Term Loans.
"Interests" is defined in Section 10.13.
"Issuance Request" means a request and certificate duly executed by the
chief executive, accounting, or financial Authorized Officer of the Borrower,
substantially in the form of Exhibit G attached hereto (with such changes
thereto as may be agreed from time to time by the Agent and the Borrower).
"Issuer" means any affiliate, unit or agency of Bank of Montreal or any
other Lender which has agreed to issue one or more Letters of Credit at the
request of the Borrower.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit D hereto.
"Lenders" is defined in the preamble.
"Letter of Credit" is defined in Section 2.8.1.
"Letter of Credit Applicable Margin" means (a) on any date for which it
is determined prior to the Revolving Period Commitment Termination Date and on
which the ratio (expressed as a percentage) of the outstanding principal of
Senior Debt, including any Revolving Loans outstanding, to the Borrowing Base
then in effect shall equal those ratios set forth below, the percentage set
forth opposite such ratio:
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Ratio of Senior Debt Letter of Credit
to Borrowing Base Applicable Margin
-------------------- -----------------
Greater than 75% 1.00%
Greater than 60% and less than or
equal to 75% .750%
Greater than 40% and less than or
equal to 60% .625%
Less than or equal to 40% .550%
(b) on any date for which it is determined on or after the Revolving Period
Commitment Termination Date and on which the outstanding principal balance of
Senior Debt, including any Term Loans, shall be less than or equal to the
Borrowing Base then in effect, one percent (1%); and (c) on any date on which
the aggregate outstanding principal balance of Senior Debt, including all Loans,
exceeds the Borrowing Base then in effect, one and one-half percent (1.5%).
Changes in the Letter of Credit Applicable Margin shall occur automatically with
a change in such ratio of the Senior Debt to the Borrowing Base.
"Letter of Credit Collateral Account" is defined in Section 2.8.10.
"Letter of Credit Commitment" means, relative to any Lender, such
Lender's obligation to issue (in the case of an Issuer) or participate in (in
the case of all Lenders) Letters of Credit pursuant to Section 2.1.3.
"Letter of Credit Outstandings" means, at any time, an amount equal to
the sum of (a) the aggregate face amount at such time of all Letters of Credit
then outstanding and undrawn (as such aggregate face amount shall be adjusted,
from time to time, as a result of drawings, the issuance of Letters of Credit,
or otherwise), plus (b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"Letter of Credit Sublimit" is defined in Section 2.8.3.
"LIBO Rate" is defined in Section 3.2.1.
"LIBO Rate Applicable Margin" means (a) on any date for which it is
determined prior to the Revolving Period Commitment Termination Date and on
which the ratio (expressed as a percentage) of the outstanding principal of
Senior Debt, including any Revolving Loans outstanding, to the Borrowing Base
then in effect shall equal those ratios set forth below, the percentage set
forth opposite such ratio:
Ratio of Senior Debt LIBO Rate
to Borrowing Base Applicable Margin
-------------------- -----------------
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Greater than 75% 1.00%
Greater than 60% and less than or
equal to 75% .750%
Greater than 40% and less than or
equal to 60% .625%
Less than or equal to 40% .550%
(b) on any date for which it is determined on or after the Revolving Period
Commitment Termination Date and on which the outstanding principal balance of
Senior Debt, including any Term Loans, shall be less than or equal to the
Borrowing Base then in effect, one percent (1%); and (c) on any date on which
the aggregate outstanding principal balance of Senior Debt, including all Loans,
exceeds the Borrowing Base then in effect, one and one-half percent (1.5%).
Changes in the LIBO Rate Applicable Margin shall occur automatically with a
change in such ratio of the Senior Debt to the Borrowing Base.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender as designated from time to
time by notice from such Lender to the Borrower and the Agent, whether or not
outside the United States, which shall be making or maintaining LIBO Rate Loans
of such Lender hereunder.
"LIBOR Reserve Percentage" is defined in Section 3.2.1.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan" means, as the context may require, either a Revolving Loan or a
Term Loan of either type.
"Loan Document" means this Agreement, the Notes, each Issuance Request
and each other document or instrument executed and delivered in connection with
this Agreement, the Notes and the Letters of Credit.
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"Maximum Commitment Amount" means an amount equal to $500,000,000.
"Non-Recourse Indebtedness" shall mean any Indebtedness of the Borrower
and its Subsidiaries with respect to which the holder thereof agrees that (i)
the Borrower and its Subsidiaries are not personally liable and (ii) such holder
may require payment only to the extent specifically identified properties of the
Borrower and its Subsidiaries are available to provide therefor, such matters to
be set forth in an agreement or other instrument in form and substance
reasonably satisfactory to the Required Lenders, and shall include such
Indebtedness of partnerships and joint ventures with respect to which the
Borrower or any of its Subsidiaries is a partner or joint venturer which is
identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the Disclosure Schedule.
"Note" means a promissory note of the Borrower payable to any Lender,
in the form of Exhibit A hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from outstanding Loans,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower arising under or in connection with this Agreement, the Notes, the
Letters of Credit and each other Loan Document.
"Oil and Gas Properties" means oil, gas and other liquid or gaseous
hydrocarbon properties and interests of the Borrower and its Subsidiaries,
whether now owned or hereafter acquired, located in the United States or
Argentina.
"Organic Document" means, relative to the Borrower, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"Original Credit Agreement" is defined in the second recital.
"Original Lenders" is defined in the second recital.
"Original Loans" is defined in the second recital.
"Other Letter of Credit" means a Documentary Letter of Credit or a
Standby Letter of Credit or similar instrument for which the Borrower or one or
more of its Subsidiaries is liable and which is not issued pursuant to this
Agreement.
"Participant" is defined in Section 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
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"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any liability by
reason of having been a substantial employer within the meaning of section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the percentage set forth
opposite the name of such Lender in Exhibit F-1 to this Agreement as such
percentage may be adjusted from time to time pursuant to Lender Assignment
Agreements executed by a Lender and its Assignee Lenders and delivered pursuant
to Section 10.11.
"Permitted Designee" means (i) a spouse or a child of a Permitted
Holder, (ii) trusts for the benefit of a Permitted Holder or a spouse or child
of a Permitted Holder, (iii) in the event of the death or incompetence of a
Permitted Holder, his estate, heirs, executor, administrator, committee or other
personal representative, or (iv) any Person so long as a Permitted Holder owns
at least 51% of the voting power of all classes of the Voting Stock of such
Person.
"Permitted Holders" means Charles C. Stephenson, Jr., Jo Bob
Hille, S. Craig George, William C. Barnes and their Permitted
Designees.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Quarterly Payment Date" means the first day of each March, June,
September and December or, if any such day is not a Business Day, the next
succeeding Business Day.
"Reimbursement Obligations" is defined in Section 2.8.6.
"Release" means a "release", as such term is defined in CERCLA.
"Required Lenders" means, at any time, Lenders (including the Agent)
holding at least 66-2/3% of the then aggregate outstanding principal amount of
the Notes then held by the Lenders, or, if no such principal amount is then
outstanding, Lenders (including the Agent) having at least 66-2/3% of the
Commitments.
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"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.
"Restricted Subsidiary" means any Subsidiary of the Borrower that has
not been designated an "Unrestricted Subsidiary" pursuant to the Indenture.
"Revolving Loan" is defined in Section 2.1.1.
"Revolving Loan Commitment" is defined in Section 2.1.1.
"Revolving Period Commitment Amount" means, on any date, the lowest of
(i) the Borrowing Base then in effect, (ii) the Maximum Commitment Amount, as
such amount may be reduced from time to time pursuant to Section 2.2 and (iii)
the amount (not less than the then outstanding principal amount of the Loans)
from time to time designated by the Borrower in writing to the Agent provided
that the Borrower will not designate an amount pursuant to this clause (iii)
which is an increase over the then Revolving Period Commitment Amount without
the consent of Lenders with an aggregate Percentage of at least 75%.
"Revolving Period Commitment Termination Date" means the earliest of
(a) December 1, 2000; (b) the date on which the Revolving Period Commitment
Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c)
the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (b) or (c), the Revolving
Loan Commitments shall terminate automatically and without any further action.
"Senior Debt" means all Indebtedness for borrowed money (including the
Loans under this Agreement) and all obligations, contingent or otherwise,
relative to the face amount of all Letters of Credit and Other Letters of
Credit, whether or not drawn, of the Borrower and its Subsidiaries other than
Subordinated Debt, Non-Recourse Indebtedness, Indebtedness of any Subject
Subsidiary and any Contingent Liability of the Borrower permitted by clause (n)
of Section 7.2.2.
"Standby Letter of Credit" means a letter of credit (other than a
Documentary Letter of Credit).
"Stated Amount" of each Letter of Credit and each Other Letter of
Credit means, on any date for which it is determined, the face amount of such
Letter of Credit or Other Letter of Credit as is in effect on such date.
"Stated Expiry Date" is defined in Section 2.8.1.
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<PAGE>
"Stated Maturity Date" means (a) in the case of any Revolving Loan,
December 1, 2000; and (b) in the case of any Term Loan, December 1, 2003.
"Subject Subsidiary" means Cadipsa, or any Subsidiary designated by the
Borrower and approved by the Applicable Lenders; such Subsidiaries are sometimes
collectively called herein the "Subject Subsidiaries."
"Subordinated Debt" means all unsecured Indebtedness of the Borrower
for money borrowed which is subordinated, upon terms satisfactory to the Agent
and the Required Lenders, in right of payment to the payment in full in cash of
all Obligations, and includes Borrower's $150,000,000 Senior Subordinated Notes
Due 2005 and Borrower's $100,000,000 Senior Subordinated Notes Due 2009.
"Subsidiary" means, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person provided that, notwithstanding the foregoing,
Subsidiaries of the Borrower shall not include, for the purposes of Article VI
(except Sections 6.7 and 6.8), Section 7.1 (except for the purposes of
consolidated financial statements delivered pursuant to Section 7.1.1) and
Article VIII and the definitions referred to therein, the Subject Subsidiaries.
"Tangible Net Worth" means the consolidated net worth of the Borrower
and its Subsidiaries after subtracting therefrom the aggregate amount of any
intangible assets of the Borrower and its Subsidiaries, including goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names.
"Taxes" is defined in Section 4.6.
"Term Loan" is defined in Section 2.1.2.
"Term Loan Commitment" is defined in Section 2.1.2.
"Term Period Commitment Amount" means the least of (i) the aggregate
principal amount of all Revolving Loans outstanding to all Lenders plus all
Letter of Credit Outstandings as of the Revolving Period Commitment Termination
Date, (ii) the Commitment Amount in effect with respect to Revolving Loans plus
all Letter of Credit Outstandings as of the Revolving Period Commitment
Termination Date, or (iii) the Borrowing Base in effect as of the Revolving
Period Commitment Termination Date minus the outstanding principal amount of all
Senior Debt other than the Loans and all Letter of Credit Outstandings.
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"Term Period Commitment Termination Date" means the earlier of (a) the
Business Day after the Stated Maturity Date of the Revolving Loans; and (b) the
date on which any Commitment Termination Event occurs. Upon the occurrence of
any event described in clause (b), the Term Loan Commitments shall terminate
automatically and without any further action.
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Issuance Request, Borrowing Request, Continuation/Conversion Notice,
Loan Document, notice and other communication delivered from time to time in
connection with this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references
in this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared,
in accordance with those generally accepted accounting principles ("GAAP")
applied in the preparation of the financial statements referred to in Section
6.5.
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ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Commitments. On the terms and subject to the conditions of
this Agreement (including Article V), each Lender severally agrees to make Loans
and issue or participate in Letters of Credit pursuant to the Commitments
described in this Section 2.1.
SECTION 2.1.1. Revolving Loan Commitment. From time to time on any
Business Day occurring prior to the Revolving Period Commitment Termination
Date, each Lender will make Loans (relative to such Lender, its "Revolving
Loans") to the Borrower equal to such Lender's Percentage of the aggregate
amount of the Borrowing of Revolving Loans requested by the Borrower to be made
on such day. The Commitment of each Lender described in this Section 2.1.1 is
herein referred to as its "Revolving Loan Commitment". On the terms and subject
to the conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow Revolving Loans.
SECTION 2.1.2. Term Loan Commitment. On the Revolving Period Commitment
Termination Date (unless such date shall occur as a result of clause (c) of the
definition thereof), each Lender will make one term loan (relative to such
Lender, its "Term Loan") to the Borrower equal to the lesser of its Revolving
Loan and its Percentage of the Term Period Commitment Amount. The Commitment of
each Lender described in this Section 2.1.2 is herein referred to as its "Term
Loan Commitment". No amounts paid or prepaid with respect to the Term Loans may
be reborrowed. LIBO Rate Loans for which the Interest Period shall not have
terminated as of the Revolving Period Commitment Termination Date shall be
continued as LIBO Rate Loans for the applicable Interest Period and Base Rate
Loans shall be continued as Base Rate Loans after the Revolving Period
Commitment Termination Date, unless the Borrower shall have elected otherwise by
delivery of a Continuation/Conversion Notice pursuant to Section 2.4; provided
that such LIBO Rate Loans which shall have converted to Term Loans shall be in a
minimum amount of $5,000,000 and an integral multiple of $1,000,000. Any
principal repayments received on the Revolving Period Commitment Termination
Date for Revolving Loans not converted into Term Loans shall be applied first to
Base Rate Loans and, after Base Rate Loans have been paid in full, to LIBO Rate
Loans, unless the Borrower shall have otherwise instructed the Agent in writing.
Upon a Lender making such Term Loan, its Term Loan Commitment shall terminate
and it shall have no further Commitment to make Loans.
SECTION 2.1.3. Commitment to Issue Letters of Credit. From time to time
on any Business Day prior to the Revolving Period Commitment Termination Date,
each Issuer will issue, and each Lender will participate in, to the extent of
each Lender's Percentage, the Letters of Credit, in accordance with the terms of
Section 2.8.
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SECTION 2.1.4. Lenders Not Permitted or Required To Make Loans or Issue
or Participate in Letters of Credit Under Certain Circumstances. No Lender shall
be permitted or required to (A) continue any Original Loan as a Loan hereunder
or to make any Revolving Loan if, after giving effect thereto (i) (a) the
aggregate outstanding principal amount of all Revolving Loans of all Lenders,
plus all Letter of Credit Outstandings would exceed the Revolving Period
Commitment Amount or (b) the Senior Debt would exceed the Borrowing Base then in
effect or (ii) the aggregate outstanding principal amount of all Loans of such
Lender, together with its Percentage of all Letter of Credit Outstandings, would
exceed such Lender's Percentage of the Revolving Period Commitment Amount; (B)
issue (in the case of any Issuer) or participate in (in the case of each Lender)
any Letter of Credit if, after giving effect thereto (i) (a) all Letter of
Credit Outstandings plus the aggregate outstanding principal amount of all Loans
of all Lenders would exceed the Revolving Period Commitment Amount, (b) the
Senior Debt would exceed the Borrowing Base then in effect, or (c) all Letter of
Credit Outstandings plus the aggregate Stated Amount of all Other Letters of
Credit would exceed the Letter of Credit Sublimit or (ii) such Lender's
Percentage of all Letter of Credit Outstandings together with the aggregate
outstanding principal amount of all Loans of such Lender would exceed such
Lender's Percentage of the Revolving Period Commitment Amount; or (d) make any
Term Loan if, after giving effect thereto (i) the aggregate original principal
amount of all Term Loans would exceed the Term Period Commitment Amount or (ii)
the Term Loans of such Lender would exceed such Lender's Percentage of the Term
Period Commitment Amount.
SECTION 2.2. Termination and Reduction of Commitment Amounts. Each of
the Commitment Amounts is subject to reduction from time to time pursuant to
this Section 2.2.
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
Business Day occurring after the time of the initial Borrowing hereunder,
voluntarily reduce the amount of either Commitment Amount; provided, however,
that all such reductions shall require at least three Business Days' prior
notice to the Agent and be permanent, and any partial reduction of any
Commitment Amount shall be in a minimum amount of $1,000,000 and in an integral
multiple of $1,000,000.
SECTION 2.2.2. Mandatory as to Revolving Loans. The Revolving Period
Commitment Amount shall be reduced or terminated as described below:
(a) Each Lender's Revolving Loan Commitment shall be
automatically terminated on the Revolving Period Commitment Termination
Date.
(b) Each reduction in the Revolving Period Commitment Amount
shall be made ratably among the Lenders in accordance with their
respective Percentages. The Borrower shall pay to
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the Agent for the account of the Lenders, on the date of each
termination or voluntary reduction, the Commitment Fees accrued
pursuant to Section 3.3.1 on the amount of Commitments so terminated or
reduced through the date of such termination or reduction.
SECTION 2.2.3. Mandatory as to Term Loans. The Term Period Commitment
Amount shall be reduced or terminated as described below:
(a) Each Lender's Term Loan Commitment shall be automatically
terminated on the Term Period Commitment Termination Date.
(b) Each reduction in the Term Period Commitment Amount
hereunder shall be made ratably among the Lenders in accordance with
their respective Percentages.
SECTION 2.3. Borrowing Procedure. The Borrower may from time to time
irrevocably request that a Borrowing be made in (a) for Base Rate Loans, a
minimum amount of $300,000 and integral multiple of $100,000, (b) for LIBO Rate
Loans a minimum amount of $5,000,000 and an integral multiple of $1,000,000, or
(c) in the case of Revolving Loans, in the unused amount of the Revolving Period
Commitment Amount. Such request shall be made by delivering a Borrowing Request
to the Agent on or before 11:00 a.m. U.S. Central time, (x) on the Business Day
of such Borrowing in the case of a Base Rate Borrowing and (y) on a Business Day
not less than three nor more than five Business Days in advance of a LIBO Rate
Borrowing. On the terms and subject to the conditions of this Agreement, each
Borrowing shall be comprised of the type of Loans, and shall be made on the
Business Day, specified in such Borrowing Request. On or before 12:00 Noon (U.S.
Central time) on such Business Day each Lender shall deposit with the Agent same
day funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Agent shall specify
from time to time by notice to the Lenders. To the extent funds are received
from the Lenders, the Agent shall make such funds available to the Borrower by
wire transfer to the accounts the Borrower shall have specified in its Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any other
Lender's failure to make any Loan.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Agent on or before 11:00 a.m., U.S.
Central time, on a Business Day, the Borrower may from time to time irrevocably
elect, on not less than three nor more than five Business Days' notice that all,
or any portion in an aggregate minimum amount of $5,000,000 and an integral
multiple of $1,000,000, of any Loans be, in the case of Base Rate Loans,
converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, converted
into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of
delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan
at least three
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Business Days before the last day of the then current Interest Period with
respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that (a) each such conversion
or continuation shall be pro rated among the applicable outstanding Loans of all
Lenders, and (b) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Borrower hereby consents and agrees that, for purposes of any determination to
be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be conclusively
assumed that each Lender elected to fund all LIBO Rate Loans by purchasing
Dollar deposits in its LIBOR Office's interbank eurodollar market.
SECTION 2.6. Notes. Each Lender's Loans under its Commitment shall be
evidenced by a Note payable to the order of such Lender in a maximum principal
amount equal to such Lender's Percentage of the original Maximum Commitment
Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause
to be made) appropriate notations on the grid attached to such Lender's Notes
(or on any continuation of such grid), which notations, if made, shall evidence,
inter alia, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loans evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; provided,
however, that the failure of any Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower.
SECTION 2.7. Determination of the Borrowing Base. During the period
from the date hereof to the date of the first determination of the Borrowing
Base pursuant to the further provisions of this Section 2.7., the amount of the
Borrowing Base shall be $450,000,000.
SECTION 2.7.1. Annual Scheduled Determinations of the Borrowing Base.
Promptly after December 31 of each calendar year commencing December 31, 1997,
and in any event prior to April 1 of the following calendar year, the Borrower
shall furnish to the Agent and each Lender a report in form and substance
satisfactory to the Agent, prepared or audited by Netherland, Sewell and
Associates, Inc. or such other engineering firm as may be selected by the
Borrower with the prior approval of the Required Lenders, which report shall be
dated as of December 31st of such calendar year and
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shall set forth the proven and producing oil and gas reserves attributable to
the Oil and Gas Properties and a projection of the rate of production and net
operating income with respect thereto, as of such date, and a projection of the
rate of production and net operating income with respect thereto, as of such
date. Upon receipt of such report relating to the Oil and Gas Properties, the
Agent shall make a determination within 25 days of the receipt of such report of
the amount of Senior Debt which the Borrower may maintain (herein as determined
and redetermined from time to time and in effect on any date called the
"Borrowing Base") on account of such reserves as of such December 31st, subject
to the approval of the Applicable Lenders as provided in this Section, and upon
such determination the Agent shall promptly notify the Lenders in writing of its
determination of the Borrowing Base. The determination of the Borrowing Base
made by the Agent shall be so made by the Agent in the exercise of its sole
discretion in accordance with the Agent's customary practices and standards for
oil and gas loans. The Applicable Lenders may approve the Agent's determination
of the Borrowing Base by written notice to the Agent within 10 days of the
Agent's notification of its determination of the new Borrowing Base. If the
Applicable Lenders fail to approve the determination of the Borrowing Base made
by the Agent hereunder within such 10 days then, within an additional 5 days,
the Applicable Lenders in their sole discretion shall determine the Borrowing
Base in accordance with their respective customary practices and standards for
oil and gas loans.
SECTION 2.7.2. Semi-Annual Scheduled Determination of the Borrowing
Base. In addition, within ninety (90) days after each June 30 (commencing June
30, 1998) the Borrower will make available for review by the Agent monthly
production data for each property included within the Oil and Gas Properties for
the six (6) month period preceding such date together with the Borrower's
projection of the rate of production and net operating income for such
properties (in the aggregate). Also to be made available are the reserves,
projected rate of income and net operating income on (i) any Oil and Gas
Properties which were developed by the Borrower subsequent to the preceding
December 31 and which are to be included in the Borrowing Base. Upon the receipt
of a report relating to the Oil and Gas Properties, the Agent shall make a
determination within 25 days of the receipt of such report of the Borrowing Base
as of the preceding June 30. The determinations of the Borrowing Base shall be
made in the same manner and be subject to the same approvals as prescribed above
with respect to the annual review, and likewise the Agent shall communicate the
results of each such determination to the Lenders. The Applicable Lenders may
approve the determination of the Borrowing Base by written notice to the Agent
within 10 days of the giving of notice of the determination by the Agent to such
Lenders and the Agent will thereupon notify the Borrower of the Borrowing Base
approved by the Applicable Lenders. If the Applicable Lenders fail to approve a
determination of the Borrowing Base made by the Agent pursuant to this Section
2.7.2 within such 10 days, then the Applicable Lenders shall, within an
additional 5 days, make a determination of the Borrowing
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Base based on their sole discretion in accordance with their respective
customary practices and standards for oil and gas loans.
SECTION 2.7.3. Discretionary Determination of the Borrowing Base. If,
in addition to the foregoing scheduled annual and semi-annual determinations of
the Borrowing Base, the Lenders (or the Applicable Lenders) shall be requested
by the Borrower to redetermine the Borrowing Base, in their sole discretion
based on their respective customary practices and standards for oil and gas
loans, then the Borrower shall pay to the Agent a fee of $25,000 and to each
Lender (other than the Agent) a fee of $12,500 in connection with such
redetermination.
SECTION 2.7.4. Reduction of the Borrowing Base Upon Sales of Oil and
Gas Properties. In the event of a sale, transfer, lease, contribution or other
conveyance of an Oil and Gas Property as permitted pursuant to Section 7.2.7,
the Borrowing Base may be automatically reduced by an amount to be determined by
the Agent with the approval of the Applicable Lenders in accordance with their
respective customary standards for oil and gas loans on account of such sale,
transfer, assignment, lease, contribution or other conveyance.
SECTION 2.8. Letters of Credit.
SECTION 2.8.1. Issuance Requests. By delivering to the Agent and the
applicable Issuer an Issuance Request on or before 11:30 a.m. (U.S. Central
time), the Borrower may request, from time to time prior to the Revolving Period
Commitment Termination Date and on not less than three nor more than ten
Business Days' notice, that such Issuer issue an irrevocable Standby Letter of
Credit or Documentary Letter of Credit in such form as may be mutually agreed to
by the Borrower and such Issuer (each a "Letter of Credit"), in support of
obligations of the Borrower incurred in the Borrower's ordinary course of
business and which are described in such Issuance Request. Upon receipt of an
Issuance Request, the Agent shall promptly notify the Lenders thereof. Each
Letter of Credit shall by its terms be stated to expire on a date (its "Stated
Expiry Date") no later than five Business Days before the Stated Maturity Date
of any Term Loan.
SECTION 2.8.2. Issuances. On the terms and subject to the conditions of
this Agreement (including Article V), the Issuer shall issue Letters of Credit
in accordance with the Issuance Requests made therefor. Each Issuer will make
available the original of each Letter of Credit which it issues in accordance
with the Issuance Request therefor to the beneficiary thereof (and will promptly
provide each of the Lenders and the Borrower with a copy of such Letter of
Credit). The Borrower will provide the Agent with a copy of each Other Letter of
Credit on the day such Other Letter of Credit is issued.
SECTION 2.8.3. Aggregate Amount Available Under Letters of Credit. The
aggregate Stated Amount of all Letters of Credit
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outstanding at any one time shall not exceed the amount equal to $125,000,000
(the "Letter of Credit Sublimit") minus the aggregate Stated Amount of all Other
Letters of Credit and after issuance of any Letter of Credit, the aggregate
Letter of Credit Outstandings of all Letters of Credit plus the Stated Amount of
all Other Letters of Credit plus the aggregate principal amount of outstanding
Loans shall not exceed the Commitment Amount.
SECTION 2.8.4. Other Lenders' Participation. Each Letter of Credit
issued pursuant to Section 2.8.2 shall, effective upon its issuance and without
further action, be issued on behalf of all Lenders (including the Issuer
thereof) pro rata according to their respective Percentages. Each Lender shall,
to the extent of its Percentage, be deemed irrevocably to have participated in
the issuance of such Letter of Credit and shall be responsible to reimburse
promptly the Issuer thereof for Reimbursement Obligations which have not been
reimbursed by the Borrower in accordance with Section 2.8.5, or which have been
reimbursed by the Borrower but must be returned, restored or disgorged by such
Issuer for any reason, and each Lender shall, to the extent of its Percentage,
be entitled to receive from the Agent a ratable portion of the letter of credit
fees received by the Agent pursuant to Section 3.3.3, with respect to each
Letter of Credit. In the event that the Borrower shall fail to reimburse any
Issuer, or if for any reason Revolving Loans shall not be made to fund any
Reimbursement Obligation, all as provided in Section 2.8.5 and in an amount
equal to the amount of any drawing honored by such Issuer under a Letter of
Credit issued by it, or in the event such Issuer must for any reason return or
disgorge such reimbursement, such Issuer shall promptly notify each Lender of
the unreimbursed amount of such drawing and of such Lender's respective
participation therein. Each Lender shall make available to such Issuer, whether
or not any Default shall have occurred and be continuing, an amount equal to its
respective participation in same day or immediately available funds at the
office of such Issuer specified in such notice if the Issuer shall notify the
Agent on or before 11:30 a.m. (U.S. Central time) of any Business Day by the
close of business on such Business Day or if the Issuer shall notify the Agent
after 11:30 a.m. (U.S. Central time) of any Business Day not later than 11:30
a.m. (U.S. Central time) on the Business Day (under the laws of the jurisdiction
of such Issuer) after the date notified by such Issuer. In the event that any
Lender fails to make available to such Issuer the amount of such Lender's
participation in such Letter of Credit as provided herein, such Issuer shall be
entitled to recover such amount on demand from such Lender together with
interest at the daily average Federal Funds Rate for three Business Days
(together with such other compensatory amounts as may be required to be paid by
such Lender to the Agent pursuant to the Rules for Interbank Compensation of the
council on International Banking or the Clearinghouse Compensation Committee, as
the case may be, as in effect from time to time) and thereafter at the LIBO Rate
plus the Applicable Margin. Nothing in this Section 2.8.4 shall be deemed to
prejudice the right of any Lender to recover from any Issuer any amounts made
available by such Lender to such
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Issuer pursuant to this Section 2.8.4 in the event that it is determined by a
court of competent jurisdiction that the payment with respect to a Letter of
Credit by such Issuer in respect of which payment was made by such Lender
constituted gross negligence or wilful misconduct on the part of such Issuer.
Each Issuer shall distribute to each other Lender which has paid all amounts
payable by it under this Section 2.8.4 with respect to any Letter of Credit
issued by such Issuer such other Lender's Percentage of all payments received by
such Issuer from the Borrower in reimbursement of drawings honored by such
Issuer under such Letter of Credit when such payments are received.
SECTION 2.8.5. Disbursements. Each Issuer will notify the Borrower and
the Agent promptly of the presentment for payment of any Letter of Credit,
together with notice of the date (the "Disbursement Date") such payment shall be
made. Subject to the terms and provisions of such Letter of Credit, the
applicable Issuer shall make such payment (the "Disbursement") to the
beneficiary (or its designee) of such Letter of Credit. Prior to 11:30 a.m.
(U.S. Central time) on the Disbursement Date, the Borrower will reimburse the
applicable Issuer for all amounts which it has disbursed under the Letter of
Credit. In the event the applicable Issuer is not reimbursed by the Borrower on
the Disbursement Date, or if such Issuer must for any reason return or disgorge
such reimbursement, the Lenders (including such Issuer) shall, on the terms and
subject to the conditions of this Agreement, fund the Reimbursement Obligation
therefor by making, on the next Business Day, Revolving Loans which are Base
Rate Loans as provided in Section 2.1.1 (the Borrower being deemed to have given
a timely Borrowing Request therefor for such amount); provided, however, for the
purpose of determining the availability of the Commitments to make Loans
immediately prior to giving effect to the application of the proceeds of such
Loans, such Reimbursement Obligation shall be deemed not to be outstanding at
such time. To the extent the applicable Issuer is not reimbursed in full in
accordance with the preceding sentences, the Borrower's Reimbursement Obligation
shall accrue interest at a fluctuating rate determined by reference to the LIBO
Rate, plus a margin of 2% per annum, payable on demand.
SECTION 2.8.6. Reimbursement. The Borrower's obligation (a
"Reimbursement Obligation") under Section 2.8.5 to reimburse an Issuer with
respect to each Disbursement (including interest thereon), and each Lender's
obligation to make participation payments in each drawing which has not been
reimbursed by the Borrower, shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim, or defense to
payment which the Borrower may have or have had against any Lender or any
beneficiary of a Letter of Credit, including any defense based upon the
occurrence of any Default, any draft, demand or certificate or other document
presented under a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient, the failure of any disbursement to conform to the terms of the
applicable Letter of Credit (if, in the applicable Issuer's good
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faith opinion, such disbursement is determined to be appropriate) or any
non-application or misapplication by the beneficiary of the proceeds of such
disbursement, or the legality, validity, form, regularity, or enforceability of
such Letter of Credit; provided, however, that nothing herein shall adversely
affect the right of the Borrower or any Lender to commence any proceeding
against the applicable Issuer for any wrongful disbursement made by such Issuer
under a Letter of Credit as a result of acts or omissions constituting gross
negligence or wilful misconduct on the part of such Issuer.
SECTION 2.8.7. Deemed Disbursements. Upon either (i) the occurrence and
during the continuation of an Event of Default pursuant to Section 8.1.9 or the
occurrence of the Revolving Period Commitment Termination Date or (ii) the
declaration by the Agent of all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
commitments (if not theretofore terminated) to be terminated as provided in
Section 8.3, an amount equal to that portion of Letter of Credit Outstandings
attributable to outstanding and undrawn Letters of Credit shall, at the election
of the applicable Issuer acting on instructions from the Required Lenders, and
without demand upon or notice to the Borrower, be deemed to have been paid or
disbursed by such Issuer under such Letters of Credit (notwithstanding that such
amount may not in fact have been so paid or disbursed), and, upon notification
by such Issuer to the Agent and the Borrower of its obligations under this
Section, the Borrower shall be immediately obligated to reimburse such Issuer
the amount deemed to have been so paid or disbursed by such Issuer. Any amounts
so received by such Issuer from the Borrower pursuant to this Section shall be
delivered to the Agent to be held as collateral security for the repayment of
the Borrower's obligations in connection with the Letters of Credit. All amounts
on deposit pursuant to this Section 2.8.7 shall, until their application to any
Obligation or their return to the Borrower, as the case may be, at the
Borrower's written request, be invested in high grade short-term liquid
investments acceptable to Agent and designated by the Borrower, which
investments shall be held by the Agent as additional collateral security for the
repayment of the Borrower's Obligations under and in connection with the Letters
of Credit and all other Obligations. Any losses, net of earnings, and reasonable
fees and expenses of such investments shall be charged against the principal
amount invested. The Agent, the Issuer and the Lenders shall not be liable for
any loss resulting from any investment made by the Agent at the Borrower's
request. The Agent is not obligated hereby, or by any other Loan Document, to
make or maintain any investment, except upon written request by the Borrower. At
any time when such Letters of Credit shall terminate and all Obligations to each
Issuer are either terminated or paid or reimbursed to each Issuer in full, the
Obligations of the Borrower under this Section 2.8.7 shall be reduced
accordingly (subject, however, to reinstatement in the event any payment in
respect of any of such Letters of Credit is recovered in any manner from such
Issuer), and the Agent will return to the Borrower the excess, if
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any, of the aggregate amount held by the Agent and not theretofore applied to
any Reimbursement Obligation. At such time when all Events of Default shall have
been cured or waived, if the Revolving Period Commitment Termination Date shall
not have occurred for any reason, the Agent shall return to the Borrower all
amounts then on deposit with the Agent pursuant to this Section 2.8.7.
SECTION 2.8.8. Nature of Reimbursement Obligations. The Borrower shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither any Issuer, the Agent nor any Lender (except to
the extent of its own gross negligence or wilful misconduct) shall be
responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or
legal effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit, even if
it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency,
accuracy, genuineness, or legal effect of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the rights
or benefits thereunder or proceeds thereof in whole or in part, which may prove
to be invalid or ineffective for any reason; (c) failure of the beneficiary to
comply fully with conditions required in order to demand payment under a Letter
of Credit; (d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, facsimile or
otherwise; or (e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a Letter of
Credit or of the proceeds thereof. None of the foregoing shall affect, impair,
or prevent the vesting of any of the rights or powers granted any Issuer or any
Lender hereunder. In furtherance and extension, and not in limitation or
derogation, of any of the foregoing, any action taken or omitted to be taken by
any Issuer in good faith shall be binding upon the Borrower and shall not put
such Issuer under any resulting liability to the Borrower.
SECTION 2.8.9. Increased Costs; Indemnity. If by reason of (a) any
change in applicable law, regulation, rule, decree or regulatory requirement or
any change in the interpretation or application by any judicial or regulatory
authority of any law, regulation, rule, decree or regulatory requirement, or (b)
compliance by any Issuer or any Lender with any direction, or requirement of any
governmental or monetary authority, including Regulation D of the F.R.S. Board:
(i) any Issuer or any Lender shall be subject to any tax (other than taxes on
net income and franchises), levy, charge or withholding of any nature or to any
variation thereof or to any penalty with respect to the maintenance or
fulfillment of its obligations under this Section 2.8, whether directly or by
such being imposed on or suffered by such Issuer or such Lender; (ii) any
reserve, deposit or similar requirement is or shall be applicable, increased,
imposed or modified in respect of any Letters of Credit issued by any Issuer or
participations therein purchased by any Lender; or (iii) there shall be imposed
on
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any Issuer or any Lender any other condition regarding this Section 2.8, any
Letter of Credit or any participation therein, and the result of the foregoing
is directly to increase the cost to such Issuer or such Lender of issuing or
maintaining any Letter of Credit or of purchasing or maintaining any
participation therein, or to reduce any amount receivable in respect thereof by
such Issuer or such Lender, then and in any such case such Issuer or such Lender
may, at any time after the additional cost is incurred or the amount received is
reduced, notify the Agent and the Borrower thereof, and the Borrower shall pay
within 10 days of demand such amounts as such Issuer or Lender may in good faith
specify to be necessary to compensate such Issuer or Lender for such additional
cost or reduced receipt, together with interest on such amount from the date
demanded until payment in full thereof at a rate equal at all times to the
Alternate Base Rate per annum. The determination by such Issuer or Lender, as
the case may be, of any amount due pursuant to this Section 2.8.9, as set forth
in a statement setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
In addition to amounts payable as elsewhere provided in this Section
2.8, the Borrower hereby indemnifies, exonerates and holds each Issuer, the
Agent and each Lender harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether such Issuer, the Agent or such
Lender is a party to the action for which indemnification is sought), including
reasonable attorneys' fees and disbursements, which such Issuer, the Agent or
such Lender may incur or be subject to as a consequence, direct or indirect, of
the issuance of the Letters of Credit, other than as a result of the gross
negligence or wilful misconduct of such Issuer as determined by a court of
competent jurisdiction, or the failure of such Issuer to honor a drawing under
any Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future government or governmental authority.
2.8.10. Letter of Credit Collateral Account. The Borrower hereby agrees
that it will, until the final expiration date of any Letter of Credit and
thereafter as long as any amount is payable to the Lenders in respect of any
Letter of Credit, maintain a special collateral account (the "Letter of Credit
Collateral Account") with the Agent, in the name of the Borrower but under the
sole dominion and control of the Agent, for the benefit of the Lenders and in
which the Borrower shall have no interest other than as set forth in Section
3.1.2. The Agent will invest any funds on deposit from time to time in the
Letter of Credit Collateral Account in short term investments, having a maturity
not exceeding 30 days. Nothing in this Section 2.8.10 shall (i) obligate the
Borrower to deposit any funds in the Letter of Credit Collateral Account, (ii)
obligate the Agent to require the Borrower to deposit any funds in the Letter of
Credit Collateral Account or (iii) limit the right of the Agent to release any
funds held in the Letter of Credit Collateral
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Account, other than as required by Section 3.1.2. The Borrower hereby grants to
the Agent for the benefit of the Lenders a security interest in the Letter of
Credit Collateral Account and any funds or investments in such account.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The Borrower shall make
mandatory repayments and prepayments and may also make voluntary prepayments
from time to time pursuant to this Section 3.1. Each prepayment made pursuant to
this Section shall be without premium or penalty, except as may be required by
Section 4.4.
SECTION 3.1.1. Repayments. To the extent that Term Loans are made to
the Borrower on the Revolving Period Commitment Termination Date, such Term
Loans shall be deemed to be for repayment of the principal of Revolving Loans
outstanding as of the Revolving Period Commitment Termination Date. The Borrower
shall repay in full the unpaid aggregate principal amount of each Loan upon the
Stated Maturity Date therefor. Prior thereto, the Borrower shall, on each
Quarterly Payment Date occurring after the Revolving Period Commitment
Termination Date, make a scheduled repayment of the outstanding principal amount
of the Term Loans in an amount equal to one twelfth (1/12) of the original
aggregate principal amount of the Term Loans; provided, that the final scheduled
repayment on the Stated Maturity Date for Term Loans shall be in an amount
necessary to repay in full the unpaid principal of the Term Loans.
SECTION 3.1.2. Mandatory Prepayments on Loans. If at any time, the
aggregate principal amount of all Senior Debt outstanding shall exceed the
Borrowing Base then in effect, the Borrower shall, at the Borrower's option,
either (a) forthwith repay a portion of the Loans in an aggregate principal
amount equal to such excess or (b) pay an amount equal to such excess in no more
than six substantially equal monthly installments, the first such payment to be
due within five days after the date on which it is first determined that such
principal amount of Senior Debt exceeds the Borrowing Base, and the remaining
payments due on the numerically corresponding day of each of the subsequent
months so that, upon the conclusion of such mandatory prepayments, the aggregate
principal amount of all outstanding Senior Debt does not exceed the Borrowing
Base; provided that if the aggregate principal amount of all Senior Debt
outstanding shall exceed the Borrowing Base as a result of the reduction of the
Borrowing Base pursuant to Section 7.2.7, then the foregoing clause (b) shall
not apply. If a subsequent month does not contain a numerically corresponding
day, the Borrower shall make such payment on the last Business Day of such
month, or if the numerically corresponding day is not a Business Day, such
payment will be due on the preceding Business Day. In the event the aggregate of
all Letter of Credit Outstandings plus the aggregate Stated Amount of all Other
Letters
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of Credit exceeds the Letter of Credit Sublimit, the Borrower shall either
reduce the Letter of Credit Outstandings and/or the aggregate Stated Amount of
all Other Letters of Credit by an aggregate amount equal to such excess or
deposit cash collateral into the Letter of Credit Collateral Account on account
of and to secure its Obligations with respect to Letters of Credit then in
effect and not otherwise fully collateralized, such cash deposits to be in an
amount equal to such excess. In addition, in the event the sum of the aggregate
Letter of Credit Outstandings of all Letters of Credit plus the Stated Amount of
all Other Letters of Credit plus the aggregate principal amount of outstanding
Loans exceeds the Commitment Amount, the Borrower shall first make a mandatory
prepayment of the outstanding principal amount of the Loans, and second, deposit
cash collateral in the Letter of Credit Collateral Account, such prepayments
and/or cash deposits to be in an aggregate amount equal to such excess.
Mandatory prepayments pursuant to this Section 3.1.2 shall be in addition to and
not in lieu of principal payments required pursuant to Section 3.1.1; provided,
that such mandatory prepayments shall be applied against the next scheduled
repayment or repayments required pursuant to Section 3.1.1 if, as of the date
for such scheduled repayment, after giving effect to such scheduled repayment,
the Senior Debt shall be less than or equal to the Borrowing Base then in
effect.
The Borrower shall, on each date when any reduction in the Revolving
Period Commitment Amount shall become effective pursuant to Section 2.2.1, make
a mandatory prepayment of all Revolving Loans equal to the excess, if any, of
the aggregate, outstanding principal amount of all Revolving Loans over the
Revolving Period Commitment Amount as so reduced and/or deposit cash collateral
in the Letter of Credit Collateral Account, such prepayments and or cash
deposits to be in an aggregate amount equal to such excess.
SECTION 3.1.3. Repayment Upon Acceleration. The Borrower shall,
immediately upon any acceleration of the Stated Maturity Date of any Loans
pursuant to Section 8.2 or 8.3, repay all Loans.
SECTION 3.1.4. Voluntary Repayments. The Borrower may, from time to
time on any Business Day prior to the Stated Maturity Date, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of any
Loans; provided, however, that (i) any such prepayment shall be made pro rata
among Loans of the same type and, if applicable, having the same Interest Period
of all Lenders; (ii) no such prepayment of any LIBO Rate Loan may be made on any
day other than the last day of the Interest Period for such Loan; and (iii) all
such voluntary partial prepayments shall be in an aggregate minimum amount of
$300,000 for Base Rate Loans and $1,000,000 for LIBO Rate Loans and an integral
multiple of $100,000; provided that after giving effect to such partial
prepayment, any outstanding LIBO Rate Loans with the same Interest Period, if
any, shall be in a minimum aggregate principal amount of at least $5,000,000.
Each voluntary prepayment of Term Loans made pursuant to this Section 3.1.4
shall be applied, to the extent of such prepayment, in the inverse order of the
scheduled repayments
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of Term Loans set forth in Section 3.1.1. Each prepayment of any Loans made
pursuant to this Section shall be without premium or penalty, except as may be
required by Section 4.4. No voluntary prepayment of principal of any Revolving
Loans shall cause a reduction in the Revolving Period Commitment Amount. No
voluntary prepayment of principal of any Term Loan may be reborrowed.
SECTION 3.2. Interest Provisions. Interest on the outstanding
principal amount of Loans shall accrue and be payable in accordance with this
Section 3.2.
SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum: (a) on that portion
maintained from time to time as a Base Rate Loan, equal to the sum of the
Alternate Base Rate from time to time in effect plus the Base Rate Applicable
Margin; and (b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus the LIBO Rate Applicable Margin.
The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be
made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
LIBO Rate LIBO Rate
(Reserve Adjusted) = -------------------------------
1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Agent on the basis of the LIBOR Reserve
Percentage in effect on, and the applicable rates furnished to and received by
the Agent from Bank of Montreal, two Business Days before the first day of such
Interest Period.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans,
the rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to Bank of Montreal's LIBOR Office in
the London interbank market as at or about 10:00 a.m. U.S. Central time two
Business Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in an amount approximately equal to the
amount of Bank of Montreal's LIBO Rate Loan and for a period approximately equal
to such Interest Period.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the
maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
specified under
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regulations issued from time to time by the F.R.S. Board and then applicable to
assets or liabilities consisting of and including "Eurocurrency Liabilities", as
currently defined in Regulation D of the F.R.S. Board, having a term
approximately equal or comparable to such Interest Period.
All LIBO Rate Loans shall bear interest from and including the first
day of the applicable Interest Period to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such LIBO
Rate Loan.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount
of any Loan is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to the Alternate Base Rate plus a margin of
2%.
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication: (a) on the Stated Maturity Date therefor; (b)
except in the case of voluntary prepayment of Base Rate Loans, on the date of
any payment or prepayment, in whole or in part, of principal outstanding on such
Loan; (c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the date of the initial Borrowing hereunder; (d) with respect to
LIBO Rate Loans, the last day of each applicable Interest Period (and, if such
Interest Period shall exceed 90 days, on the 90th day of such Interest Period);
and (e) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such
acceleration. Interest accrued on Loans or other monetary Obligations arising
under this Agreement or any other Loan Document after the date such amount is
due and payable (whether on the Stated Maturity Date, upon acceleration or
otherwise) shall be payable upon demand. Notwithstanding clauses (a) and (b)
above, except as otherwise provided in this Section 3.2.3, no accrued interest
shall be due and payable on the Revolving Period Commitment Termination Date on
those Revolving Loans the principal of which is deemed to have been repaid by
Term Loans to the Borrower pursuant to Section 3.1.1.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the Agent
for the account of each Lender, for the period (including any portion thereof
when any of its Commitments are suspended by reason of the Borrower's inability
to satisfy any condition of Article V) commencing on the Effective Date and
continuing through the Revolving Period Commitment Termination Date, a
commitment fee at the rate of (i) during any period when the ratio (expressed as
a percentage) of the outstanding principal of Senior Debt, including any Loans
outstanding, to the Borrowing Base then in
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effect is greater than 75%, 3/8 of 1% per annum and (ii) during all other
periods 1/4 of 1% per annum on such Lender's Percentage of the average daily
unused portion of the Revolving Period Commitment Amount. Such commitment fees
shall be payable by the Borrower in arrears on each Quarterly Payment Date,
commencing on March 1, 1998, and ending on the Revolving Period Commitment
Termination Date.
SECTION 3.3.2. Agent's Fees. To the Agent for its own account, the
fees as set forth in the letter agreement between the Borrower and the Agent
dated December 8, 1997.
SECTION 3.3.3. Letter of Credit Face Amount Fee. The Borrower agrees
to pay to the Agent, for the account of each Lender, a fee for each Letter of
Credit for the period from and including the date of the issuance of such Letter
of Credit to (but not including) the date upon which such Letter of Credit
expires, at a per annum rate equal to the Letter of Credit Applicable Margin on
the outstanding face amount of each Letter of Credit. Such fee shall be payable
by the Borrower in arrears on each Quarterly Payment Date, and on the Stated
Maturity Date of any Term Loan for any period then ending for which such fee
shall not theretofore have been paid, commencing on the first such date after
the issuance of such Letter of Credit.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. If LIBO Rate Lending Unlawful. If any Lender shall
determine (which determination shall, upon notice thereof to the Borrower and
the Lenders, be conclusive and binding on the Borrower) that the introduction of
or any change in or in the interpretation of any law makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
such Lender to make, continue or maintain any Loan as, or to convert any Loan
into, a LIBO Rate Loan, the obligations of all Lenders to make, continue,
maintain or convert any such Loans shall, upon such determination, forthwith be
suspended until such Lender shall notify the Agent that the circumstances
causing such suspension no longer exist, and all LIBO Rate Loans shall
automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 4.2. If Deposits Unavailable. If the Agent shall have
determined that (a) Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to Bank of Montreal in its relevant market; or
(b) by reason of circumstances affecting Bank of Montreal's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBO Rate Loans, then, upon notice from the Agent to the Borrower
and the Lenders, the obligations of all Lenders under Section 2.3
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and Section 2.4 to make or continue any Loans as, or to convert any Loans into,
LIBO Rate Loans shall forthwith be suspended until the Agent shall notify the
Borrower and the Lenders that the circum stances causing such suspension no
longer exist.
SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower
agrees to reimburse each Lender for any increase in the cost to such Lender of,
or any reduction in the amount of any sum receivable by such Lender in respect
of, making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans; provided, the Borrower shall only be obligated to
reimburse a Lender in respect of such increases or reductions if such Lender is
generally seeking such reimbursement from similar borrowers under similar
circumstances and Borrower shall not be obligated to reimburse a Lender in
respect of such increases or reductions in respect of any period prior to notice
thereof to Borrower. Such Lender shall promptly notify the Agent and the
Borrower in writing of the occurrence of any such event, such notice to state,
in reasonable detail, the reasons therefor and the additional amount required
fully to compensate such Lender for such increased cost or reduced amount. Such
additional amounts shall be payable by the Borrower directly to such Lender
within five days of its receipt of such notice, and such notice shall, in the
absence of manifest error, be conclusive and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur
any loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan) as a result of (a) any conversion or repayment or prepayment of the
principal amount of any LIBO Rate Loan on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to Section 3.1
or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with
the Borrowing Request therefor; or (c) any Loans not being continued as, or
converted into, LIBO Rate Loans in accordance with the Continuation/Conversion
Notice therefor; then, upon the written notice of such Lender to the Borrower
(with a copy to the Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental
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authority affects or would affect the amount of capital required or expected to
be maintained by any Lender or any Person controlling such Lender, and such
Lender determines (in its sole and absolute discretion) that the rate of return
on its or such controlling Person's capital as a consequence of its Commitments
or the Borrowings made by such Lender is reduced to a level below that which
such Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrower, the Borrower shall, within 5 days
of its receipt of such notice, pay directly to such Lender additional amounts
sufficient to compensate such Lender or such controlling Person for such
reduction in rate of return; provided, the Borrower shall only be obligated to
pay such amounts to a Lender if such Lender is generally seeking payment in
respect of such amounts from similar borrowers under similar circumstances and
Borrower shall not be obligated to reimburse a Lender in respect of such amounts
in respect of any period prior to such notice to the Borrower. A statement of
such Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such amount, such Lender
may use any reasonable method of averaging and attribution that it (in its sole
and absolute discretion) shall deem applicable.
SECTION 4.6. Taxes. In the event that any withholding or deduction
from any payment to be made by the Borrower hereunder is required in respect of
any present or future income, excise, stamp or franchise taxes and other taxes,
fees, duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
measured by any Lender's or Issuer's net income or receipts (such non-excluded
items being called "Taxes") pursuant to any applicable law, rule or regulation,
then the Borrower will (a) pay directly to the relevant authority the full
amount required to be so withheld or deducted; and (b) promptly forward to the
Agent an official receipt or other documentation satisfactory to the Agent
evidencing such payment to such authority.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent, for the account of the
respective Lenders or the Issuer, the required receipts or other required
documentary evidence, the Borrower shall indemnify the Lenders or the Issuer, as
the case may be, for any incremental Taxes, interest or penalties that may
become payable by any Lender as a result of any such failure. For purposes of
this Section 4.6, a distribution hereunder by the Agent or any Lender or Issuer
to or for the account of any Lender or Issuer shall be deemed a payment by the
Borrower.
Upon the request of the Borrower or the Agent, each Lender and Issuer
that is organized under the laws of a jurisdiction other than the United States
shall, prior to the due date of any payments under the Notes, execute and
deliver to the Borrower and the Agent,
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on or about the first scheduled payment date in each Fiscal Year, one or more
(as the Borrower or the Agent may reasonably request) United States Internal
Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or
successor forms or documents), appropriately completed, as may be applicable to
establish the extent, if any, to which a payment to such Lender or Issuer is
exempt from withholding or deduction of Taxes.
SECTION 4.7. Payments, Computations, etc. Unless otherwise
expressly provided, all payments by the Borrower pursuant to this Agreement, the
Notes or any other Loan Document shall be made by the Borrower to the Agent for
the pro rata account of the Lenders or the Issuer entitled to receive such
payment. All such payments required to be made to the Agent shall be made,
without setoff, deduction or counterclaim, not later than 12:00 Noon, United
States Central time, on the date due, in same day or immediately available
funds, to such account as the Agent shall specify from time to time by notice to
the Borrower. Funds received after that time shall be deemed to have been
received by the Agent on the next succeeding Business Day. The Agent shall
promptly remit in same day funds to each Lender or Issuer its share, if any, of
such payments received by the Agent for the account of such Lender or Issuer.
All interest and fees shall be computed on the basis of the actual number of
days (including the first day but excluding the last day) occurring during the
period for which such interest or fee is payable over a year comprised of 360
days (or, in the case of interest on a Base Rate Loan, 365 days or, if
appropriate, 366 days). Whenever any payment to be made shall otherwise be due
on a day which is not a Business Day, such payment shall (except as otherwise
required by clause (c) of the definition of the term "Interest Period" with
respect to LIBO Rate Loans) be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and fees, if any, in
connection with such payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involun tary, by application of
setoff or otherwise) on account of any Loan or participation in a Letter of
Credit (other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess
of its pro rata share of payments then or therewith obtained by all Lenders,
such Lender shall purchase from the other Lenders such participations in Loans
made by them and participations in Letters of Credit held by them as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that if all or any
portion of the excess payment or other recovery is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and each Lender which
has sold a participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery together with
an amount equal to such selling Lender's ratable share (according to the
proportion of (a) the amount of such selling Lender's required repayment to the
purchasing Lender to (b) the total amount so recovered from the purchasing
Lender) of
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any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 4.8 may,
to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 4.9) with respect to such participation as fully
as if such Lender were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section 4.8 applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section 4.8 to share in the benefits of any
recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender and Issuer shall, upon the
occurrence of any Default described in clauses (a) through (d) of Section 8.1.9
with respect to the Borrower or any of its Subsidiaries or any other Event of
Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender and Issuer a continuing
security interest in, any and all balances, credits, deposits, accounts or
moneys of the Borrower then or thereafter maintained with such Lender or Issuer;
provided, however, that any such appropriation and application shall be subject
to the provisions of Section 4.8. Each Lender and Issuer agrees promptly to
notify the Borrower and the Agent after any such setoff and application made by
such Lender or Issuer; provided, however, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of each
Lender and Issuer under this Section 4.9 are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Lender or Issuer may have.
SECTION 4.10. Use of Proceeds. The Borrower shall apply the
proceeds of each Borrowing in accordance with the fifth recital; provided that
the Borrower will not and will not permit any Subsidiary to use any proceeds to
fund an Acquisition not approved by the board of directors or other governing
body of the target or selling company or to acquire any "margin stock" (as
defined in F.R.S. Regulation U) in violation of Regulation G,T,X or U of the
Board of Governors of the Federal Reserve System.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1. Continuation of Original Loans; Initial Borrowing.
The obligations of the Lenders to continue the Original Loans as Loans hereunder
and to fund the initial Borrowing and to issue the initial Letter of Credit
shall be subject to the prior or concurrent satisfaction of each of the
conditions precedent set forth in this Section 5.1.
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SECTION 5.1.1. Resolutions, etc. The Agent shall have received from
the Borrower a certificate, dated the date of the initial Borrowing or the
issuance of the initial Letter of Credit, of its Secretary or Assistant
Secretary as to (a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of this Agreement,
the Notes and each other Loan Document to be executed by it; and (b) the
incumbency and signatures of those of its officers authorized to act with
respect to this Agreement, the Notes and each other Loan Document executed by
it, upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of the
Borrower canceling or amending such prior certificate.
SECTION 5.1.2. Delivery of Notes. The Agent shall have received, for
the account of each Lender, its Note duly executed and delivered by the
Borrower.
SECTION 5.1.3. [Reserved].
SECTION 5.1.4. Compliance with Representations and Warranties. The
Agent shall have received a certificate from an Authorized Officer confirming
compliance with Section 5.2.1 and stating that, after giving effect to Loans or
Letters of Credit comprising the initial Borrowings, Senior Debt shall not
exceed the Borrowing Base then in effect.
SECTION 5.1.5. Opinions of Counsel. The Agent shall have received an
opinion, dated the date of the initial Borrowing and addressed to the Agent and
all Lenders and Issuers, from Conner & Winters, a Professional Corporation,
counsel to the Borrower, substantially in the form of Exhibit E-1 hereto and the
Agent shall be satisfied that it will receive within 30 days of the initial
Borrowing an opinion from Conner & Winters, a Professional Corporation, counsel
to the Borrower, substantially in the form of Exhibit E-2 hereto.
SECTION 5.1.6. Closing Fees, Expenses, etc. The Agent shall have
received for its own account, or for the account of each Lender, as the case may
be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and
10.3, if then invoiced.
SECTION 5.2. Conditions Precedent to Revolving Loans. The
obligation of each Lender to fund any Revolving Loan and of each Issuer to issue
a Letter of Credit on the occasion of any Borrowing (including the initial
Borrowing) shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both
before and after giving effect to any Borrowing (but, if any Default of the
nature referred to in Section 8.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds
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thereof) the following statements shall be true and correct: (a) the
representations and warranties set forth in Article VI (excluding, however,
those contained in Section 6.7) shall be true and correct with the same effect
as if then made (unless stated to relate solely to an early date, in which case
such representations and warranties shall be true and correct as of such earlier
date); (b) except as disclosed by the Borrower to the Agent and the Lenders
pursuant to Section 6.7 (i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the knowledge
of the Borrower, threatened against the Borrower or any of its Subsidiaries
which might materially adversely affect the Borrower's consolidated business,
operations, assets, revenues, properties or prospects or which purports to
affect the legality, validity or enforceability of this Agreement, the Notes or
any other Loan Document; and (ii) no development shall have occurred in any
labor controversy, litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.7 which might materially adversely
affect the consolidated businesses, operations, assets, revenues, properties or
prospects of the Borrower and its Subsidiaries; (c) no Default shall have then
occurred and be continuing, and neither the Borrower nor any of its Subsidiaries
are in material violation of any law or governmental regulation or court order
or decree; (d) the Borrower is in compliance with the Current Ratio and Tangible
Net Worth tests required by Section 7.2.4, and, immediately after giving effect
to the proposed Borrowing, the Senior Debt of the Borrower shall not exceed the
Borrowing Base and (e) the Loans and Letters of Credit requested will constitute
"Designated Senior Indebtedness" pursuant to the Indenture, as defined therein.
SECTION 5.2.2. Borrowing Request. The Agent shall have received a
Borrowing Request for such Borrowing of a Loan and an Issuance Request for each
Borrowing which is in the form of the issuance of a Letter of Credit. Each of
the delivery of a Borrowing Request or Issuance Request shall constitute a
representation and warranty by the Borrower that, on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof), the statements made in Section 5.2.1 are
true and correct.
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries shall be satisfactory in form and substance to the Agent and its
counsel; the Agent and its counsel shall have received all information,
approvals, opinions, documents or instruments as the Agent or its counsel may
reasonably request.
SECTION 5.3. Conditions Precedent to the Making of the Term Loans.
The obligation of each Lender to make its Term Loan is subject to (a) the
condition precedent that the principal of all Revolving Loans and accrued
interest on all Revolving Loans, except those Revolving Loans the principal of
which shall be deemed to
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have been repaid by Term Loans pursuant to Section 3.1.1 and for which such
interest is not otherwise due and payable, shall have been paid in full prior to
or concurrently with the making of such Term Loan; and (b) the conditions
precedent set forth in Section 5.2.1. The acceptance by the Borrower of the
proceeds of the Term Loans shall constitute a representation and warranty that,
on the Revolving Period Commitment Termination Date (both before and after
giving effect to such Term Loans and the application of the proceeds thereof),
the statements made in Section 5.2.1 are true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Agreement and to make Loans hereunder, and the Issuer to issue Letters of Credit
and the Lenders to participate in Letters of Credit, the Borrower represents and
warrants unto the Agent and each Lender and Issuer as set forth in this Article
VI.
SECTION 6.1. Organization, etc. The Borrower and each of its
Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification,
and has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under this
Agreement, the Notes and each other Loan Document and to own and hold under
lease its property and to conduct its business substantially as currently
conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by the Borrower of this Agreement, the Notes
and each other Loan Document executed or to be executed by it, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not (a) contravene the Borrower's Organic Documents;
(b) contravene any contractual restriction, law or governmental regulation or
court decree or order binding on or affecting the Borrower; or (c) result in, or
require the creation or imposition of, any Lien on any of the Borrower's
properties.
SECTION 6.3. Government Approval, Regulation, etc. No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body or other Person is required for
the due execution, delivery or performance by the Borrower of this Agreement,
the Notes or any other Loan Document. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
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company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the
Notes and each other Loan Document executed by the Borrower will, on the due
execution and delivery thereof, constitute, the legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally.
SECTION 6.5. Financial Information. The consolidated balance sheet
of the Borrower and its Subsidiaries as at September 30, 1997, and the related
consolidated statements of earnings and cash flows of the Borrower and its
Subsidiaries, copies of which have been furnished to the Agent and each Lender,
have been prepared in accordance with GAAP consistently applied, and present
fairly the consolidated financial condition of the Borrower and its Subsidiaries
as at the date thereof and the results of their operations for the period then
ended.
SECTION 6.6. No Material Adverse Change. Since the date of the
financial statements described in Section 6.5, other than changes resulting from
fluctuations in oil and gas prices, there has been no material adverse change in
the financial condition, operations, assets, business, properties or prospects
of the Borrower and its Subsidiaries, taken as a whole, except as disclosed in
Item 6.6 of the Disclosure Schedule.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no
pending or, to the knowledge of the Borrower, threatened litigation, action,
proceeding, or labor controversy affecting the Borrower or any of its
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, which may materially adversely affect the financial condition,
operations, assets, business, properties or prospects of the Borrower and its
Subsidiaries, taken as a whole, or which purports to affect the legality,
validity or enforceability of this Agreement, the Notes or any other Loan
Document, except as disclosed in Item 6.7 ("Litigation") of the Disclosure
Schedule.
SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries,
except those Subsidiaries which are identified in Item 6.8 ("Existing
Subsidiaries") of the Disclosure Schedule.
SECTION 6.9. Ownership of Properties. The Borrower and each of its
Subsidiaries owns good and defensible title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trade-
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marks, trade names, service marks and copyrights), free and clear of all Liens,
charges or claims (including infringement claims with respect to patents,
trademarks, copyrights and the like), except those which would not have a
material adverse effect on the financial conditions, operations, assets,
business, properties or prospects of the Borrower and its Subsidiaries, taken as
a whole, and except as permitted pursuant to Section 7.2.3. For the purposes of
this representation, good and defensible title shall mean record title which may
be subject to minor defects and irregularities which (a) do not materially
reduce Borrower's net revenue interests or increase Borrower's working interests
(without a corresponding and proportional increase in Borrower's net revenue
interests) therein, and (b) are not likely to interfere materially with the
benefit and enjoyment of production from such properties.
SECTION 6.10. Taxes. To the best of the Borrower's knowledge,
Borrower and each of its Subsidiaries has filed all tax returns and reports
required by law to have been filed by it and has paid all taxes and governmental
charges thereby shown to be owing, except any such taxes or charges which are
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 6.11. Pension and Welfare Plans. No steps have been taken
to terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by the Borrower
or any member of the Controlled Group of any material liability, fine or
penalty. Neither the Borrower nor any member of the Controlled Group has any
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
SECTION 6.12. Environmental Warranties. To the best of Borrower's
knowledge after reasonable investigation, except as set forth in Item 6.12
("Environmental Matters") of the Disclosure Schedule: (a) all facilities and
property (including underlying groundwater) owned or leased by the Borrower or
any of its Subsidiaries have been, and continue to be, owned or leased by the
Borrower and its Subsidiaries in material compliance with all Environmental
Laws; (b) there have been no past, and there are no pending or threatened (i)
claims, complaints, notices or requests for information received by the Borrower
or any of its Subsidiaries with respect to any alleged violation of any
Environmental Law, or (ii) complaints, notices or inquiries to the Borrower or
any of its Subsidiaries regarding potential liability under any Environmental
Law; (c) there have been no Releases (or, in Argentina, release) of Hazardous
Materials at, on or under any property now or previously owned or leased by the
Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or
may reasonably be expected to have, a material adverse effect on the financial
condition,
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operations, assets, business, properties or prospects of the Borrower and its
Subsidiaries, taken as a whole; (d) the Borrower and its Subsidiaries have been
issued and are in material compliance with all permits, certificates, approvals,
licenses and other authorizations relating to environmental matters and
necessary or desirable for their businesses; (e) no property now or previously
owned or leased by the Borrower or any of its Subsidiaries is listed or proposed
for listing (with respect to owned property only) on the National Priorities
List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites
requiring investigation or clean-up; (f) there are no underground storage tanks,
active or abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its Subsidiaries
that, singly or in the aggregate, have, or may reasonably be expected to have, a
material adverse effect on the financial condition, operations, assets,
business, properties or prospects of the Borrower and its Subsidiaries, taken as
a whole; (g) neither Borrower nor any Subsidiary of the Borrower has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list
or which is the subject of federal, state or local enforcement actions or other
investigations which may lead to material claims against the Borrower or such
Subsidiary thereof for any remedial work, damage to natural resources or
personal injury, including claims under CERCLA; (h) there are no polychlorinated
biphenyls or friable asbestos present at any property now or previously owned or
leased by the Borrower or any Subsidiary of the Borrower that, singly or in the
aggregate, have, or may reasonably be expected to have, a material adverse
effect on the financial condition, operations, assets, business, properties or
prospects of the Borrower and its Subsidiaries, taken as a whole; and (i) no
conditions exist at, on or under any property now or previously owned or leased
by the Borrower or any Subsidiary which, with the passage of time, or the giving
of notice or both, would give rise to liability under any Environmental Law
which singly or in the aggregate have, or may reasonably be expected to have, a
material adverse effect on the financial condition, operations, assets,
business, properties or prospects of the Borrower and its Subsidiaries, taken as
a whole.
SECTION 6.13. Regulations G, U and X. The Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans will be used for a purpose which
violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X.
Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or
any regulations substituted therefor, as from time to time in effect, are used
in this Section with such meanings.
SECTION 6.14. Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower in
writing to the Agent or any Lender or
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Issuer for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other such factual information hereafter
furnished by or on behalf of the Borrower to the Agent or any Lender or Issuer
will be, true and accurate in every material respect on the date as of which
such information is dated or certified and as of the date of execution and
delivery of this Agreement by the Agent and such Lender or Issuer, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.
SECTION 6.15. No Default. Neither the Borrower nor any Subsidiary
is in default in any respect materially and adversely affecting the business,
property, assets, operations or condition, financial or otherwise, of the
Borrower and its Subsidiaries, taken as a whole, with respect to any indenture,
mortgage, deed of trust or other agreement or instrument to which the Borrower
is a party or by which the Borrower or its properties is/are bound or affected.
SECTION 6.16. No Violation of Applicable Law. To the best of the
Borrower's knowledge, neither the Borrower nor any of its Subsidiaries has
violated any applicable statute, regulation or ordinance of the United States of
America or any foreign country, or any state, municipality or other
jurisdiction, or of any agency thereof in any respect materially and adversely
affecting the business, property, assets, operations or condition, financial or
otherwise, of Borrower and its Subsidiaries, taken as a whole, and the Borrower
has not received any notice of probable violation from the Department of Energy
or the Environmental Protection Agency. The Borrower is using the Borrower's
best efforts to comply or cause its Subsidiaries to comply with all statutes,
rules and regulations relating to environmental standards and controls in all
jurisdictions where the Borrower and its Subsidiaries are presently doing
business.
SECTION 6.17. Permits. The Borrower and its Subsidiaries have all
governmental and private permits, certificates, consents and franchises which in
any respect are material to the business, property, assets, operations or
condition, financial or otherwise, of the Borrower and its Subsidiaries to carry
on the Borrower's and such Subsidiaries' business as now being conducted, and to
own or lease and operate the Borrower's and such Subsidiaries' properties as now
owned or leased. All such governmental and private permits, certificates,
consents and franchises are valid and subsisting, and the Borrower and its
Subsidiaries are not in violation thereof in a manner which would have a
material and adverse effect thereon.
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ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with the
Agent and each Lender that, until all Commitments have terminated and all
Obligations have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to each Lender and the
Agent copies of the following financial statements, reports, notices and
information: (a) as soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower, consolidated balance sheets of the Borrower and its Subsidiaries as of
the end of such Fiscal Quarter and consolidated statements of earnings and cash
flows of the Borrower and its Subsidiaries for such Fiscal Quarter and for the
period commencing at the end of the previous Fiscal Year and ending with the end
of such Fiscal Quarter, certified by the chief accounting or financial
Authorized Officer of the Borrower; (b) as soon as available and in any event
within 120 days after the end of each Fiscal Year of the Borrower, a complete
copy of the annual audit report for such Fiscal Year for the Borrower and its
Subsidiaries, including therein consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such Fiscal Year and consolidated statements
of earnings and cash flows of the Borrower and its Subsidiaries for such Fiscal
Year, in each case certified (without any Impermissible Qualification) by Arthur
Andersen LLP or other independent public accountants selected by the Borrower
and reasonably acceptable to the Agent and the Required Lenders, together with a
certificate from such accountants (i) containing a computation of, and showing
compliance with, each of the financial ratios and restrictions contained in
Section 7.2.4 and (ii) containing a computation of the Consolidated Interest
Coverage Ratio (as defined in the Indenture) as of the date of such statements
and to the effect that, in making the examination necessary for the signing of
such annual report by such accountants, they have not become aware of any
Default or Event of Default that has occurred and is continuing, or, if they
have become aware of such Default or Event of Default, describing such Default
or Event of Default and the steps, if any, being taken to cure it; (c) as soon
as available and in any event within 45 days after the end of each Fiscal
Quarter, a certificate, executed by the chief accounting or financial Authorized
Officer of the Borrower, showing (in reasonable detail and with appropriate
calculations and computations in all respects satisfactory to the Agent) (i)
compliance with the financial covenants set forth in Section 7.2.4 and (ii)
containing a computation of the Consolidated Interest Coverage Ratio (as defined
in the Indenture) as of the
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date of such statements; (d) forthwith upon the occurrence of each Default, a
statement of the chief accounting or financial Authorized Officer of the
Borrower setting forth details of such Default and the action which the Borrower
has taken and proposes to take with respect thereto; (e) as soon as possible and
in any event within three days after (i) the occurrence of any adverse
development with respect to any litigation, action, proceeding, or labor
controversy described in Section 6.7, or (ii) the commencement of any labor
controversy, litigation, action or proceeding of the type described in Section
6.7, notice thereof and copies of all documentation relating thereto; (f)
promptly after the sending or filing thereof, copies of all reports which the
Borrower sends to any of its securityholders, and all reports and registration
statements which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange; (g)
immediately upon becoming aware of the institution of any steps by the Borrower
or any other Person to terminate any Pension Plan, or the failure to make a
required contribution to any Pension Plan, if such failure is sufficient to give
rise to a Lien under section 302(f) of ERISA, or the taking of any action with
respect to a Pension Plan which could result in the requirement that the
Borrower furnish a bond or other security to the PBGC or such Pension Plan, or
the occurrence of any event with respect to any Pension Plan which could result
in the incurrence by the Borrower of any material liability, fine or penalty, or
any material increase in the contingent liability of the Borrower with respect
to any post-retirement Welfare Plan benefit, notice thereof and copies of all
documentation relating thereto; and (h) such other information respecting the
condition or operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as any Lender through the Agent may from time to time reasonably
request.
SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and
will cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation) the payment, before the same become delinquent, of all
taxes, assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books. The Borrower will maintain and preserve its
corporate existence and qualification as a foreign corporation.
SECTION 7.1.3. Maintenance of Properties. The Borrower will, and
will cause each of its Subsidiaries to, maintain, preserve, protect and keep its
material properties in good repair, working order and condition, and make
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times, all
in accordance with approved practices of prudent operators and standards
prevailing in the oil and gas industry and within limits imposed by joint
operating agreements.
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SECTION 7.1.4. Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain or cause to be maintained, with responsible
insurance companies insurance with respect to its properties and business
against such casualties and contingencies and of such types and in such amounts
as is customary in the case of similar businesses and will, upon request of the
Agent, furnish to each Lender at reasonable intervals a certificate of an
Authorized Officer of the Borrower setting forth the nature and extent of all
insurance maintained by the Borrower and its Subsidiaries in accordance with
this Section.
SECTION 7.1.5. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect all
of its business affairs and transactions and permit the Agent and each Lender
and Issuer or any of their respective representatives, at reasonable times and
intervals, to visit all of its offices, to discuss its financial matters with
its officers and to examine any of its books or other corporate records.
SECTION 7.1.6. Environmental Covenant. The Borrower will, and will
cause each of its Subsidiaries to (a) use and operate all of its facilities and
properties in material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws; (b) immediately notify the Agent and provide
copies upon receipt of all written claims, complaints, notices or inquiries
relating to the condition of its facilities and properties or compliance with
Environmental Laws, and shall promptly cure and have dismissed with prejudice
any actions and proceedings relating to compliance with Environmental Laws; and
(c) provide such information and certifications which the Agent may reasonably
request from time to time to evidence compliance with this Section 7.1.6.
SECTION 7.1.7. Employee Benefit Plans. With respect to each Plan of
Borrower, if any: (a) at all times make prompt payments of contributions with
respect to each such Plan, so as to meet the minimum funding standards required
by sections 302 through 305 of ERISA; (b) upon the receipt of reasonable written
request from the Lenders, promptly furnish the Lenders with copies of each
report required to be filed pursuant to (S).103 of ERISA in connection with such
Plan for each plan-year, including any certified financial statements or
actuarial statements required under said (S)103; (c) immediately notify the
Lenders of any fact, including, but not limited to, any "Reportable Event" (as
that term is defined in (S)4043 of ERISA) arising in connection with any such
Plan which might constitute grounds for the termination thereof or for the
appointment by the appropriate United States District Court of a trustee to
administer such Plan, and, within thirty (30) days after the occurrence of any
Reportable Event, deliver to the Lenders a statement from Borrower's President
detailing such Reportable Event
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and Borrower's proposed action with respect thereto; and (d) promptly upon their
request therefor, furnish the Lenders such additional information concerning any
such Plan as the Lenders may reasonably request.
SECTION 7.1.8. Designated Senior Indebtedness. The Borrower and the
Lenders hereby agree that all Obligations of the Borrower pursuant to this
Agreement and each other Loan Document constitute Designated Senior Indebtedness
(as defined in the Indenture) for purposes of the Indenture. The Borrower
furthermore agrees that it shall deliver all notices and take such other action
as may be required by the Indenture such that the Obligations of the Borrower
under this Agreement shall at all times constitute Designated Senior
Indebtedness.
SECTION 7.2. Negative Covenants. The Borrower agrees with the
Agent and each Lender and Issuer that, until all Commitments have terminated and
all Obligations have been paid and performed in full, the Borrower will perform
the obligations set forth in this Section 7.2.
SECTION 7.2.1. Business Activities. The Borrower will not, and will
not permit any of its Subsidiaries to, engage in any business activity, except
those described in the first recital and such activities as may be incidental or
related thereto.
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following: (a) Indebtedness in respect of the Loans and
other Obligations; (b) Indebtedness existing as of the Effective Date which is
identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the Disclosure Schedule;
(c) unsecured trade debt incurred in the ordinary course of business (including
open accounts extended by suppliers on normal trade terms in connection with
purchases of goods and services, but excluding Indebtedness incurred through the
borrowing of money or Contingent Liabilities); (d) lease obligations under
leases covering Borrower's or any of its Subsidiary's business premises (which
shall include storage yard facilities); (e) lease obligations arising from the
leasing of equipment located upon the Borrower's properties and utilized in the
production of oil and gas therefrom; (f) lease obligations, not to exceed
$1,000,000 in any Fiscal Year arising from the lease of equipment used in the
ordinary course of business of the Borrower and its Subsidiaries; (g) current
indebtedness to operators under joint operating agreements or compulsory pooling
orders; (h) advances made as operator on behalf of non-operators pursuant to
joint operating agreements or pooling orders; (i) letter of credit reimbursement
agreements with issuers and any reimbursement obligations that arise thereunder,
provided such letters of credit and reimbursement obligations together with all
Letter of Credit Outstandings are not in excess of $125,000,000 at any time
outstanding in the aggregate; (j) funds held for and payments due to third
parties from
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production from properties; (k) Indebtedness of the Borrower's Subsidiaries
owing to the Borrower or to other Subsidiaries of the Borrower and unsecured
Indebtedness of the Borrower owing to its Subsidiaries; (l) deferred tax
liability; (m) Indebtedness of the Borrower in an outstanding amount not to
exceed $50,000,000 in the aggregate, plus interest and premium, if any; (n) the
guaranties by the Borrower of the obligations of its Subsidiaries otherwise
permitted by the terms of this Agreement, provided that the aggregate
outstanding principal amount of Indebtedness and other obligations of Subject
Subsidiaries guaranteed by the Borrower shall not exceed $25,000,000 at any
time; (o) Indebtedness of any Subject Subsidiary, provided that such
Indebtedness shall not be a direct obligation or Contingent Liability of the
Borrower or any other Subsidiary of the Borrower except as permitted by clause
(n) above; (p) the Borrower's $150,000,000 9% Senior Subordinated Notes Due
2005; (q) Indebtedness in respect of Hedging Obligations, provided that such
Hedging Obligations in respect of oil and gas do not exceed volumes with respect
to any year in excess of 80% of the projected production attributable to the
Borrower's and its Subsidiaries' then proved developed oil and gas properties in
respect of such year; (r) the Borrower's $100,000,000 8 5/8% Senior Subordinated
Notes Due 2009; (s) Indebtedness in an aggregate outstanding amount not to
exceed $150,000,000, plus premium and interest, to be issued in the form of
convertible junior subordinated debentures with a coupon rate of up to 6.5% and
a tenure of at least 20 years; provided such Indebtedness is subordinated, upon
terms satisfactory to the Agent and the Required Lenders, in right of payment to
the payment in full in cash of all Obligations; and (t) any guarantee by the
Borrower issued in connection with any convertible preferred securities issued
by a statutory business trust formed by the Borrower; provided such guarantee is
subordinated, upon terms satisfactory to the Agent and the Required Lenders, in
right of payment to the payment in full in cash of all Obligations.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any
of its Subsidiaries (other than any Subject Subsidiary) to, create, incur,
assume or suffer to exist any Lien upon any of its property, revenues or assets,
whether now owned or hereafter acquired, except: (a) Liens granted prior to the
Effective Date to secure payment of Indebtedness of the type permitted and
described in clause (b) of Section 7.2.2; (b) Liens for taxes, assessments or
other governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books; (c) Liens of carriers, warehousemen,
mechanics, materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books; (d) encumbrances created by production sales
contracts, joint operating agreements and other contracts entered into in the
normal course of Borrower's business for exploration, development and/or
operation
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of the Borrower's properties; (e) easements, servitudes and other rights of user
which do not materially interfere with the use of such assets; (f) other minor
burdens and defects of or in title which do not secure the payment of money,
other than as described in clause (a); (g) those and only those lease burdens
previously disclosed to the Lenders in writing and existing operating
agreements, farmout agreements and other agreements and contractual obligations
related to the Borrower's properties; (h) Liens incurred in the ordinary course
of business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure obligations
on surety or appeal bonds; (i) judgment Liens in existence less than 15 days
after the entry thereof or with respect to which execution has been stayed or
the payment of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies; (j) Liens affecting
the property of the Subject Subsidiaries only securing Indebtedness permitted by
clause (o) of Section 7.2.2; (k) the Lien granted to Exxon Company, U.S.A. prior
to the Effective Date covering property described in Exhibit H; (l) Liens on
cash collateral delivered pursuant to Section 2.8.7; and (m) Liens granted
pursuant to Section 4.9.
SECTION 7.2.4. Financial Condition. The Borrower will not permit:
(a) its Tangible Net Worth to be less than the sum of $275,000,000 plus 75% of
the proceeds from third parties of the sale by the Borrower and its Subsidiaries
of securities (other than securities constituting Indebtedness) net of
reasonable incidental, brokerage, underwriting and legal costs actually paid to
third parties in connection therewith, less the aggregate of the reductions
after September 30, 1997 in the values at which the Borrower's oil and gas
properties are carried on its books in accordance with GAAP in order to comply
with the full cost method of accounting for oil and gas properties or as
required by ceiling tests established by the Securities and Exchange Commission;
and (b) its Current Ratio as of the end of any Fiscal Quarter to be less than
1:1; provided that for purposes hereof, any unused portion of the Revolving
Period Commitment Amount will be deemed a current asset.
SECTION 7.2.5. Take or Pay Contracts. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property or services
if such arrangement by its express terms requires that payment be made by the
Borrower or such Subsidiary regardless of whether such materials, supplies,
other property or services are delivered or furnished to it.
SECTION 7.2.6. Consolidation, Merger, etc. The Borrower will not,
and will not permit any of its Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other corporation, or purchase or
otherwise acquire all or substantially
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all of the assets of any Person (or of any division thereof) except (a) any such
Subsidiary may liquidate or dissolve voluntarily into, and may merge with and
into, the Borrower or any other Subsidiary of the Borrower, and the assets or
stock of any Subsidiary of the Borrower may be purchased or otherwise acquired
by the Borrower or any other Subsidiary of the Borrower; provided, that no
Subsidiary of the Borrower which is not a Subject Subsidiary may dissolve or
liquidate voluntarily into, and neither the Borrower nor any Subsidiary of the
Borrower which is not a Subject Subsidiary may merge with or into, any Subject
Subsidiary unless the Borrower or such Subsidiary which is not a Subject
Subsidiary is the surviving entity, and the assets or stock of any Subsidiary of
the Borrower which is not a Subject Subsidiary may not be purchased or otherwise
acquired by any Subject Subsidiary; and (b) so long as no Default has occurred
and is continuing or would occur after giving effect thereto, the Borrower or
any of its Subsidiaries may purchase all or substantially all of the assets of
any Person, or acquire such Person by merger.
SECTION 7.2.7. Asset Dispositions, etc. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, exchange or lease, or grant options, warrants or other rights
with respect to, all or any substantial part of its assets (including accounts
receivable and capital stock of Subsidiaries) to any Person (including any
Subject Subsidiary), unless it has either given Lenders 15 Business Days prior
written notice thereof or the aggregate consideration for all such sales,
transfers, conveyances, exchanges or leases made in any six month period ending
June 30 or December 31 is less than Twenty-five Million Dollars ($25,000,000).
Notwithstanding anything to the contrary in this Agreement, the Borrower will
not, and will not permit any of its Subsidiaries (other than a Subject
Subsidiary) to, sell, transfer, lease, contribute or otherwise convey, exchange
or lease, or grant options, warrants or other rights with respect to, all or any
substantial part of its assets (including accounts receivable and capital stock
of Subsidiaries) to any Subject Subsidiary. In the event that the Borrower and
its Subsidiaries shall sell, transfer, lease, contribute or otherwise convey,
exchange or lease properties in excess of Twenty-five Million Dollars
($25,000,000) in the aggregate in any six month period ending June 30 or
December 31, the Applicable Lenders shall have the option to reduce the
Borrowing Base.
SECTION 7.2.8. Guaranties, Loans or Advances. Other than Borrower's
Indebtedness hereunder and other than pursuant to Borrower's current and future
employees' stock option plans, the Borrower will not become or be a guarantor or
surety of, or otherwise become or be responsible in any manner (whether by
agreement to purchase or repurchase any obligation, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise, whether directly or indirectly) with respect to, any undertaking of
any other person or entity, nor make or permit to exist any loans or advances to
any other Persons which in the aggregate exceed the amount of $500,000 at any
time
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outstanding, except for (a) the endorsement, in the ordinary course of
collection, of instruments payable to Borrower, or its order; (b) advances made
and liabilities existing under joint operating agreements and compulsory pooling
orders; (c) the liability to account to third persons for their share of
production proceeds received by Borrower; (d) loans and advances to employees
for the sole purpose of permitting such employees to purchase shares of
Borrower's capital stock; (e) loans and advances to employees of the Borrower
and its Subsidiaries for travel and other business expenses; (f)loans and
advances by the Borrower to any of its Subsidiaries or by any Subsidiary of the
Borrower to the Borrower or any other Subsidiary of the Borrower; (g) guaranties
by the Borrower of obligations of its Subsidiaries otherwise permitted pursuant
to this Agreement, provided that the aggregate outstanding principal amount of
Indebtedness and other obligations of Subject Subsidiaries so guaranteed shall
not at any time exceed $25,000,000 in the aggregate; and (h)any guarantee by the
Borrower issued in connection with any convertible preferred securities issued
by a statutory business trust formed by the Borrower; provided such guarantee is
subordinated, upon terms satisfactory to the Agent and the Required Lenders, in
right of payment to the payment in full in cash of all Obligations.
SECTION 7.2.9. Other Agreements. The Borrower will not enter into
any agreement containing any provision which would be violated or breached by
the performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in connection herewith.
SECTION 7.2.10. Transactions with Affiliates. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates
unless such arrangement or contract is determined by the Board of Directors of
the Borrower to be (a) fair and equitable to the Borrower or such Subsidiary and
(b) an arrangement or contract of the kind which would be entered into by a
prudent Person in the position of the Borrower or such Subsidiary with a Person
which is not one of its Affiliates.
SECTION 7.2.11. Negative Pledges, Restrictive Agreements, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement (excluding this Agreement, any other Loan Document, and any
agreement governing any Indebtedness permitted by clause (b), (p),(r),(s) or (t)
of Section 7.2.2) prohibiting (a) the creation or assumption of any Lien upon
its properties, revenues or assets (other than the properties, revenues or
assets of the Subject Subsidiaries) whether now owned or hereafter acquired, or
the ability of the Borrower to amend or otherwise modify this Agreement or any
other Loan Document; or (b) the ability of any Subsidiary (other than a Subject
Subsidiary) to make any payments, directly or indirectly, to the Borrower by way
of dividends, advances, repayments of loans or advances, reimbursements of
management and other intercompany charges, expenses and accruals or other
returns on investments, or any other
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agreement or arrangement which restricts the ability of any such Subsidiary
(other than a Subject Subsidiary) to make any payment, directly or indirectly,
to the Borrower. Notwithstanding the foregoing, any agreement governing any
Indebtedness permitted by clause (p),(r),(s) or (t) of Section 7.2.2 shall not
prohibit the creation or assumption of any Lien upon the properties, revenues or
assets of the Borrower or any Subsidiary (other than a Subject Subsidiary),
whether now owned or hereafter acquired securing any Senior Debt, and no
agreement governing any Indebtedness permitted by clause (p),(r),(s) or (t) of
Section 7.2.2 shall prohibit the ability of any Subsidiary (other than a Subject
Subsidiary) to make any payments, directly or indirectly, to the Borrower or the
ability of the Borrower to amend or otherwise modify this Agreement or any other
Loan Document.
SECTION 7.2.12. Investment in Subsidiaries. If any Default or Event
of Default shall have occurred and is continuing or during any period in which
the aggregate principal amount of Senior Debt shall exceed the Borrowing Base
then in effect, the Borrower shall not, and shall not permit any of its
Subsidiaries which are not Subject Subsidiaries to, incur any Contingent
Liabilities for any Indebtedness or other obligations of any Subject Subsidiary,
make any loan or advance to, or assume, redeem, purchase, defease, pay or
forgive any Indebtedness or other obligation of, or make any equity investment
in, or incur any Indebtedness on behalf of, any Subsidiary and the Borrower
shall not, and shall not permit any of its Subsidiaries which are not Subject
Subsidiaries to, apply any of its funds, property or assets to the purchase,
redemption, sinking fund for or other retirement of any shares of any class of
capital stock of a Subsidiary or warrants, options or other rights with respect
to any shares of any class of such capital stock or any Indebtedness or
obligations of any Subsidiary.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default".
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall
default in the payment or prepayment when due of any principal of or interest on
any Loan or any Reimbursement Obligations, or the Borrower shall default in the
payment when due of any commitment fee or any letter of credit fees or of any
other Obligation.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of
the Borrower made or deemed to be made hereunder or in any other Loan Document
or any other writing or certificate furnished by or on behalf of the Borrower to
the Agent or any
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Lender for the purposes of or in connection with this Agreement or any such
other Loan Document (including any certificates delivered pursuant to Article V)
is or shall be incorrect when made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Sections 7.2.4 or 7.2.8.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations.
The Borrower shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document, and such default shall
continue unremedied for a period of 15 days after the Borrower shall become
aware of such default, whether by notice thereof given to the Borrower by the
Agent or any Lender or otherwise.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness for borrowed money (other than
Indebtedness described in Section 8.1.1) or Contingent Liability of the Borrower
or any of its Subsidiaries, or a default shall occur in the performance or
observance of any obligation or condition with respect to such Indebtedness if
the effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any applicable period
of time sufficient to permit the holder or holders of such Indebtedness, or any
trustee or agent for such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity.
SECTION 8.1.6. Other Material Obligations. Default in the payment
for a period in excess of sixty (60) days of when due, or in the performance or
observance of any material obligation of, or condition agreed to by, the
Borrower or any Subsidiary with respect to any material purchase or lease of
goods or services (except those which would not have a material adverse effect
on the financial conditions, operations, assets, business, properties or
prospects of the Borrower and its Subsidiaries, taken as a whole, and except
only to the extent that the existence of any such default is being contested by
the Borrower or such Subsidiary in good faith by appropriate proceedings).
SECTION 8.1.7. Judgments. Any judgment or order for the payment of
money in excess of $20,000,000 (or its equivalent) shall be rendered against the
Borrower or any of its Subsidiaries and either (a) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order; or (b) there
shall be any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect.
SECTION 8.1.8. Pension Plans. Any of the following events shall
occur with respect to any Pension Plan: (a) the institution
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of any steps by the Borrower, any member of its Controlled Group or any other
Person to terminate a Pension Plan if, as a result of such termination, the
Borrower or any such member could be required to make a contribution to such
Pension Plan, or could reasonably expect to incur a liability or obligation to
such Pension Plan, in excess of $1,000,000; or (b) a contribution failure occurs
with respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of
its Subsidiaries shall (a) become insolvent or generally fail to pay, or admit
in writing its inability or unwillingness to pay, debts as they become due; (b)
apply for, consent to, or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower or any of its Subsidiaries or
any property of any thereof, or make a general assignment for the benefit of
creditors; (c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver, sequestrator
or other custodian for the Borrower or any of its Subsidiaries or for a
substantial part of the property of any thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 60 days, provided
that the Borrower, for itself and each of its Subsidiaries, hereby expressly
authorizes the Agent and each Lender to appear in any court conducting any
relevant proceeding during such 60-day period to preserve, protect and defend
their rights under the Loan Documents; (d) permit or suffer to exist the
commencement of any bankruptcy, reorganization, debt arrangement or other case
or proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Borrower or any of its
Subsidiaries, and, if any such case or proceeding is not commenced by the
Borrower or such Subsidiary, such case or proceeding shall be consented to or
acquiesced in by the Borrower or such Subsidiary or shall result in the entry of
an order for relief or shall remain for 60 days undismissed, provided that the
Borrower, for itself and each of its Subsidiaries, hereby expressly authorizes
the Agent and each Lender to appear in any court conducting any such case or
proceeding during such 60-day period to preserve, protect and defend their
rights under the Loan Documents; or (e) take any corporate action authorizing,
or in furtherance of, any of the foregoing.
SECTION 8.1.10. Change of Control. A Change of Control shall occur.
SECTION 8.2. Action if Bankruptcy. If any Event of Default
described in clauses (a) through (d) of Section 8.1.9 shall occur with respect
to the Borrower or any of its Subsidiaries, the Commitments (if not theretofore
terminated) shall automatically terminate and the outstanding principal amount
of all outstanding Loans and all other Obligations shall automatically be and
become immediately due and payable, without notice (including notice of intent
to accelerate and notice of acceleration) or demand and notice and demand, are
hereby waived.
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SECTION 8.3. Action if Other Event of Default. If any Event of
Default (other than any Event of Default described in clauses (a) through (d) of
Section 8.1.9 (with respect to the Borrower or any of its Subsidiaries) shall
occur for any reason, whether voluntary or involuntary, and be continuing, the
Agent, upon the direction of the Required Lenders, shall by notice to the
Borrower declare all or any portion of the outstanding principal amount of the
Loans and other Obligations to be due and payable and/or the Commitments (if not
theretofore terminated) to be terminated, whereupon the full unpaid amount of
such Loans and other Obligations which shall be so declared due and payable
shall be and become immediately due and payable, without further notice
(including notice of intent to accelerate and notice of acceleration), demand or
presentment, and/or, as the case may be, the Commitments shall terminate, all of
which notice, demand and presentment are hereby waived.
ARTICLE IX
THE AGENT
SECTION 9.1. Actions. Each Lender hereby appoints Bank of Montreal
as its Agent under and for purposes of this Agreement, the Notes, the Letters of
Credit and each other Loan Document. Each Lender authorizes the Agent and each
Issuer to act on behalf of such Lender under this Agreement, the Notes, the
Letters of Credit and each other Loan Document and, in the absence of other
written instructions from the Required Lenders received from time to time by the
Agent (with respect to which the Agent agrees that it will comply, except as
otherwise provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent or such Issuer by the terms hereof and thereof,
together with such powers as may be reasonably incidental thereto. Each Lender
hereby indemnifies (which indemnity shall survive any termination of this
Agreement) the Agent, pro rata according to such Lender's Percentage, from and
against any and all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, the Agent or such Issuer in any way relating
to or arising out of its services as Agent under this Agreement, the Notes, the
Letters of Credit and any other Loan Document, including reasonable attorneys'
fees, and as to which the Agent or such Issuer is not reimbursed by the
Borrower; provided, however, that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, claims, costs or
expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted solely from the Agent's gross negligence or wilful
misconduct. The Agent or any Issuer shall not be required to take any action
hereunder, under the Notes under the Letters of Credit or under any other Loan
Document, or to prosecute or defend any suit in respect of this Agreement, the
Notes, the Letters of Credit or any other Loan Document, unless it
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is indemnified hereunder to its satisfaction. If any indemnity in favor of the
Agent or any Issuer shall be or become, in the Agent's determination,
inadequate, the Agent or such Issuer may call for additional indemnification
from the Lenders and cease to do the acts indemnified against hereunder until
such additional indemnity is given.
SECTION 9.2. Funding Reliance, etc. Unless the Agent shall have
been notified by telephone, confirmed in writing, by any Lender by (i) 5:00
p.m., United States Central time, on the day prior to a Borrowing in the case of
LIBO Rate Loans and (ii) 12:00 Noon United States Central time on the day of any
Borrowing in the case of Base Rate Loans that such Lender will not make
available the amount which would constitute its Percentage of such Borrowing on
the date specified therefor, the Agent may assume that such Lender has made such
amount available to the Agent and, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If and to the extent that such
Lender shall not have made such amount available to the Agent, such Lender and
the Borrower severally agree to repay the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
the Agent made such amount available to the Borrower to the date such amount is
repaid to the Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing.
SECTION 9.3. Exculpation. Neither the Agent, any Issuer nor any of
their respective directors, officers, employees or agents shall be liable to any
Lender for any action taken or omitted to be taken by it or them under this
Agreement or any other Loan Document, or in connection herewith or therewith,
except for its or their own wilful misconduct or gross negligence, nor
responsible for any recitals or warranties herein or therein, nor for the
effectiveness, enforceability, validity or due execution of this Agreement or
any other Loan Document, nor to make any inquiry respecting the performance by
the Borrower of its obligations hereunder or under any other Loan Document. Any
such inquiry which may be made by the Agent or any Issuer shall not obligate it
to make any further inquiry or to take any action. The Agent and each Issuer
shall be entitled to rely upon advice of counsel concerning legal matters and
upon any notice, consent, certificate, statement or writing which the Agent
believes to be genuine and to have been presented by a proper Person.
SECTION 9.4. Successor. The Agent may resign as such at any time
upon at least 30 days' prior notice to the Borrower and all Lenders. If the
Agent at any time shall resign, the Required Lenders may appoint another Lender
as a successor Agent which shall thereupon become the Agent hereunder. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be one of the Lenders or a commercial
banking institution organized
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under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of
a commercial banking institution, and having a combined capital and surplus of
at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation hereunder as the Agent, the
provisions of (a) this Article IX shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was the Agent under this Agreement;
and (b) Section 10.3 and Section 10.4 shall continue to inure to its benefit.
SECTION 9.5. Loans by Bank of Montreal. Bank of Montreal shall
have the same rights and powers with respect to (x) the Loans made by it or any
of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any
other Lender and may exercise the same as if it were not the Agent. Bank of
Montreal and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary or
Affiliate of the Borrower as if Bank of Montreal were not the Agent hereunder.
Each Issuer shall have the same rights and powers hereunder as the other Lenders
and may exercise the same rights and powers as though it were not an Issuer.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it
has, independently of the Agent and each other Lender, and based on such
Lender's review of the financial information of the Borrower, this Agreement,
the other Loan Documents (the terms and provisions of which being satisfactory
to such Lender) and such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to extend its
Commitments. Each Lender also acknowledges that it will, independently of the
Agent and each other Lender, and based on such other documents, information and
investigations as it shall deem appropriate at any time, continue to make its
own credit decisions as to exercising or not exercising from time to time any
rights and privileges available to it under this Agreement or any other Loan
Document.
SECTION 9.7. Copies, etc. The Agent shall give prompt notice to
each Lender of each notice or request required or permitted to be given to the
Agent by the Borrower pursuant to the terms of this Agreement (unless
concurrently delivered to the Lenders by the Borrower). The Agent will
distribute to each Lender each document or instrument received for its account
and copies of all other communications received by the Agent from the Borrower
for distribution to the Lenders by the Agent in accordance with the terms of
this Agreement.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however, that
no such amendment, modification or waiver which would: (a) modify any
requirement hereunder that any particular action be taken by all the Lenders or
by the Required Lenders or by the Applicable Lenders shall be effective unless
consented to by each Lender; (b) modify this Section 10.1, change the definition
of "Required Lenders" or "Applicable Lenders", increase any Commitment Amount or
the Percentage of any Lender, reduce any fees described in Article III, or
extend any Commitment Termination Date shall be made without the consent of each
Lender and each holder of a Note; (c) extend the due date for, or reduce the
amount of, any scheduled repayment or prepayment of principal of or interest on
any Loan (or reduce the principal amount of or rate of interest on any Loan)
shall be made without the consent of the holder of that Note evidencing such
Loan; or (d) affect adversely the interests, rights or obligations of the Agent
as the Agent shall be made without consent of the Agent.
No failure or delay on the part of the Agent, any Lender, any Issuer or
the holder of any Note in exercising any power or right under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Borrower in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Agent, any Lender,
any Issuer or the holder of any Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION 10.2. Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or set
forth in the Lender Assignment Agreement or at such other address or facsimile
number as may be designated by such party in a notice to the other parties. Any
notice, if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.
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SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Agent (including the reasonable fees
and out-of-pocket expenses of counsel to the Agent and of local counsel, if any,
who may be retained by counsel to the Agent) in connection with (a) the
negotiation, preparation, execution and delivery of this Agreement and of each
other Loan Document, including schedules and exhibits, and any amendments,
waivers, consents, supplements or other modifications to this Agreement or any
other Loan Document as may from time to time hereafter be required, whether or
not the transactions contemplated hereby are consummated, and (b) the
preparation and review of the form of any document or instrument relevant to
this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agent and the
Lenders and Issuers harmless from all liability for, any stamp or other taxes
which may be payable in connection with the execution or delivery of this
Agreement, the borrowings hereunder, or the issuance of the Notes or any other
Loan Documents. The Borrower also agrees to reimburse the Agent and each Lender
and Issuer upon demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses) incurred by the Agent or such Lender in
connection with (x) the negotiation of any restructuring or "work-out", whether
or not consummated, of any Obligations, and (y) the enforcement of any
Obligations.
SECTION 10.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments
and the issuance of Letters of Credit, the Borrower hereby indemnifies,
exonerates and holds the Agent, each Issuer and each Lender and each of their
respective officers, directors, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to (a) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of any Loan or Letter of Credit; (b) the entering into and performance of this
Agreement and any other Loan Document by any of the Indemnified Parties (except,
with respect to any action brought by or on behalf of the Borrower, to the
extent such Indemnified Party shall be found liable to the Borrower pursuant to
a finding by a court of competent jurisdiction, not subject to appeal); (c) any
investigation, litigation or proceeding related to any environmental cleanup,
audit, compliance or other matter relating to the protection of the environment
or the Release by the Borrower or any of its Subsidiaries of any Hazardous
Material; or (d) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real property
owned or
60
<PAGE>
operated by the Borrower or any Subsidiary thereof of any Hazardous Material
(including any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any Environmental Law), regardless of whether caused
by, or within the control of, the Borrower or such Subsidiary, except for any
such Indemnified Liabilities arising for the account of a particular Indemnified
Party by reason of the relevant Indemnified Party's gross negligence or wilful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under Sections
4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under
Section 9.1, shall in each case survive any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments. The
representations and warranties made by the Borrower in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrower and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent and notice
thereof shall have been given by the Agent to the Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE
NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS. This
Agreement, the Notes and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and
61
<PAGE>
supersede any prior agreements, written or oral, with respect
thereto.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
SECTION 10.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that: (a) the Borrower may not assign
or transfer its rights or obligations hereunder without the prior written
consent of the Agent and all Lenders; and (b) the rights of sale, assignment and
transfer of the Lenders are subject to Section 10.11.
SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans
and Commitments to one or more other Persons in accordance with this Section
10.11.
SECTION 10.11.1. Assignments. Any Lender,
(a) with the written consent of the Borrower (in its sole
discretion) and the Agent (which consent shall not be unreasonably
delayed or withheld) and each Issuer, may at any time assign and
delegate to one or more commercial banks or other financial
institutions, and
(b) with notice to the Borrower and the Agent and each Issuer,
but without the consent of the Borrower or the Agent or any Issuer, may
assign and delegate to any of its Affiliates or to any other Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans,
Commitments and participations in Letters of Credit (which assignment and
delegation shall be of a constant, and not a varying, percentage of all the
assigning Lender's Loans and Commitments and participations in Letters of
Credit) in a minimum aggregate amount of $20,000,000 or such Lender's Percentage
of the Commitment Amount, if less; provided, however, that any such Assignee
Lender will comply, if applicable, with the provisions contained in the last
sentence of Section 4.6; and further, provided, however, that, the Borrower and
the Agent shall be entitled to continue to deal solely and directly with such
Lender in connection with the interests so assigned and delegated to an Assignee
Lender until
62
<PAGE>
(c) written notice of such assignment and delegation, together
with payment instructions, addresses and related information with
respect to such Assignee Lender, shall have been given to the Borrower
and the Agent and each Issuer by such Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and delivered to
the Borrower, the Agent and each Issuer a Lender Assignment Agreement,
accepted by the Borrower, the Agent and each Issuer, and
(e) the processing fees described below shall have been paid.
From and after the date that the Borrower and the Agent and each Issuer accepts
such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be
deemed automatically to have become a party hereto and to the extent that rights
and obligations hereunder have been assigned and delegated to such Assignee
Lender in connection with such Lender Assignment Agreement, shall have the
rights and obligations of a Lender hereunder and under the other Loan Documents,
and (y) the assignor Lender, to the extent that rights and obligations hereunder
have been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Agent has received an executed Lender Assignment Agreement, the Borrower shall
execute and deliver to the Agent (for delivery to the relevant Assignee Lender)
new Notes evidencing such Assignee Lender's assigned Loans and Commitments and,
if the assignor Lender has retained Loans and Commitments hereunder, replacement
Notes in the principal amount of the Loans and Commitments retained by the
assignor Lender hereunder (such Notes to be in exchange for, but not in payment
of, those Notes then held by such assignor Lender). Each such Note shall be
dated the date of the predecessor Notes. The assignor Lender shall mark the
predecessor Notes "exchanged" and deliver them to the Borrower. Accrued interest
on that part of the predecessor Notes evidenced by the new Notes, and accrued
fees, shall be paid as provided in the Lender Assignment Agreement. Accrued
interest on that part of the predecessor Notes evidenced by the replacement
Notes shall be paid to the assignor Lender. Accrued interest and accrued fees
shall be paid at the same time or times provided in the predecessor Notes and in
this Agreement. Such assignor Lender or such Assignee Lender must also pay a
processing fee to the Agent upon delivery of any Lender Assignment Agreement in
the amount of $2,500. Any attempted assignment and delegation not made in
accordance with this Section 10.11.1 shall be null and void.
SECTION 10.11.2. Participations. Any Lender, with the prior written
consent of the Borrower in its sole discretion, may at any time sell to one or
more commercial banks (each of such commercial banks being herein called a
"Participant") participating interests in any of the Loans, Commitments, or
other interests of
63
<PAGE>
such Lender hereunder; provided, however, that (a) no participation contemplated
in this Section 10.11 shall relieve such Lender from its Commitments or its
other obligations hereunder or under any other Loan Document, (b) such Lender
shall remain solely responsible for the performance of its Commitments and such
other obligations, (c) the Borrower and each other Obligor and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and each of the other Loan
Documents, (d) no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to take
or refrain from taking any action hereunder or under any other Loan Document,
except that such Lender may agree with any Participant that such Lender will
not, without such Participant's consent, take any actions of the type described
in clause (b) or (c) of Section 10.1, and (e) the Borrower shall not be required
to pay any amount under Section 4.6 that is greater than the amount which it
would have been required to pay had no participating interest been sold.
SECTION 10.12. Other Transactions. Nothing contained herein shall
preclude the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person. The
parties hereto agree that if at any time the Borrower or its Subsidiaries shall
grant to the Lenders Liens securing the obligations of the Borrower to the
Lenders and Issuers hereunder, such Liens shall also secure obligations to any
Lender in respect of any letter of credit reimbursement obligations permitted by
Section 7.2.2.(i) hereof owing to one or more Lenders.
SECTION 10.13. Sale and Purchase of Loans. On the Effective Date, the
aggregate principal balance of the Prior Indebtedness outstanding is
$189,000,000 as shown on Schedule F-2 and each Lender represents and warrants
for itself that its outstanding loans under the Original Credit Agreement as of
the Effective Date is as set forth in the second column of Schedule F-2. Lenders
hereby sell, assign, transfer and convey, and Lenders hereby purchase and accept
so much of the Prior Indebtedness and all of the rights, titles, benefits,
interests, privileges, claims, liens, security interests, and obligations
existing and to exist (collectively the "Interests") such that each Lender's
Percentage of the outstanding loans and commitments under the Original Credit
Agreement as amended and restated by this Agreement shall be as set forth in
Schedule F-1 as of the Effective Date. The foregoing assignment, transfer and
conveyance are without recourse to the Lenders and without any warranties
whatsoever as to title, enforceability, collectibility, documentation or freedom
from liens or encumbrances, in whole or in part, other than the warranty by each
Lender that it has not sold, transferred, conveyed or encumbered such Interests.
If as a result thereof, a Lender's Percentage of the outstanding Loans under
this Agreement is less than its outstanding loans under the Original Credit
Agreement on
64
<PAGE>
the Effective Date, the difference set forth in the last column of Schedule F-2
shall be remitted to such Lender by the Agent upon receipt of funds from the
other Lenders shown in the last column of Schedule F-2 on the Effective Date.
Each Lender so acquiring a part of such outstanding loans assumes its Percentage
of the outstanding Loans, Commitments, rights, titles, interests, privileges,
claims, liens, security interests, benefits and obligations under this Agreement
and the other Loan Documents and any Lender so acquiring an interest in such
outstanding Loans may be paid a cost of funds with respect thereto as mutually
agreed between the Borrower and such Lender. Lenders are proportionately
released from the obligations assumed by Lenders so acquiring such obligations
and, to that extent, the Lenders so released shall have no further obligation
under the Original Credit Agreement, as amended and restated hereby. The
Borrower hereby represents and warrants that it has no defenses, offsets or
counterclaims to the Prior Indebtedness or its obligations or rights under this
Agreement, including, without limitation, the Interests being assigned pursuant
to this Section 10.13. Any loans outstanding under the Original Credit Agreement
on the Effective Date bearing interest at a LIBO Rate (as defined therein) shall
be deemed continued as a Loan under this Agreement at such LIBO Rate and for the
Interest Period with respect thereto under the Original Credit Agreement. The
promissory notes evidencing the Prior Indebtedness shall be appropriately
endorsed and delivered by the holders thereof to the Agent and retained by the
Agent until the Obligations shall have been paid in full, all Letters of Credit
have expired or been canceled and the Commitments have been canceled.
SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS, ANY ISSUER, OR THE BORROWER MAY BE BROUGHT AND MAINTAINED IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
65
<PAGE>
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15. Waiver of Jury Trial. THE AGENT, THE LENDERS, EACH
ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE
BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT, EACH ISSUER AND THE LENDERS ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
66
<PAGE>
VINTAGE PETROLEUM, INC.
By:/s/ William C. Barnes
--------------------------------------
William C. Barnes,
Executive Vice President and
Chief Financial Officer
Address: 4200 One Williams Center
Tulsa, Oklahoma 74172
Facsimile No.: (918) 584-7282
Attention: William C. Barnes,
Executive Vice President
and Chief Financial
Officer
67
<PAGE>
BANK OF MONTREAL
acting through its U.S. branches
and agencies, including initially
its Chicago, Illinois branch,
as Agent
By:/s/ Robert L. Roberts
--------------------------------------
Name: Robert L. Roberts
Title: Director, U.S. Corporate
Banking
Address: 115 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
with copy to:
Bank of Montreal
Houston Agency
700 Louisiana Street
4400 NationsBank Center
Houston, Texas 77002
Facsimile No.: (713) 223-4007
Attention: Michael Stuckey,
Director
68
<PAGE>
LENDERS:
BANK OF MONTREAL
By:/s/ Robert L. Roberts
--------------------------------------
Name: Robert L. Roberts
Title: Director, U.S. Corporate
Banking
Domestic
Office: 115 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
LIBOR
Office: 115 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
with copy to:
Bank of Montreal
Houston Agency
700 Louisiana Street
4400 NationsBank Center
Houston, Texas 77002
Facsimile No.: (713) 223-4007
Attention: Kenneth M. Schott
69
<PAGE>
THE CHASE MANHATTAN BANK,
as Lender and Lead Manager
By:/s/ Ronald Potter
--------------------------------------
Name: Ronald Potter
Title: Managing Director
Domestic
Office: The Chase Manhattan Bank
1 Chase Manhattan Plaza
Eighth Floor
New York, NY 10081
Facsimile No.: (212) 552-5777
Attention: Loan and Agency
Services
LIBOR
Office: The Chase Manhattan Bank
1 Chase Manhattan Plaza
Eighth Floor
New York, NY 10081
Facsimile No.:(212) 552-5777
Attention: Loan and Agency
Services
70
<PAGE>
BANKBOSTON, N.A.,
as Lender and Lead Manager
By:/s/ Terrence Ronan
--------------------------------------
Name: Terrence Ronan
Title: Vice President
Domestic 01-08-04
Office: 100 Federal Street
Boston, MA 02110
Facsimile No.:(617) 434-5472
Attention: Terrence Ronan
Vice President
LIBOR 01-08-04
Office: 100 Federal Street
Boston, MA 02110
Facsimile No.:(617) 434-9820
Attention: Deborah Williams
Loan Administrator
71
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as Lender and Lead Manager
By:/s/ Denise A. Smith
--------------------------------------
Name: Denise A. Smith
Title: SVP
Domestic
Office: 901 Main Street, 14th Floor
Dallas, Texas 75202
Facsimile No.: 214-508-0944
Attention: Maurice Washington
LIBOR
Office: 901 Main Street, 14th Floor
Dallas, Texas 75202
Facsimile No.: 214-508-0944
Attention: Maurice Washington
72
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY,
as Lender and Lead Manager
By:/s/ Richard A. Erbert
--------------------------------------
Name: Richard A. Erbert
Title: Vice President
Domestic
Office: 4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Facsimile No.:(214) 754-0171
Attention: Loan Operations
LIBOR
Office: 4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Facsimile No.:(214) 754-0171
Attention: Loan Operations
with copy to:
Societe Generale
1111 Bagby, Suite 2020
Houston, Texas 77002
Facsimile No. (713) 650-0824
Attention: Richard A. Erbert
73
<PAGE>
ABN AMRO BANK, N.A.,
as Lender
By:/s/ Charles W. Randall
--------------------------------------
Name: Charles W. Randall
Title: Senior Vice President
By:/s/ Cheryl I. Lipshutz
--------------------------------------
Name: Cheryl I. Lipshutz
Title: Group Vice President
Domestic
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
LIBOR
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
74
<PAGE>
BANK OF OKLAHOMA,
NATIONAL ASSOCIATION
as Lender
By:/s/ Michael M. Coats
--------------------------------------
Name: Michael M. Coats
Title: Senior Vice Pres.
Domestic
Office:
Facsimile No.:918-588-6880
Attention:
-------------------------------
-------------------------------
LIBOR
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
75
<PAGE>
BANQUE PARIBAS,
as Lender
By:/s/ Barton D. Schouest
--------------------------------------
Name: Barton D. Schouest
Title: Managing Director
By:/s/ Douglas R. Liftman
--------------------------------------
Name: Douglas R. Liftman
Title: Vice President
Domestic
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
LIBOR
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
76
<PAGE>
CIBC INC.,
as Lender
By:/s/ Aleksandra K. Dymanus
--------------------------------------
Name: Aleksandra K. Dymanus
Title: Authorized Signatory
By:
--------------------------------------
Name:
Title:
Domestic
Office:
Facsimile No.:770/319-4950
Attention: Kathryn S. McGovern
LIBOR
Office:
Facsimile No.:770/319-4950
Attention: Kathryn S. McGovern
77
<PAGE>
CREDIT LYONNAIS,
as Lender
By:/s/ Philippe Soustra
--------------------------------------
Name: Philippe Soustra
Title: Senior Vice President
By:
--------------------------------------
Name:
Title:
Domestic
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
LIBOR
Office:
Facsimile No.:
---------------------------
Attention:
-------------------------------
-------------------------------
78
<PAGE>
SANWA BANK, LIMITED,
as Lender
By:/s/ C. Lawrence Murphy
--------------------------------------
Name: C. Lawrence Murphy
Title: Senior Vice President
By:
--------------------------------------
Name:
Title:
Domestic
Office:
Facsimile No.:(212) 754-2360
Attention:
-------------------------------
-------------------------------
LIBOR
Office:
Facsimile No.:(212) 754-2368
Attention: Renko Hara
79
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender
By:/s/ Susan Stiernberg
--------------------------------------
Name: Susan Stiernberg
Title: Attorney-In-Fact
Domestic
Office:
Facsimile No.:(312) 732-4840
Attention: Gwen Watson
-------------------------------
LIBOR
Office:
Facsimile No.:(312) 732-4840
Attention: Gwen Watson
-------------------------------
80
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
as Lender
By:/s/ Randall Osterberg
--------------------------------------
Name: Randall Osterberg
Title: Vice President
Domestic
Office:
500 North Akard Street, Suite #4200
Dallas, TX 75201
Telecopier No: (214) 922-4209
Telephone No: (214) 922-4200
Attention: Randall L. Osterberg
LIBOR
Office:
445 South Figueroa Street
Los Angeles, CA 90071
Telecopier No: (213) 236-4096
Telephone No: (213) 236-6199
Attention: Patricia Ayala
with copy to:
Union Bank of California, N.A.
500 North Akard Street, Suite #4200
Dallas, TX 75201
Attention: Randall L. Osterberg
Vice President
81
<PAGE>
For purposes of selling, assigning, transferring and conveying its
respective Interests, the undersigned have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date and year
first above written.
MELLON BANK, N.A.
By:/s/ A. Gary Chace
--------------------------------------
Name: A. Gary Chace
Title: Senior Vice President
82
<PAGE>
EXHIBIT A
NOTE
$_____________ ____________, 19___
FOR VALUE RECEIVED, the undersigned, VINTAGE PETROLEUM, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of
_______________________ (the "Lender") the principal sum of ____________________
DOLLARS ($____________) or, if less, the aggregate unpaid principal amount of
all Loans made by the Lender pursuant to that certain Amended and Restated
Credit Agreement, dated as of December 8, 1997 (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"Credit Agreement"), among the Borrower, BANK OF MONTREAL, as Agent, the various
financial institutions (including the Lender) as are, or may from time to time
become, parties thereto, payable in installments as set forth in the Credit
Agreement, with a final installment (in the amount necessary to pay in full this
Note) due and payable on the Stated Maturity Date set forth therein.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the Agent pursuant to the Credit Agreement.
This Note is one of the Notes referred to in, and evidences
Indebtedness incurred under, the Credit Agreement, to which reference is made
for a statement of the terms and conditions on which the Borrower is permitted
and required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Note and on which such Indebtedness may be declared to be
immediately due and payable. Unless otherwise defined, terms used herein have
the meanings provided in the Credit Agreement.
[This Note is an extension, renewal, and replacement of, and is given
in substitution and exchange for, that certain Note, dated August 29, 1996, in
the original principal amount of ____________, executed by Borrower and payable
to the order of Lender in connection with the Original Credit Agreement, and the
indebtedness evidenced hereby and thereby is a continuing indebtedness and
nothing herein contained or implied shall be construed to deem such indebtedness
or any accrued and unpaid interest thereon paid, satisfied, novated or
terminated, or any collateral or security therefore released or terminated.]
<PAGE>
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
VINTAGE PETROLEUM, INC.
By
-----------------------
Title:
2
<PAGE>
<TABLE>
<CAPTION>
LOANS AND PRINCIPAL PAYMENTS
- ---------------------------------------------------------------------------------------------------------------------------
Amount of Unpaid
Amount of Principal Principal
Loan Made Repaid Balance
--------- --------- -------
Interest
Base LIBO Period (if Base LIBO Base LIBO Notation
Date Rate Rate applicable) Rate Rate Rate Rate Total Made By
---- ---- ---- ----------- ---- ---- ---- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT B
BORROWING REQUEST
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60603
Attention: [Name]
[Title]
VINTAGE PETROLEUM, INC.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 2.3 of
the Amended and Restated Credit Agreement, dated as of December 8, 1997
(together with all amendments, if any, from time to time thereafter made
thereto, the "Credit Agreement"), among Vintage Petroleum, Inc., a Delaware
corporation (the "Borrower"), certain financial institutions and Bank of
Montreal (the "Agent"). Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
The Borrower hereby requests that a Revolving Loan be made in the
aggregate principal amount of $__________ on __________, 19___ as a [LIBO Rate
Loan having an Interest Period of _______ months] [Base Rate Loan].
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the
Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitutes a representation and warranty by the Borrower that, on the date of
such Loans, and before and after giving effect thereto and to the application of
the proceeds therefrom, all statements set forth in Section 5.2.1 are true and
correct in all material respects.
The Borrower certifies that the Senior Debt of the Borrower and its
Subsidiaries, other than Loans made pursuant to the Credit Agreement, is
$_____________ as of the date hereof.
The Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the Agent.
Except to the extent, if any, that prior to the time of the Borrowing requested
hereby the Agent shall receive written notice to the contrary from the Borrower,
each matter certified to herein shall be deemed once again to be certified as
true and correct at the date of such Borrowing as if then made.
<PAGE>
Please wire transfer the proceeds of the Borrowing requested hereby to
the accounts of the following persons at the financial institutions indicated
respectively:
<TABLE>
<CAPTION>
Person to be Paid
Amount to be ------------------------------------ Name, Address, etc.
Transferred Name Account No. of Transferee Lender
- ----------- ---- ----------- --------------------
<S> <C> <C> <C>
$
----------- ------------ ---------- --------------------
--------------------
Attention:
---------
$
----------- ------------ ----------- --------------------
--------------------
Attention:
---------
Balance of The Borrower
such proceeds ----------- --------------------
--------------------
Attention:
---------
</TABLE>
The Borrower has caused this Borrowing Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly Authorized Officer this ___ day of ___________, 19___.
VINTAGE PETROLEUM, INC.
By
-----------------------
Title:
2
<PAGE>
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60603
Attention: [Name]
[Title]
VINTAGE PETROLEUM, INC.
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you pursuant to
Section 2.4 of the Amended and Restated Credit Agreement, dated as of December
8, 1997 (together with all amendments, if any, from time to time thereafter made
thereto, the "Credit Agreement"), among Vintage Petroleum, Inc., a Delaware
corporation (the "Borrower"), certain financial institutions and Bank of
Montreal (the "Agent"). Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
The Borrower hereby requests that on ____________, 19___,
(1) $___________ of the presently outstanding principal amount
of the [Term Loans] [Revolving Loans] originally made on __________,
19___ [and $__________ of the presently out standing principal amount
of the [Revolving Loans] originally made on __________, 19___],
(2) and all presently being maintained as */[Base Rate Loans]
[LIBO Rate Loans],
(3) be [converted into] [continued as],
(4) **/[LIBO Rate Loans having an Interest Period of ______
months] [Base Rate Loans].
The Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by
- --------
*/ Select appropriate interest rate option.
** Insert appropriate interest rate option.
<PAGE>
it will not be true and correct at such time as if then made, it will
immediately so notify the Agent.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Agent shall receive written notice to the
contrary from the Borrower, each matter certified to herein shall be deemed to
be certified at the date of such continuation or conversion as if then made.
The Borrower has caused this Continuation/Conversion Notice to be
executed and delivered, and the certification and warranties contained herein to
be made, by its Authorized Officer this ___ day of _________, 19___.
VINTAGE PETROLEUM, INC.
By
------------------------
Title:
2
<PAGE>
EXHIBIT D
LENDER ASSIGNMENT AGREEMENT
To: Vintage Petroleum, Inc.
To: Bank of Montreal,
as the Agent
VINTAGE PETROLEUM, INC.
Gentlemen and Ladies:
We refer to clause (d) of Section 10.11.1 of the Amended and Restated
Credit Agreement, dated as of December 8, 1997 (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"Credit Agreement"), among Vintage Petroleum, Inc., a Delaware corporation (the
"Borrower"), the various financial institutions (the "Lenders") as are, or shall
from time to time become, parties thereto, and Bank of Montreal, as agent (the
"Agent") for the Lenders. Unless otherwise defined herein or the context
otherwise requires, terms used herein have the meanings provided in the Credit
Agreement.
This Agreement is delivered to you pursuant to clause (d) of Section
10.11.1 of the Credit Agreement and also constitutes notice to each of you,
pursuant to clause (c) of Section 10.11.1 of the Credit Agreement, of the
assignment and delegation to _______________ (the "Assignee") of ___% of the
Loans and Commitments of _____________ (the "Assignor") outstanding under the
Credit Agreement on the date hereof. After giving effect to the foregoing
assignment and delegation, the Assignor's and the Assignee's Percentages for the
purposes of the Credit Agreement are set forth opposite such Person's name on
the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to
Loans and participations in Letters of Credit being assigned.]
The Assignee hereby acknowledges and confirms that it has received a
copy of the Credit Agreement and the exhibits related thereto, together with
copies of the documents which were required to be delivered under the Credit
Agreement as a condition to the making of the Loans thereunder. The Assignee
further confirms and agrees that in becoming a Lender and in making its
Commitments and Loans and in participating in Letters of Credit under the Credit
Agreement, such actions have and will be made without recourse to, or
representation or warranty by the Agent.
<PAGE>
Except as otherwise provided in the Credit Agreement, effective as of
the date of acceptance hereof by the Agent
(a) the Assignee
(i) shall be deemed automatically to have become a
party to the Credit Agreement, have all the rights and
obligations of a "Lender" under the Credit Agreement and the
other Loan Documents as if it were an original signatory
thereto to the extent specified in the second paragraph
hereof; and
(ii) agrees to be bound by the terms and conditions
set forth in the Credit Agreement and the other Loan Documents
as if it were an original signatory thereto; and
(b) the Assignor shall be released from its obligations under
the Credit Agreement and the other Loan Documents to the extent
specified in the second paragraph hereof.
The Assignor and the Assignee hereby agree that the [Assignor]
[Assignee] will pay to the Agent the processing fee referred to in Section
10.11.1 of the Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans and Commitments and requests the
Agent to acknowledge receipt of this document:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
LIBOR Office:
Telephone:
Facsimile:
(B) Payment Instructions:
The Assignee agrees to furnish the tax form required by the last
sentence of Section 4.6 (if so required) of the Credit Agreement no later than
the date of acceptance hereof by the Agent.
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered
2
<PAGE>
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Adjusted Percentage [ASSIGNOR]
Term Loan Commitment
and
Term Loans: ___%
Revolving Loan
Commitment
and
Revolving Loans: ___%
Letter of Credit
participations: ___%
By:
-------------------------
Title:
Percentage [ASSIGNEE]
Term Loan Commitment
and
Term Loans: ___%
Revolving Loan
Commitment
and
Revolving Loans: ___%
Letter of Credit
participations: ___%
By:
-------------------------
Title:
Accepted and Acknowledged
this __ day of _______, 19__
BANK OF MONTREAL,
as Agent
By:
-------------------------
Title:
[VINTAGE PETROLEUM, INC.,
as Borrower
By:
-------------------------
Title:]
[add signature blocks for each Issuer]
3
<PAGE>
EXHIBIT G
FORM OF ISSUANCE REQUEST
Issuance Request
Bank of Montreal
115 S. LaSalle Street
Chicago, IL 60603
Attention:
--------------------------
Re: Vintage Petroleum, Inc.
Gentlemen and Ladies:
This Issuance Request is delivered to you pursuant to Section 2.8.1 of
the Amended and Restated Credit Agreement, dated as of December 8, 1997
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among Vintage Petroleum, Inc.,
a Delaware corporation (the "Borrower"), the various financial institutions as
are, or may from time to time become, parties thereto (collectively, the
"Lenders"), and Bank of Montreal, acting through certain of its U.S. branches or
agencies ("BMO") as agent (in such capacity, together with any successor(s)
thereto in such capacity, the "Agent") for the Lenders. Terms used herein have
the meanings provided in the Credit Agreement unless otherwise defined herein or
the context otherwise requires.
The Borrower hereby requests that __________________________ as the
Issuer issue a Letter of Credit on [Date] in the aggregate initial face amount
of [and in the form attached hereto].***/
The beneficiary of the requested Letter of Credit will be
_________________________, and such Letter of Credit will be in
support of the [Provide Description] and will have a stated expiry
date of [Date]. [The following documents will be required upon
presentation: [Provide Description]
Attached hereto is an executed copy of an [Application for Letter of
Credit].
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the
Credit Agreement, each of the delivery of this Issuance Request and the issuance
of the Letter of Credit requested hereby constitutes a representation and
warranty by the Borrower that, on the date of such Borrowing, and before and
after giving
- --------
***/ Include where the Borrower is providing the form of Letter of
Credit requested to be issued.
<PAGE>
effect thereto, all statements set forth in Section 5.2.1 are true and correct
in all material respects.
IN WITNESS WHEREOF, the Borrower has caused this Issuance Request to be
executed and delivered by its duly Authorized Officer this ____ day of ________,
19__.
VINTAGE PETROLEUM, INC.
By
-----------------------
Title:
2
<PAGE>
EXHIBIT 13
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995 1994 1993
(In thousands, except per share
amounts and operating data)
FINANCIAL DATA
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Oil and gas sales......................... $ 355,113 $ 258,368 $ 160,254 $ 141,357 $ 113,259
Gathering revenues........................ 18,063 20,508 12,380 14,635 7,861
Gas marketing revenues.................... 45,981 31,920 20,912 27,285 36,175
Total revenues............................ 416,600 311,682 194,797 185,652 160,027
Operating expenses........................ 172,676 138,438 95,121 96,549 85,205
Depreciation, depletion
and amortization..................... 99,065 70,057 52,257 45,774 33,335
Interest.................................. 36,762 30,109 20,178 12,002 6,943
Income before cumulative
effect of accounting change.......... 72,207 41,192 11,361 13,929 16,789
Net income................................ 72,207 41,192 11,361 13,929 18,514
Earnings per share before
effect of accounting change:
Basic............................ 1.41 .86 .27 .33 .42
Diluted.......................... 1.39 .85 .27 .33 .41
Earnings per share:
Basic............................ 1.41 .86 .27 .33 .47
Diluted.......................... 1.39 .85 .27 .33 .45
Dividends declared per share.............. .065 .0525 .0425 .0325 .0225
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (END OF YEAR):
Total assets.............................. $ 990,055 $ 813,950 $ 647,539 $ 407,752 $ 384,461
Long-term debt, less current portion...... 451,096 372,390 315,846 186,548 174,164
Stockholders' equity...................... 383,530 265,105 223,960 155,993 143,392
----------- ----------- ----------- ----------- -----------
OPERATING DATA
PRODUCTION:
Oil (MBbls)............................... 15,457 11,939 7,608 6,657 4,785
Gas (MMcf)................................ 42,691 32,366 30,610 28,884 22,504
----------- ----------- ----------- ----------- -----------
AVERAGE SALES PRICES:
Oil (per Bbl)............................. $ 17.02 $ 16.73 $ 15.26 $ 13.53 $ 14.14
Gas (per Mcf)............................. 2.16 1.81 1.46 1.78 2.03
----------- ----------- ----------- ----------- -----------
PROVED RESERVES (END OF YEAR):
Oil (MBbls)............................... 187,768 178,296 147,871 70,789 63,277
Gas (MMcf)................................ 552,164 382,846 310,762 281,638 273,142
----------- ----------- ----------- ----------- -----------
Present value of estimated future
net revenues before income taxes
discounted at 10 percent
(in thousands):
Oil and gas properties........... $ 1,222,560 $1,807,137 $ 894,249 $ 446,987 $ 359,978
Gathering systems................ 5,940 10,364 10,641 9,215 8,105
Standardized measure of discounted
future net cash flows
(in thousands)....................... 1,016,645 1,392,841 736,546 385,721 339,701
=========== ========== =========== =========== ===========
</TABLE>
Significant acquisitions of producing oil and gas properties during 1997, 1995
and 1993 affect the comparability between the Financial and Operating Data for
the years presented above. Earnings per share and dividends declared per share
amounts have been adjusted to give effect to the Company's two-for-one common
stock split effected on October 7, 1997.
- ----------------------------
28 - Vintage Petroleum, Inc.
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. Principally through acquisitions, the Company has achieved
significant increases in its oil and gas production. The following table
reflects the Company's average oil and gas prices and its oil and gas production
for the periods presented:
- -----------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995
AVERAGE PRICES:
Oil (per Bbl)
U.S................................. $17.23 $17.19 $15.44
Argentina........................... 16.67 15.91 13.98
Bolivia............................. 16.52 -- --
Total............................... 17.02 16.73 15.26
Gas (per Mcf)
U.S................................. $ 2.33 $ 1.81 $ 1.46
Bolivia............................. 1.10 -- --
Total............................... 2.16 1.81 1.46
PRODUCTION:
Oil (MBbls)
U.S................................. 9,692 7,694 6,647
Argentina........................... 5,630 4,245 961
Bolivia............................. 135 -- --
Total............................... 15,457 11,939 7,608
Gas (MMcf)
U.S................................. 36,623 32,366 30,610
Bolivia............................. 6,068 -- --
Total............................... 42,691 32,366 30,610
Total MBOE 22,573 17,333 12,710
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a two percent increase in its average oil
price in 1997 compared to 1996. During 1997, the impact of Argentina oil hedges
reduced the Company's overall average oil price 24 cents to $17.02 per Bbl and
its average Argentina oil price was reduced 66 cents to $16.67 per Bbl.
Approximately 49 percent of the 1997 Argentina oil production was covered by
hedges. Oil hedges reduced the Company's overall 1996 average oil price $2.00 to
$16.73 per Bbl. The Company's 1996 average U.S. oil price was reduced $1.47 to
$17.19 per Bbl while its average Argentina oil price was reduced $2.96 to $15.91
per Bbl. Overall, average realized oil prices in 1996 exceeded 1995 by 10
percent. Before the impact of oil hedges, the Company's average realized oil
prices for 1997, 1996 and 1995 were approximately 84 percent, 85 percent and 82
percent of the average NYMEX reference price, respectively.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices for gas, which may vary significantly by region.
The Company's Bolivia average gas price is tied to a long-term contract for
which the price varies only with seasonal differential adjustments. The
Company's average gas price for 1997 was 19 percent higher than 1996 while its
1996 average gas prices exceeded 1995 by 24 percent. Average realized gas prices
for 1996 were negatively impacted by five cents per Mcf as a result of certain
gas hedges that were in place for 40,000 Mcf of gas per day for the period
January through March 1996.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it
-----------------------
1997 Annual Report - 29
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
considers favorable. Currently, there are no oil or gas hedges in place.
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow. However, the impact of
changes in the market prices for oil and gas on the Company's average realized
prices may be reduced from time to time based on the level of the Company's
hedging activities. Based on 1997 oil production, a change in the average oil
price realized by the Company of $1.00 per Bbl would result in a change in net
income and cash flow before income taxes for the year of approximately $11.4
million and $15.0 million, respectively. A 10 cent per Mcf change in the average
price realized by the Company for gas would result in a change in net income and
cash flow before income taxes for the year of approximately $2.6 million and
$4.1 million, respectively, based on 1997 gas production.
The declines in oil and gas prices since year-end 1997 will adversely
impact net income and cash flow, and may reduce the Standardized Measure at
March 31, 1998, to the extent that a writedown of the Company's capitalized oil
and gas costs may be required.
PERIOD TO PERIOD COMPARISONS
During 1995, 1996 and 1997, the Company made various acquisitions which
significantly impacted the period to period comparisons. Acquisitions made
during 1995 (the "1995 Acquisitions") include the purchase of certain oil and
gas properties from Texaco Exploration and Production, Inc. ("Texaco") (the
"Texaco Properties") in May 1995, the acquisition of a controlling interest in
Cadipsa, S.A., an Argentina oil and gas exploration company which was publicly
traded until September 26, 1996 ("Cadipsa"), in July 1995, the acquisition of
Vintage Oil Argentina, Inc., formerly BG Argentina, S.A. ("Vintage Argentina"),
in September 1995, and the acquisition of certain Argentina oil and gas
properties from Astra Compania Argentina de Petroleo S.A. and Shell Compania
Argentina de Petroleo S.A. (collectively, the "Astra/Shell Properties") in
November 1995 and December 1995, respectively. Acquisitions made during 1996
(the "1996 Acquisitions") include the purchase of certain oil and gas properties
and facilities from Exxon Company, U.S.A. in November 1996 and the acquisition
of Vintage Petroleum Boliviana Ltd., formerly Shamrock Ventures (Boliviana) Ltd.
("Vintage Boliviana"), from affiliates of Diamond Shamrock, Inc. and
Austrofueguina, S.A. in December 1996. In April 1997, the Company purchased
certain oil and gas properties and facilities from subsidiaries of Burlington
Resources Inc. (the "Burlington Properties").
The Company's consolidated revenues and expenses for 1995, 1996 and 1997
include the consolidation of 100 percent of Cadipsa from the date of acquisition
under the purchase method of accounting. The minority interest in income (loss)
of subsidiary reflects the portion of Cadipsa's income (loss) attributable to
the minority ownership for the years ended December 31, 1995, 1996 and 1997.
Effective July 1, 1997, the operations of Cadipsa were merged into Vintage
Argentina and Cadipsa became inactive and is awaiting governmental approval of
formal dissolution.
Year Ended December 31, 1997, Compared to Year Ended
December 31, 1996
Net income was $72.2 million for the year ended December 31, 1997, up 75 percent
from $41.2 million in 1996. Increases in the Company's oil and gas production of
30 percent on an equivalent barrel basis, an increase of 19 percent in natural
gas prices, and an increase of two percent in oil prices are primarily
responsible for the increase in net income. The production increases primarily
relate to the acquisition of the Burlington Properties, exploitation activities
in Argentina, exploration activities in the Galveston Bay area, and the 1996
Acquisitions.
Oil and gas sales increased $96.7 million (37 percent), to $355.1 million
for 1997 from $258.4 million for 1996. A 29 percent increase in oil production
and a two percent increase in average oil prices combined to account for $63.3
million of the increase. A 32 percent increase in gas production and a 19
percent increase in average gas prices contributed to an additional $33.4
million increase.
Other income (expense) decreased $3.5 million (389 percent), to an expense
of $2.6 million for 1997 from income of $0.9 million for 1996, due primarily to
a $5.5 million charge in 1997 related to an adverse judgement in a lawsuit
involving the handling of proceeds received by the Company from a 1992 gas
contract termination. The charge was partially offset by a $1.6 million gain
recognized on the sale of a gas gathering system.
Lease operating expenses, including production taxes, increased $22.4
million (24 percent), to $114.3 million for 1997 from $91.9 million for 1996.
The increase in lease operating expenses is due primarily to costs associated
with the Burlington Properties, the 1996 Acquisitions, and an increase in
severance taxes due to higher oil and gas sales. Lease operating expenses per
equivalent barrel produced decreased to $5.07 in 1997 from $5.30 for 1996.
General and administrative expenses increased $2.1 million (13 percent), to
$18.5 million for 1997 from $16.4 million for 1996, due primarily to the
acquisition of Vintage Boliviana and the addition of personnel as a result of
the acquisition of the Burlington Properties.
Depreciation, depletion and amortization increased $29.0 million (41
percent), to $99.1 million for 1997 from $70.1 million for 1996, due primarily
to the 30 percent increase in production on an equivalent barrel basis.
Amortization per equivalent barrel of the Company's oil and gas properties
increased to $4.27 in 1997 from $3.91 in 1996.
Interest expense increased $6.7 million (22 percent), to $36.8 million for
1997 from $30.1 million for 1996, due primarily to a 29 percent increase in the
Company's total average outstanding debt as a result of the acquisition of the
- ----------------------------
30 - Vintage Petroleum, Inc.
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
Burlington Properties on April 1, 1997, and the acquisitions made late in
1996. The increase was partially offset by a decrease in the Company's overall
average interest rate from 8.36 percent in 1996 to 8.01 percent in 1997.
Year Ended December 31, 1996, Compared to Year Ended
December 31, 1995
Net income was $41.2 million for the year ended December 31, 1996, up 263
percent from $11.4 million in 1995. Increases in the Company's oil and gas
production of 36 percent on an equivalent barrel basis, an increase of 24
percent in natural gas prices, and an increase of 10 percent in oil prices are
primarily responsible for the increase in net income. The production increases
primarily relate to the 1995 Acquisitions.
Oil and gas sales increased $98.1 million (61 percent), to $258.4 million
for 1996 from $160.3 million for 1995. A 57 percent increase in oil production
and a 10 percent increase in average oil prices combined to account for $83.7
million of the increase. A six percent increase in gas production and a 24
percent increase in average gas prices contributed to an additional $14.4
million increase.
Lease operating expenses, including production taxes, increased $25.1
million (38 percent), to $91.9 million for 1996 from $66.8 million for 1995. The
increase in lease operating expenses is due primarily to the 1995 Acquisitions.
Lease operating expenses per equivalent barrel produced increased one percent to
$5.30 in 1996 from $5.25 for 1995.
General and administrative expenses increased $4.8 million (41 percent), to
$16.4 million for 1996 from $11.6 million for 1995, due primarily to the
acquisitions of Cadipsa and Vintage Argentina in the last half of 1995.
Depreciation, depletion and amortization increased $17.8 million (34
percent), to $70.1 million for 1996 from $52.3 million for 1995, due primarily
to the 36 percent increase in production on an equivalent barrel basis.
Interest expense increased $9.9 million (49 percent), to $30.1 million for
1996 from $20.2 million for 1995, due primarily to a 24 percent increase in the
Company's total average outstanding debt related primarily to the 1995
Acquisitions.
CAPITAL EXPENDITURES
During 1997, the Company's domestic oil and gas capital expenditures totaled
$201.2 million. Acquisitions of domestic producing oil and gas properties
totaled $133.5 million, the largest being the April 1997 acquisition of the
Burlington Properties for $102.7 million. Funds for these acquisitions were
provided by advances under the Company's revolving credit facility. During 1997,
the Company's international oil and gas capital expenditures of $67.5 million
included $54.6 million in Argentina, primarily on exploitation and exploration
activities.
During 1996, the Company's domestic oil and gas capital expenditures
totaled $113.7 million of which $50.5 million were for acquisitions of producing
oil and gas properties. The largest of these acquisitions was approximately
$28.5 million for producing oil and gas properties located in south Alabama
acquired from Exxon Company, U.S.A. Funds for these acquisitions were provided
by advances under the Company's revolving credit facility. The Company's 1996
international oil and gas capital expenditures of $90.3 million included
approximately $49.4 million in Argentina, primarily for exploitation activities,
and $37.0 million in Bolivia related to the acquisition of Vintage Boliviana.
Funds for the purchase were provided by advances under the Company's revolving
credit facility.
The Company is committed to perform 17,728 work units within the next three
years related to its concession rights in the Naranjillos field in Santa Cruz
Province, Bolivia. The work unit commitment is guaranteed by the Company through
an $88.6 million letter of credit; however, the Company anticipates that it will
fulfill this three-year work unit commitment through approximately $45 to $50
million of various seismic and drilling capital expenditures. In addition, the
Company is committed to perform 1,400 work units related to an exploration
program within the Chaco Block in Bolivia. The entire obligation can be
fulfilled by the drilling of one 15,000 foot well. The Company estimates the
cost of this well to be approximately $4.5 million and expects to fulfill the
obligation by drilling a well in 1998. Under the Company's exploration contract
on Block 19 in Ecuador, the Company is required to participate in the drilling
of one additional well. The Company expects to drill the well during 1998 at a
cost of approximately $4.0 million.
Except for the commitments discussed above, the timing of most of the
Company's capital expenditures is discretionary with no material long-term
capital expenditure commitments. Consequently, the Company has a significant
degree of flexibility to adjust the level of such expenditures as circumstances
warrant. The Company primarily uses internally generated cash flow to fund
capital expenditures other than significant acquisitions and anticipates that
its cash flow, net of debt service obligations, will be sufficient to fund
substantially all of its planned $185 million of non-acquisition capital
expenditures during 1998. The Company's planned 1998 non-acquisition capital
expenditure budget is currently allocated 65 percent to exploitation activities,
including development and infill drilling, and approximately 35 percent to
exploration activities. The Company does not have a specific acquisition budget
since the timing and size of acquisitions are difficult to forecast. The Company
is actively pursuing additional acquisitions of oil and gas properties. In
addition to internally generated cash flow and advances under its revolving
credit facility, the Company may seek additional sources of capital to fund any
future significant acquisitions (see "--Liquidity").
-----------------------
1997 Annual Report - 31
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
The Company's recent oil and gas capital expenditure history is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Acquisition of oil and gas reserves ............... $ 139,749 $ 91,282 $ 207,658
Drilling .......................................... 71,069 33,482 21,343
Workovers and recompletions ....................... 32,856 51,175 18,313
Acquisition of undeveloped acreage and seismic data 10,349 14,847 7,684
Acquisition and construction of gathering systems . 1,209 724 234
Other ............................................. 13,460 12,546 5,367
--------- --------- ---------
Total ........................................ $ 268,692 $ 204,056 $ 260,599
========= ========= =========
</TABLE>
LIQUIDITY
Internally generated cash flow and the borrowing capacity under its revolving
credit facility are the Company's major sources of liquidity. In addition, the
Company may use other sources of capital, including the issuance of additional
debt securities or equity securities, to fund any major acquisitions it might
secure in the future and to maintain its financial flexibility. The Company
funds its capital expenditures (excluding acquisitions) and debt service
requirements primarily through internally generated cash flows from operations.
Any excess cash flow is used to reduce outstanding advances under the revolving
credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares (after giving effect to the Company's two-for-one common stock split
effected on October 7, 1997) of common stock, all of which were sold by the
Company. Net proceeds to the Company of approximately $47 million were used to
repay a portion of existing indebtedness under the revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96 million were used to repay a portion of existing
indebtedness under the revolving credit facility.
The 8 5/8% Notes are redeemable at the option of the Company, in whole or
part, at any time on or after February 1, 2002. The 8 5/8% Notes mature on
February 1, 2009, with interest payable semiannually on February 1 and August 1
of each year.
The 8 5/8% Notes and the Company's 9% Senior Subordinated Notes Due 2005,
which were issued in 1995 (collectively, the "Notes"), are unsecured senior
subordinated obligations of the Company, rank subordinate in right of payment to
all senior indebtedness (as defined) and rank pari passu with each other. Upon a
change in control (as defined therein) of the Company, holders of the Notes may
require the Company to repurchase all or a portion of the Notes at a purchase
price equal to 101 percent of the principal amount thereof, plus accrued and
unpaid interest. The indentures for the Notes contain limitations on, among
other things, additional indebtedness and liens, the payment of dividends and
other distributions, certain investments and transfers or sales of assets.
The Company's unsecured revolving credit facility under the Amended and
Restated Credit Agreement dated December 8, 1997 (the "Credit Agreement"),
establishes a borrowing base (currently $450 million) determined by the banks'
evaluation of the Company's U.S. and Argentina oil and gas reserves.
Outstanding advances under the Credit Agreement bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. As of February 19, 1998, the Company had
elected a fixed rate based on LIBOR for a substantial portion of its outstanding
advances, which resulted in an average interest rate of approximately 6.6
percent per annum. In addition, the Company must pay a commitment fee ranging
from 0.25 to 0.375 percent per annum on the unused portion of the banks'
commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and Argentina oil and gas
reserves. If the sum of outstanding senior debt exceeds the borrowing base, as
redetermined, the Company must repay such excess. Any principal advances
outstanding under the Credit Agreement at December 1, 2000, will be payable in
12 equal consecutive quarterly installments commencing March 1, 2001, with
maturity at December 1, 2003.
The unused portion of the Credit Agreement was approximately $127 million
at February 19, 1998. The unused portion of the Credit Agreement and the
Company's internally generated cash flow provide liquidity which may be used to
finance future capital expenditures, including acquisitions. As additional U.S.
and Argentina acquisitions are made and properties are added to the borrowing
base, the banks'
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determination of the borrowing base and their commitments may be increased.
Subsequent to the banks' most recent borrowing base determination, oil and gas
prices have declined. The impact of these changes on the banks' next borrowing
base determination is unknown at this time.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
INCOME TAXES
The total provision for U.S. income taxes is based on the Federal corporate
statutory income tax rate plus an estimated average rate for state income taxes.
The Company incurred a current provision for income taxes of approximately $5.2
million for 1997, $2.6 million for 1996, and a current benefit for income taxes
of $1.0 million for 1995.
The Company has a U.S. Federal alternative minimum tax ("AMT") credit
carryforward of approximately $2.9 million which does not expire and is
available to offset U.S. Federal regular income taxes in future years, but only
to the extent that U.S. Federal regular income taxes exceed the AMT in such
years.
Earnings of the Company's foreign subsidiary, Vintage Boliviana, are
subject to Bolivia income taxes. Earnings of the Company's foreign subsidiary,
Vintage Argentina, are subject to Argentina income taxes. As of December 31,
1997, the Company had estimated net operating loss carryforwards of $26.5
million for Argentina income tax reporting purposes which can be used to offset
future taxable income in Argentina. The carryforward amount includes certain
Argentina net operating loss carryforwards which were acquired in a purchase
business combination and are recorded at cost, which is less than the calculated
value under the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. These unrecorded net operating loss
carryforwards will reduce the Company's foreign income tax provision for
financial purposes in future years by approximately $4.5 million when their
benefit is realized. No U.S. deferred tax liability will be recognized related
to the unremitted earnings of these foreign subsidiaries as it is the Company's
intention, generally, to reinvest such earnings permanently.
FOREIGN OPERATIONS
A majority of the Company's foreign operations are located in Argentina. The
Company believes Argentina offers a relatively stable political environment and
does not anticipate any significant change in the near future. The current
democratic form of the government has been in place since 1983 and, since 1989,
has pursued a steady process of privatization, deregulation and economic
stabilization and reforms involving the reduction of inflation and public
spending. Argentina's 12-month trailing inflation rate measured by the Argentine
Consumer Price Index declined from 200.7 percent as of June 1991 to 0.3 percent
as of December 1997.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are denominated in Argentine pesos. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur its
revenues would be unaffected and its operating costs would not be significantly
increased. At the present time, there are no foreign exchange controls
preventing or restricting the conversion of Argentine pesos into dollars.
With the purchase of Vintage Boliviana, the Company expanded its
international operations into Bolivia. Since the mid-1980's, Bolivia has been
undergoing major economic reform, including the establishment of a free-market
economy and the encouragement of foreign private investment. Economic activities
that had been reserved for government corporations were opened to foreign and
domestic private investments. Barriers to international trade have been reduced
and tariffs lowered. A new investment law and revised codes for mining and the
petroleum industry, intended to attract foreign investment, have been
introduced.
On February 1, 1987, a new currency, the Boliviano ("Bs"), replaced the
peso at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house, the Bolsin, which is under the
supervision of the Bolivian central bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at December 31, 1997, was
US$1:Bs 5.37. The Company believes that any currency risk associated with its
Bolivian operations would not have a material impact on the Company's financial
position or results of operations.
YEAR 2000
In the next two years, most large companies will face a potentially serious
information systems problem because many software applications and operational
programs written in the past may not properly recognize calendar dates beginning
in the year 2000. This problem could force computers to either shut down or
provide incorrect data or information. The Company began the process of
identifying the changes required to its computer programs and hardware, in
consultation with software and hardware providers, in early 1997. Software
upgrades designed to correct the year 2000 problem are scheduled to be
implemented in mid-1998. The Company does not anticipate the cost of these
software and hardware changes to have a material adverse impact on its business,
financial condition or results of operations.
-----------------------
1997 Annual Report - 33
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CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31 1997 1996
(In thousands, except shares and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 5,797 $ 2,774
Accounts receivable -
Oil and gas sales ...................................... 60,878 68,219
Joint operations ....................................... 6,358 4,445
Deferred income taxes ..................................... 4,206 --
Prepaids and other current assets ......................... 12,443 9,252
---------- ---------
Total current assets ............................... 89,682 84,690
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method .................. 1,230,288 964,623
Oil and gas gathering systems ............................. 12,943 13,489
Other ..................................................... 8,420 8,439
---------- ---------
1,251,651 986,551
Less accumulated depreciation, depletion and amortization.. 370,103 275,392
---------- ---------
881,548 711,159
---------- ---------
OTHER ASSETS, net ......................................... 18,825 18,101
---------- ---------
$ 990,055 $ 813,950
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revenue payable ........................................... $ 27,085 $ 24,746
Accounts payable - trade .................................. 21,088 20,355
Other payables and accrued liabilities .................... 31,504 26,595
Current portion of long-term debt ......................... -- 6,629
Acquisition costs payable ................................. -- 35,051
---------- ---------
Total current liabilities ........................... 79,677 113,376
---------- ---------
LONG-TERM DEBT, less current portion above ................ 451,096 372,390
---------- ---------
DEFERRED INCOME TAXES ..................................... 71,797 57,610
---------- ---------
OTHER LONG-TERM LIABILITIES ............................... 3,955 5,469
---------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY, per accompanying statements:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding .................... -- --
Common stock, $.005 par, 80,000,000 shares authorized,
51,558,886 and 48,138,224 shares issued and
outstanding .......................................... 258 241
Capital in excess of par value ............................ 202,008 152,200
Retained earnings ......................................... 181,264 112,664
---------- ---------
383,530 265,105
---------- ---------
$ 990,055 $ 813,950
========== =========
The accompanying notes are an integral part of these statements.
- ---------------------------
34 - Vintage Petroleum, Inc.
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31 1997 1996 1995
(In thousands, except per share amounts)
REVENUES:
<S> <C> <C> <C>
Oil and gas sales .............................. $ 355,113 $ 258,368 $ 160,254
Oil and gas gathering .......................... 18,063 20,508 12,380
Gas marketing .................................. 45,981 31,920 20,912
Other income (expense) ......................... (2,557) 886 1,251
----------- ----------- -----------
416,600 311,682 194,797
----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating, including production taxes .... 114,346 91,916 66,771
Oil and gas gathering .......................... 14,932 16,985 9,511
Gas marketing .................................. 43,398 29,537 18,839
General and administrative ..................... 18,541 16,441 11,601
Depreciation, depletion and amortization ....... 99,065 70,057 52,257
Interest ....................................... 36,762 30,109 20,178
----------- ----------- -----------
327,044 255,045 179,157
----------- ----------- -----------
Income before income taxes and minority interest 89,556 56,637 15,640
PROVISION FOR INCOME TAXES:
Current ........................................ 5,235 2,610 (955)
Deferred ....................................... 11,911 12,328 6,034
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARY (203) (507) 800
----------- ----------- -----------
Net Income ..................................... $ 72,207 $ 41,192 $ 11,361
=========== =========== ===========
EARNINGS PER SHARE:
Basic .......................................... $ 1 .41 $ .86 $ .27
=========== =========== ===========
Diluted ........................................ $ 1 .39 $ .85 $ .27
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic .......................................... 51,178 48,090 41,555
=========== =========== ===========
Diluted ........................................ 52,026 48,654 42,081
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-----------------------
1997 Annual Report - 35
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital
In Excess
Common Stock of Par Retained
Shares Amount Value Earnings Total
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ................ 40,326 $ 202 $ 91,100 $ 64,691 $ 155,993
Net income ............................... -- -- -- 11,361 11,361
Issuance of common stock ................. 5,606 28 55,176 -- 55,204
Exercise of warrants ..................... 588 3 1,465 -- 1,468
Exercise of stock options and
resulting tax effects ................... 802 4 1,865 -- 1,869
Cash dividends declared ($.0425 per share) -- -- -- (1,935) (1,935)
-------- --------- --------- --------- ---------
Balance at December 31, 1995 ................ 47,322 237 149,606 74,117 223,960
Net income ............................... -- -- -- 41,192 41,192
Exercise of warrants ..................... 612 3 1,529 -- 1,532
Exercise of stock options and
resulting tax effects ................... 204 1 1,065 -- 1,066
Cash dividends declared ($.0525 per share) -- -- -- (2,645) (2,645)
-------- --------- --------- --------- ---------
Balance at December 31, 1996 ................ 48,138 241 152,200 112,664 265,105
Net income ............................... -- -- -- 72,207 72,207
Issuance of common stock ................. 3,000 15 46,978 -- 46,993
Exercise of stock options and
resulting tax effects ................... 421 2 2,830 -- 2,832
Cash dividends declared ($.0650 per share) -- -- -- (3,607) (3,607)
-------- --------- --------- --------- ---------
Balance at December 31, 1997 ................ 51,559 $ 258 $ 202,008 $ 181,264 $ 383,530
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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36 - Vintage Petroleum, Inc.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31 1997 1996 1995
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 72,207 $ 41,192 $ 11,361
Adjustments to reconcile net income to cash
provided by operating activities -
Depreciation, depletion and amortization .......... 99,065 70,057 52,257
Minority interest in income (loss) of subsidiary... 203 507 (800)
Provision for deferred income taxes ............... 11,911 12,328 6,034
---------- ---------- ---------
183,386 124,084 68,852
Decrease (increase) in receivables ....................... 5,428 (24,614) (11,836)
Increase (decrease) in payables and accrued liabilities .. 7,187 14,619 (1,012)
Other .................................................... (569) 2,493 (1,805)
---------- ---------- ---------
Cash provided by operating activities ................ 195,432 116,582 54,199
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -
Oil and gas properties ............................... (266,105) (162,129) (141,490)
Gathering systems and other .......................... (2,275) (1,430) (3,256)
Proceeds from sales of oil and gas properties ............ 360 1,291 604
Purchase of companies, net of cash acquired .............. (38,788) (9,160) (45,886)
Other .................................................... (2,670) (3,233) 2,777
---------- ---------- ---------
Cash used by investing activities .................... (309,478) (174,661) (187,251)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock ..................................... 47,910 2,528 51,191
Sale of 8 5/8% Senior Subordinated Notes Due 2009 ........ 96,270 -- --
Sale of 9% Senior Subordinated Notes Due 2005 ............ -- -- 145,137
Advances on revolving credit facility and other borrowings 192,521 149,014 178,264
Payments on revolving credit facility and other borrowings (216,335) (90,720) (237,679)
Dividends paid ........................................... (3,297) (2,514) (1,747)
---------- ---------- ---------
Cash provided by financing activities ................ 117,069 58,308 135,166
---------- ---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................ 3,023 229 2,114
CASH AND CASH EQUIVALENTS, beginning of year ............. 2,774 2,545 431
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of year ................... $ 5,797 $ 2,774 $ 2,545
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
-----------------------
1997 Annual Report - 37
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Vintage Petroleum, Inc. is an independent energy company with operations
primarily in the exploration and production, gas marketing and gathering
segments of the oil and gas industry. Approximately 99 percent of the Company's
operations are within the exploration and production segment based on 1997
operating income. Its core areas of exploration and production operations
include the West Coast, Gulf Coast, East Texas and Mid-Continent areas of the
United States, the San Jorge Basin of Argentina and, beginning in 1997, the
Chaco Basin in Bolivia. Argentina exploration and production operations
commenced in 1995 as a result of the acquisitions discussed in Note 7.
The consolidated financial statements include the accounts of Vintage
Petroleum, Inc. and its wholly- and majority-owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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, if any, 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.
OIL AND GAS PROPERTIES
Oil and gas properties are accounted for using the full cost method which
provides for the capitalization of all acquisition, exploration and development
costs incurred for the purpose of finding oil and gas reserves, including
salaries, benefits and other internal costs directly attributable to these
activities. The Company capitalized $5.5 million, $5.5 million and $4.4 million
of internal costs in 1997, 1996 and 1995, respectively. The unamortized
capitalized costs of oil and gas properties, including estimated future
development and abandonment costs, are amortized using the units-of-production
method based on proved reserves on a country-by-country basis. The Company's
unamortized costs of oil and gas properties are limited, on a country-by-country
basis, to the sum of the future net revenues attributable to proved oil and gas
reserves discounted at 10 percent plus the cost of any unproved properties. If
the Company's unamortized costs in oil and gas properties exceed this ceiling
amount, a provision for additional depreciation, depletion and amortization is
required. At December 31, 1997, 1996 and 1995, the Company's cost of oil and gas
properties by country did not exceed such ceiling amounts. Amortization per
equivalent barrel of the Company's U.S. oil and gas properties was $4.27, $3.78
and $3.89 for the years ended December 31, 1997, 1996 and 1995, respectively.
Amortization per equivalent barrel of the Company's Argentina oil and gas
properties for the years ended December 31, 1997, 1996 and 1995 was $4.37, $4.12
and $4.28, respectively. Amortization per equivalent barrel of the Company's
Bolivia oil and gas properties for the year ended December 31, 1997 was $3.30.
The Company had no Bolivia operations prior to 1997.
REVENUE RECOGNITION
Natural gas revenues are recorded using the sales method. Under this method, the
Company recognizes revenues based on actual volumes of gas sold to purchasers.
The Company and other joint interest owners may sell more or less than their
entitlement share of the natural gas volumes produced. A liability is recorded
and revenue is deferred if the Company's excess sales of natural gas volumes
exceed its estimated remaining recoverable reserves.
HEDGING
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations. Gains or losses on swap agreements are
recognized as an adjustment to sales revenue when the related transactions being
hedged are finalized. Gains or losses from swap agreements that do not qualify
for accounting treatment as hedges are recognized currently as other income or
expense. The cash flows from such agreements are included in operating
activities in the consolidated statements of cash flows.
DEPRECIATION
Depreciation of property, plant and equipment (other than oil and gas
properties) is provided using both straight-line and accelerated methods based
on estimated useful lives ranging from three to ten years.
INCOME TAXES
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such temporary
differences arise primarily from the deduction of certain oil and gas
exploration and development costs which are capitalized for financial reporting
purposes and differences in the methods of depreciation.
STATEMENTS OF CASH FLOWS
Cash equivalents consist of highly liquid money-market mutual funds and bank
deposits with initial maturities of three months or less.
During the years ended December 31, 1997, 1996 and 1995, the Company made
cash payments for interest totaling $33.2 million, $29.6 million and $21.6
million, respectively, and cash payments for U.S. income taxes of $5.3 million,
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$1.3 million and $0.5 million, respectively. Cash payments of $0.1 million were
made during 1996 for foreign tax withholdings. No cash payments were made during
1997 or 1995 for foreign income taxes.
During 1995, the Company purchased a majority interest in Cadipsa (see Note
7). The value of the non-cash consideration is not reflected in the Company's
1995 Consolidated Statement of Cash Flows. Such non-cash consideration consisted
of $5.7 million of the Company's common stock, $3.2 million cash paid in 1996,
and approximately $58.1 million of net liabilities and a $7.9 million minority
interest added through consolidation of Cadipsa.
In December 1995, the Company purchased certain oil and gas properties from
Shell (see Note 7). Deferred payments valued at $5.1 million represent non-cash
consideration and are not reflected in the Company's 1995 Consolidated Statement
of Cash Flows.
In November 1996, the Company agreed to acquire 100 percent of the
outstanding common stock of Shamrock Ventures (Boliviana) Ltd. (subsequently
renamed Vintage Petroleum Boliviana Ltd.). Acquisition costs of $35.1 million
were unpaid at December 31, 1996, and are reflected in the accompanying balance
sheet as of such date as acquisition costs payable. These acquisition costs were
paid in 1997 and are reflected in the Company's 1997 Consolidated Statement of
Cash Flows.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("SFAS No. 128"), establishing new standards for
computing and presenting earnings per share. The provisions of SFAS No. 128 are
effective for earnings per share calculations for periods ending after December
15, 1997. The Company has adopted SFAS No. 128 effective December 31, 1997, and
all earnings per share amounts disclosed herein have been calculated under the
provisions of SFAS No. 128. The adoption of SFAS No. 128 did not have a material
effect on previously reported earnings per share or on 1997 earnings per share.
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted
earnings per common share were computed assuming the exercise of all dilutive
options, as determined by applying the treasury stock method.
GENERAL AND ADMINISTRATIVE EXPENSE
The Company receives fees for operation of jointly-owned oil and gas properties
and records such reimbursements as reductions of general and administrative
expense. Such fees totaled approximately $3.4 million, $2.3 million and $2.9
million in 1997, 1996 and 1995, respectively.
REVENUE PAYABLE
Amounts payable to royalty and working interest owners resulting from sales of
oil and gas from jointly-owned properties and from purchases of oil and gas by
the Company's marketing and gathering segments are classified as revenue payable
in the accompanying financial statements.
ACCOUNTS RECEIVABLE
The Company's oil and gas, gas marketing and gathering sales are to a variety of
purchasers, including intrastate and interstate pipelines or their marketing
affiliates, independent marketing companies and major oil companies. The
Company's joint operations accounts receivable are from a large number of major
and independent oil companies, partnerships, individuals and others who own
interests in the properties operated by the Company.
2. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996, consists of the following:
- --------------------------------------------------------------------------------
1997 1996
(In thousands)
Revolving credit facility............................ $ 202,200 $ 200,800
Senior subordinated notes-
9% Notes due 2005,
less unamortized discount........................ 149,674 149,633
8 5/8% Notes due 2009,
less unamortized discount........................ 99,222 --
Subsidiary debt -
International Finance
Corporation notes................................ -- 25,986
Other subsidiary debt.............................. -- 2,600
--------- ---------
451,096 379,019
Less - Current portion of
long-term debt..................................... -- 6,629
--------- ---------
$ 451,096 $ 372,390
========= =========
The Company has no long-term debt maturities prior to March 1, 2001.
Aggregate maturities of long-term debt for each of the years ending December 31,
2001, through December 31, 2003, are $67.4 million, $67.4 million and $67.4
million, with $248.9 million thereafter. The Company had $4.9 million and $2.3
million of accrued interest payable related to its long-term debt at December
31, 1997 and 1996, respectively, included in other payables and accrued
liabilities.
-----------------------
1997 Annual Report - 39
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REVOLVING CREDIT FACILITY
The Company has available an unsecured revolving credit facility under the
Amended and Restated Credit Agreement dated December 8, 1997, (the "Credit
Agreement"), between the Company and certain banks. The Credit Agreement
establishes a borrowing base (currently $450 million) based on the banks'
evaluation of the Company's U.S. and Argentina oil and gas reserves.
Outstanding advances under the Credit Agreement bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. In addition, the Company must pay a
commitment fee ranging from 0.25 to 0.375 percent per annum on the unused
portion of the banks' commitment. Total outstanding advances at December 31,
1997, were $202.2 million at an average interest rate of approximately 6.8
percent.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and Argentina oil and gas
reserves. Subsequent to the banks' most recent borrowing base determination, oil
and gas prices have declined. The impact of these changes on the banks' next
borrowing base determination is unknown at this time. If the sum of outstanding
senior debt exceeds the borrowing base, as redetermined, the Company must repay
such excess. Any principal advances outstanding at December 1, 2000, will be
payable in 12 equal consecutive quarterly installments commencing March 1, 2001,
with maturity at December 1, 2003.
The terms of the Credit Agreement impose certain restrictions on the
Company regarding the pledging of assets and limitations on additional
indebtedness. In addition, the Credit Agreement requires the maintenance of a
minimum current ratio (as defined) and tangible net worth (as defined) of $275
million plus 75 percent of the net proceeds of any future equity offerings.
SENIOR SUBORDINATED NOTES
On December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "9% Notes"). The 9% Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after December 15,
2000. The 9% Notes mature on December 15, 2005, with interest payable
semiannually on June 15 and December 15 of each year.
On February 5, 1997, the Company issued $100 million of its 8 5/8% Senior
Subordinated Notes Due 2009 (the "8 5/8% Notes"). The 8 5/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after February 1, 2002. The 8 5/8% Notes mature on February 1, 2009, with
interest payable semiannually on February 1 and August 1 of each year.
The 9% Notes and 8 5/8% Notes (collectively, the "Notes") are unsecured
senior subordinated obligations of the Company, rank subordinate in right of
payment to all senior indebtedness (as defined) and rank pari passu with each
other. Upon a change in control (as defined) of the Company, holders of the
Notes may require the Company to repurchase all or a portion of the Notes at a
purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The indentures for the Notes contain limitations
on, among other things, additional indebtedness and liens, the payment of
dividends and other distributions, certain investments and transfers or sales of
assets.
3. CAPITAL STOCK
On May 13, 1997, the Company's stockholders approved an increase in the number
of authorized shares of common stock, $.005 per value per share, from 40 million
to 80 million.
On September 12, 1997, the Company's Board of Directors approved a
two-for-one stock split of its common stock effective October 7, 1997, to
stockholders of record on September 26, 1997. All references to the number of
shares and per share amounts in the financial statements and notes thereto have
been restated to reflect the stock split.
PUBLIC OFFERINGS AND OTHER ISSUANCES
On July 5, 1995, the Company issued 605,616 shares of common stock valued at
$5.7 million as partial consideration to acquire a controlling interest in
Cadipsa (see Note 7).
On December 20, 1995, the Company completed a public offering of 5,587,400
shares of common stock, of which 5,000,000 shares were sold by the Company and
587,400 shares were sold by a stockholder. Net proceeds to the Company were
approximately $49.5 million. The net proceeds were used to repay advances made
under the revolving credit facility to fund the acquisition of a portion of the
Astra/Shell Properties (see Note 7) and to finance a substantial portion of the
acquisition of the remaining portion of the Astra/Shell Properties.
A portion of a stock subscription warrant was exercised on December 20,
1995, for the purchase of 587,400 shares of the Company's common stock at an
exercise price of $2.50 per share yielding net proceeds to the Company of
approximately $1.5 million. The remaining portion of the stock subscription
warrant was exercised on January 4, 1996, for the purchase of 612,600 shares of
the Company's common stock at an exercise price of $2.50 per share yielding net
proceeds to the Company of approximately $1.5 million. The Company had no stock
subscription warrants outstanding as of December 31, 1997.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares of common stock, all of which were sold by the Company. Net proceeds to
the Company of approximately $47 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
- ----------------------------
40 - Vintage Petroleum, Inc.
<PAGE>
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STOCK PLANS
The Company has three fixed plans which reserve shares of common stock for
issuance to key employees and non-management directors. The Company accounts for
these plans under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25") and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"). Accordingly, no compensation cost
has been recognized. Had compensation cost for these plans been determined
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
- --------------------------------------------------------------------------------
1997 1996 1995
(In thousands,
except per share amounts)
Net income - as reported .......... $ 72,207 $ 41,192 $ 11,361
Net income - pro forma .......... 71,258 40,781 11,320
Earnings per share - as reported:
Basic ........................ 1.41 .86 .27
Diluted ...................... 1.39 .85 .27
Earnings per share - pro forma:
Basic ........................ 1.39 .85 .27
Diluted ...................... 1.37 .84 .27
The pro forma effect on net income for 1997, 1996 and 1995 may not be
representative of the pro forma effect on net income in future years because
SFAS No. 123 has not been applied to options granted prior to January 1, 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The weighted average assumptions used
for options granted in 1997 include a dividend yield of 0.4 percent, expected
volatility of approximately 28.9 percent, a risk-free interest rate of
approximately 6.3 percent, and expected lives of 4.2 years. The weighted average
assumptions used for options granted in 1996 include a dividend yield of 0.4
percent, expected volatility of approximately 29.5 percent, a risk-free interest
rate of approximately 6.2 percent, and expected lives of 4.2 years. The weighted
average assumptions used for options granted in 1995 include a dividend yield of
0.4 percent, expected volatility of approximately 31.3 percent, a risk-free
interest rate of approximately 5.9 percent, and expected lives of 4.2 years.
Under the 1983 Stock Option Plan, as amended (the "1983 Plan"), incentive
stock options were granted to key employees of the Company. Generally, options
granted under the 1983 Plan were exercisable for a two to seven year period
beginning three years from the date granted. As of December 31, 1997, all
available options have been granted and exercised under the 1983 Plan.
Under the 1990 Stock Plan, as amended (the "1990 Plan"), a total of up to
4,500,000 shares of common stock are available for issuance to key employees of
the Company. The 1990 Plan permits the granting of any or all of the following
types of awards: (a) stock options, (b) stock appreciation rights, and (c)
restricted stock. As of December 31, 1997, awards for a total of 750,000 shares
of common stock remain available for grant under the 1990 Plan.
The 1990 Plan is administered by the Board of Directors of the Company (the
"Board"). Subject to the terms of the 1990 Plan, the Board has the authority to
determine plan participants, the types and amounts of awards to be granted and
the terms, conditions and provisions of awards. Options granted pursuant to the
1990 Plan may, at the discretion of the Board, be either incentive stock options
or non-qualified stock options. The exercise price of incentive stock options
may not be less than the fair market value of the common stock on the date of
grant and the term of the option may not exceed 10 years. In the case of
non-qualified stock options, the exercise price may not be less than 85 percent
of the fair market value of the common stock on the date of grant. Any stock
appreciation rights granted under the 1990 Plan will give the holder the right
to receive cash in an amount equal to the difference between the fair market
value of the share of common stock on the date of exercise and the exercise
price. Restricted stock under the 1990 Plan will generally consist of shares
which may not be disposed of by participants until certain restrictions
established by the Board lapse.
Under the Non-Management Director Stock Option Plan (the "Director Plan"),
60,000 shares of common stock are available for issuance to the outside
directors of the Company. Each outside director receives an initial option to
purchase 5,000 shares of common stock during the director's first year of
service to the Company. Annually thereafter, options to purchase 1,000 shares of
common stock are to be granted to each outside director. Options granted
pursuant to the Director Plan are non-qualified stock options with terms not to
exceed 10 years and the option exercise price must equal the fair market value
of the common stock on the date of grant. As of December 31, 1997, options for a
total of 24,000 shares of common stock remain available for grant under the
Director Plan.
-----------------------
1997 Annual Report - 41
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The following is an analysis of all option activity under the 1983 Plan, the
1990 Plan and the Director Plan for 1997, 1996 and 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Beginning stock options outstanding............... 2,688,904 $ 8.13 2,266,204 $ 7.41 2,914,000 $ 5.82
Stock options granted............................. 810,000 15.53 630,000 9.71 196,000 10.12
Stock options canceled............................ -- -- (4,000) 9.69 (40,000) 9.07
Stock options exercised........................... (438,582) 4.99 (203,300) 4.94 (803,796) 2.24
--------- --------- ---------
Ending stock options outstanding.................. 3,060,322 $ 10.53 2,688,904 $ 8.13 2,266,204 $ 7.41
========= ========= ========= ======== ========= =========
Ending stock options exercisable.................. 1,406,757 $ 8.15 1,198,774 $ 6.93 683,592 $ 5.58
========= ========= ========= ======== ========= =========
Weighted average fair value of options granted.... $ 4.92 $ 3.17 $ 3.38
========= ========= =========
</TABLE>
Of the 3,060,322 options outstanding at December 31, 1997: (a) 1,320,322
options have exercise prices between $3.50 and $9.41, with a weighted average
exercise price of $7.94 and a weighted average contractual life of 6.1 years
(1,252,715 of these options are exercisable at a weighted average price of
$7.90); (b) 1,740,000 options have exercise prices between $9.69 and $17.31,
with a weighted average exercise price of $12.50 and a weighted average
contractual life of 8.5 years (154,042 of these options are exercisable at a
weighted average price of $10.19).
All of the outstanding options are exercisable at various times in years
1998 through 2007. All incentive stock options and non-qualified options were
granted at fair market value on the date of grant. As of December 31, 1997, no
awards other than incentive and non-qualified stock options have been granted
under the 1990 Plan. Generally, options granted under the 1990 Plan have a
10-year term and provide for vesting after three years.
At December 31, 1997, a total of 3,834,322 shares of the Company's common
stock are reserved for issuance pursuant to the 1990 Plan and the Director Plan.
PREFERRED STOCK
Preferred stock at December 31, 1997, consists of 5,000,000 authorized but
unissued shares. Preferred stock may be issued from time to time in one or more
series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rates and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund and any other rights, preferences, privileges and restrictions
applicable to each series of preferred stock.
4. COMMITMENTS AND CONTINGENCIES
The Company is committed to perform 17,728 work units within the next three
years related to its concession rights in the Naranjillos field in Santa Cruz
Province, Bolivia. The work unit commitment is guaranteed by the Company through
an $88.6 million letter of credit; however, the Company anticipates that it will
fulfill this three-year work unit commitment through approximately $45 to $50
million of various seismic and drilling capital expenditures. In addition, the
Company is committed to perform 1,400 work units related to an exploration
program within the Chaco Block in Bolivia. The entire obligation can be
fulfilled by the drilling of one 15,000 foot well. The Company estimates the
cost of this well to be approximately $4.5 million and expects to fulfill this
obligation by drilling a well in 1998.
The Company has $101.8 million in letters of credit (including the $88.6
million letter of credit discussed above) outstanding at December 31, 1997.
These letters of credit relate primarily to various obligations for acquisition
and exploration activities in South America and bonding requirements of various
state regulatory agencies for oil and gas operations.
Under the Company's exploration contract on Block 19 in Ecuador, the
Company is required to participate in the drilling of one additional well. The
Company expects to drill this well during 1998 at a cost of approximately $4.0
million.
Rent expense was $1.2 million, $1.0 million and $0.8 million for 1997,
1996 and 1995, respectively. The future minimum commitments under long-term
noncancelable leases for office space are $1.3 million, $1.1 million, $1.0
million, $1.0 million and $0.1 million for the calendar years 1998 through 2002,
respectively.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa in the Corte Suprema de Justicia de la Nacion (the Supreme Court
of Justice of the Argentine Republic, Buenos Aires, Argentina), Dossier No.
s-1451, seeking to recover approximately $15.1 million (which sum includes
interest) allegedly due as additional royalties on four concessions granted in
1990 in which the Company currently owns a 100 percent working interest. The
Company and its predecessors in title have been paying royalties at an eight
percent rate; the Province of Santa Cruz claims the rate should be 12 percent.
The amount of such claim will increase at the differential of these royalty
rates until
- ----------------------------
42 - Vintage Petroleum, Inc.
<PAGE>
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this claim is resolved. With respect to the 50 percent interest in the two
concessions that the Company acquired from British Gas, plc (see Note 7), the
Company believes that it is entitled to indemnification by British Gas, plc for
any loss sustained by the Company as a result of this claim. Such
indemnification equals approximately $4.4 million of the $15.1 million claim.
The Company has no indemnification from its predecessors in title with respect
to the payment of royalties on the other two concessions. Although the Company
cannot predict the outcome of this litigation, based upon the advice of counsel,
the Company does not expect the resolution of this claim to have a material
adverse impact on the Company's financial position or results of operations.
The Company is a defendant in various other lawsuits and is a party in
governmental proceedings from time to time arising in the ordinary course of
business. In the opinion of management, none of the various other pending
lawsuits and proceedings should have a material adverse impact on the Company's
financial position or results of operations.
5. FINANCIAL INSTRUMENTS
PRICE RISK MANAGEMENT
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations on its operating results and cash flows.
These swap agreements typically entitle the Company to receive payments from (or
require it to make payments to) the counterparties based upon the differential
between a fixed price and a floating price based on a published index. The
Company's hedging activities are conducted with major investment and commercial
banks which the Company believes are minimal credit risks.
At December 31, 1997, the Company was not a party to any swap agreements.
At December 31, 1996, the Company was a party to oil price swap agreements for
calendar 1997 covering 2.738 MMBbls at an average NYMEX reference price of
$19.26 per Bbl.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments. The Company estimates the value of the Notes based on quoted market
prices. The Company estimates the value of its other long-term debt based on the
estimated borrowing rates currently available to the Company for long-term loans
with similar terms and remaining maturities. The estimated fair value of the
Company's long-term debt at December 31, 1997 and 1996, was $463.6 million and
$383.9 million, respectively, compared with a carrying value of $451.1 million
and $379.0 million, respectively.
The fair value of commodity swap agreements is the amount at which they
could be settled, based on quoted market prices. At December 31, 1996, the
Company would have been required to pay approximately $9.2 million to terminate
its swap agreements. The Company had no swap agreements in place at December 31,
1997.
The carrying value of other financial instruments approximates fair value
because of the short maturity of those instruments.
6. INCOME TAXES
Income before income taxes and minority interest is composed of the following:
- --------------------------------------------------------------------------------
1997 1996 1995
(In thousands)
Domestic ............................. $ 55,047 $ 38,016 $ 15,536
Foreign .............................. 34,509 18,621 104
-------- -------- --------
$ 89,556 $ 56,637 $ 15,640
======== ======== ========
The total provision for income taxes consists of the following:
- --------------------------------------------------------------------------------
1997 1996 1995
(In thousands)
Current:
Domestic ........................ 4,277 $ 2,610 $ (955)
Foreign ........................ 958 -- --
Deferred:
Domestic ........................ 15,000 12,328 6,034
Foreign ........................ (3,089) -- --
-------- -------- -------
$ 17,146 $ 14,938 $ 5,079
======== ======== =======
A reconciliation of the Federal statutory income tax rate to the effective rate
is as follows:
- --------------------------------------------------------------------------------
1997 1996 1995
Statutory income tax rate ............ 35.0% 35.0% 35.0%
State income tax ..................... 3.9 3.9 3.9
Federal income tax credits ........... (2.1) (3.1) (7.4)
Foreign operations ................... 0.4 (8.2) 1.3
Valuation allowance reversal.......... (16.2) -- --
Other ................................ (1.9) (1.2) (0.3)
-------- -------- -------
19.1% 26.4% 32.5%
======== ======== =======
The components of the Company's net deferred tax liability as of December 31,
1997 and 1996, are as follows:
- --------------------------------------------------------------------------------
1997 1996
(In thousands)
Deferred Tax Liabilities:
Differences between book
and tax basis of property......................... $ 74,552 $ 62,735
Other............................................... 619 778
-------- --------
75,171 63,513
-------- --------
Deferred Tax Assets:
Argentina net operating loss
carryforwards..................................... 4,206 14,472
Alternative minimum tax
credit carryforward............................... 2,949 5,403
Other............................................... 425 500
-------- --------
7,580 20,375
Valuation allowance................................... -- (14,472)
-------- --------
7,580 5,903
-------- --------
Net deferred tax liability............................ $ 67,591 $ 57,610
======== ========
-----------------------
1997 Annual Report - 43
<PAGE>
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Earnings of the Company's foreign subsidiary, Vintage Oil Argentina, Inc.
(see Note 7), are subject to Argentina income taxes. Earnings of the Company's
foreign subsidiary, Vintage Petroleum Boliviana Ltd., are subject to Bolivia
income taxes. No U.S. deferred tax liability will be recognized related to the
unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently.
As of December 31, 1997, the Company has a U.S. Federal alternative minimum
tax ("AMT") credit carryforward of approximately $2.9 million. The AMT credit
carryforward does not expire and is available to offset U.S. Federal regular
income taxes in future years, but only to the extent that U.S. Federal regular
income taxes exceed the AMT in such years.
As of December 31, 1997, the Company has estimated net operating loss
carryforwards for Argentina income tax reporting purposes of approximately $26.5
million which can be used to offset future taxable income in Argentina. The
carryforward amount includes certain Argentina net operating loss carryforwards
which were acquired in a purchase business combination and are recorded at cost,
which is less than the calculated value under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. These
unrecorded net operating loss carryforwards will reduce the Company's foreign
income tax provision in future years by approximately $4.5 million when their
benefit is realized.
7. SIGNIFICANT ACQUISITIONS
In May 1995, the Company acquired certain U.S. oil and gas properties from
Texaco Exploration and Production, Inc. for approximately $26.7 million cash
(the "Texaco Acquisition").
Through a series of transactions during the last six months of 1995, the
Company purchased approximately 71.6 percent of the outstanding common stock of
Cadipsa S.A. ("Cadipsa"), a publicly-traded Argentine oil and gas exploration
and production company, for 605,616 shares of the Company's common stock (valued
at $5.7 million) and $12.4 million cash (the "Cadipsa Acquisition").
Approximately $58.1 million of net liabilities and a $7.9 million minority
interest resulted from the consolidation of Cadipsa as of the acquisition date.
Effective December 26, 1996, Cadipsa was delisted with the Argentina Stock
Exchange and is no longer a publicly-traded company. Effective July 1, 1997, the
operations of Cadipsa were merged into Vintage Oil Argentina, Inc. and Cadipsa
became inactive and is awaiting Argentina governmental approval of formal
dissolution.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of BG Argentina, S.A. ("BG Argentina") from British Gas, plc for
$37 million cash (the "BG Acquisition"). BG Argentina was subsequently renamed
Vintage Oil Argentina, Inc.
On November 3, 1995, the Company purchased a 35 percent interest in certain
Argentina oil and gas properties (the "Astra/Shell Properties") from Astra
Compania Argentina de Petroleo S.A. for $17.9 million cash. On December 28,
1995, the Company purchased the remaining 65 percent interest in the Astra/Shell
Properties from Shell Compania Argentina de Petroleo S.A. for $32.8 million cash
and deferred payments valued at $5.1 million.
The Company accounted for these acquisitions under the purchase method. The
consolidated statements of income include the operating results of the above
acquisitions since their acquisition date.
The Company completed on December 20, 1995, a public offering of
5,587,400 shares of the Company's common stock (the "Common Stock Offering"), of
which 5,000,000 shares were sold by the Company and 587,400 shares were sold by
a stockholder (see Note 3). The net proceeds to the Company of approximately
$49.5 million were used to fund a substantial portion of the purchase of the
Astra/Shell Properties.
The Company's unaudited pro forma revenues, net income and earnings per
share for the year ended December 31, 1995, presented below have been prepared
assuming the Common Stock Offering, the Texaco Acquisition, the Cadipsa
Acquisition, the BG Acquisition and the acquisition of the Astra/Shell
Properties had been consummated as of January 1, 1995. However, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transactions occurred on such date.
- --------------------------------------------------------------------------------
1995
Revenues (in thousands) ............................................ $244,921
Net income (in thousands)........................................... 18,712
Earnings per share:
Basic ............................................................ .40
Diluted .......................................................... .40
On April 1, 1997, the Company acquired certain producing oil and gas
properties and facilities located in the Gulf Coast area of Texas and Louisiana
from subsidiaries of Burlington Resources Inc. for approximately $102.7 million
in cash (the "Burlington Acquisition"). Funds for this acquisition were provided
by advances under the Company's revolving credit facility.
If the Burlington Acquisition had been consummated as of January 1, 1996,
the Company's unaudited pro forma revenues, net income and earnings per share
for the years ended December 31, 1997 and 1996, would have been as shown below;
however, such pro forma information is not necessarily indicative of what
actually would have occurred had the transaction occurred on such date.
- --------------------------------------------------------------------------------
1997 1996
Revenues (in thousands)................................. $431,318 $375,742
Net income (in thousands)............................... 74,956 51,960
Earnings per share:
Basic................................................. 1.46 1.08
Diluted............................................... 1.44 1.07
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8. SEGMENT INFORMATION
The Company operates in the oil and gas exploration and production industry in
the United States and South America. Operations in the gathering and gas
marketing industries are in the United States. The following is industry segment
data for the years ended December 31, 1997, 1996 and 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
(In thousands)
REVENUES:
Exploration and production -
U.S................................................ $ 252,353 $ 190,839 $ 146,819
Argentina.......................................... 93,864 67,529 13,435
Other international................................ 8,896 -- --
Gas marketing.......................................... 110,450 62,851 49,775
Gathering.............................................. 34,171 34,917 22,289
Other income (expense)................................. (2,557) 886 1,251
Elimination of intersegment sales...................... (80,577) (45,340) (38,772)
--------- --------- ---------
$ 416,600 $ 311,682 $ 194,797
========= ========= =========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST:
Exploration and Production -
U.S................................................ $ 95,857 $ 70,382 $ 39,524
Argentina.......................................... 45,157 29,110 4,114
Other international................................ 3,446 (841) --
Gas marketing.......................................... 2,584 2,383 2,073
Gathering.............................................. 3,388 2,186 1,568
Other income (expense)................................. (4,175) 886 1,251
--------- --------- ---------
Operating income....................................... 146,257 104,106 48,530
Corporate expenses..................................... (19,939) (17,360) (12,712)
Interest expense....................................... (36,762) (30,109) (20,178)
--------- --------- ---------
$ 89,556 $ 56,637 $ 15,640
========= ========= =========
IDENTIFIABLE ASSETS:
Exploration and production -
U.S................................................ $ 634,298 $ 499,439 $ 431,391
Argentina.......................................... 238,227 228,002 180,488
Other international................................ 57,846 44,473 1,269
Gas marketing.......................................... 12,427 8,422 5,431
Gathering.............................................. 8,564 10,249 11,084
Corporate.............................................. 38,693 23,365 17,876
--------- --------- ---------
$ 990,055 $ 813,950 $ 647,539
========= ========= =========
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production -
U.S................................................ $ 67,427 $ 49,466 $ 45,730
Argentina.......................................... 24,578 17,494 4,115
Other international................................ 4,302 841 --
Gathering.............................................. 1,360 1,337 1,301
Corporate.............................................. 1,398 919 1,111
--------- --------- ---------
$ 99,065 $ 70,057 $ 52,257
========= ========= =========
CAPITAL ADDITIONS:
Exploration and Production -
U.S................................................ $ 200,002 $ 113,037 $ 88,149
Argentina.......................................... 54,609 49,429 170,947
Other international................................ 12,872 40,866 1,269
Gathering.............................................. 1,209 724 234
Corporate.............................................. 1,799 706 3,023
--------- --------- ---------
$ 270,491 $ 204,762 $ 263,622
========= ========= =========
</TABLE>
During 1997, 1996 and 1995, sales to one crude oil purchaser represented
approximately 10 percent, 15 percent and 17 percent, respectively, of the
Company's total revenues (exclusive of eliminations of intersegment sales and
the impact of hedges).
-----------------------
1997 Annual Report - 45
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9. DETAIL OF PREPAIDS AND OTHER CURRENT ASSETS
- --------------------------------------------------------------------------------
1997 1996
(In thousands)
Value added tax receivable................................. $ 5,494 $ 3,510
Other prepaids and current assets.......................... 6,949 5,742
------- -------
$12,443 $ 9,252
======= =======
10. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1997 and 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
1997
Revenues..................................... $ 99,234 $ 99,843 $104,387 $113,136
Operating income............................. 40,824 32,623 33,564 39,246
Net income................................... 20,989 14,233 15,234 21,751
Earnings per share:
Basic.................................... .42 .28 .30 .42
Diluted.................................. .41 .27 .29 .41
1996
Revenues..................................... $ 71,340 $ 76,043 $ 75,952 $ 88,347
Operating income............................. 21,619 26,714 23,979 31,794
Net income................................... 7,174 9,796 9,827 14,395
Earnings per share:
Basic.................................... .15 .20 .20 .30
Diluted.................................. .15 .20 .20 .29
</TABLE>
Revenues and operating income for the quarter ended December 31, 1997, were
decreased by a $4.4 million charge resulting from an adverse judgement against
the Company in a lawsuit involving a 1992 gas contract termination and increased
by $1.6 million from a gain on the sale of a gas gathering system. The net
impact of these items reduced net income for the quarter ended December 31,
1997, by $1.7 million, or three cents per basic and diluted share.
- ----------------------------
46 - Vintage Petroleum, Inc.
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11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years ended
December 31, 1997, 1996 and 1995. The Company began operations in Argentina
through various acquisitions in the last two quarters of 1995 (see Note 7) and
its Bolivia operations began in January 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1997
U.S. Argentina Bolivia Other Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $252,353 $ 93,864 $ 8,896 $ -- $355,113
Production (lifting) costs....................... 89,069 24,129 1,148 -- 114,346
Depreciation, depletion and amortization......... 67,427 24,578 3,785 517 96,307
-------- -------- -------- -------- --------
Results of operations before income taxes........ 95,857 45,157 3,963 (517) 144,460
Income tax expense (benefit)..................... 37,288 -- 1,347 (201) 38,434
-------- -------- -------- -------- --------
Results of operations (excluding corporate
overhead and interest costs)................ $ 58,569 $ 45,157 $ 2,616 $ (316) $106,026
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
U.S. Argentina Other Total
(In thousands)
<S> <C> <C> <C> <C>
Revenues.......................................................... $190,839 $ 67,529 $ -- $258,368
Production (lifting) costs........................................ 70,991 20,925 -- 91,916
Depreciation, depletion and amortization.......................... 49,466 17,494 841 67,801
-------- -------- -------- --------
Results of operations before income taxes......................... 70,382 29,110 (841) 98,651
Income tax expense (benefit)...................................... 25,197 -- (327) 24,870
-------- -------- -------- --------
Results of operations (excluding corporate
overhead and interest costs)................................. $ 45,185 $ 29,110 $ (514) $ 73,781
======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
U.S. Argentina Total
(In thousands)
<S> <C> <C> <C>
Revenues......................................................................... $146,819 $ 13,435 $160,254
Production (lifting) costs....................................................... 61,565 5,206 66,771
Depreciation, depletion and amortization......................................... 45,730 4,115 49,845
-------- -------- --------
Results of operations before income taxes........................................ 39,524 4,114 43,638
Income tax expense............................................................... 12,332 -- 12,332
-------- -------- --------
Results of operations (excluding corporate overhead and interest costs).......... $ 27,192 $ 4,114 $ 31,306
======== ======== ========
</TABLE>
-----------------------
1997 Annual Report - 47
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
CAPITALIZED COSTS AND COSTS INCURRED RELATING TO OIL AND GAS PRODUCING
ACTIVITIES
The Company's net investment in oil and gas properties at December 31, 1997 and
1996, was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997
U.S. ARGENTINA BOLIVIA OTHER TOTAL
(In thousands)
<S> <C> <C> <C> <C> <C>
Unproved properties not being amortized...... $ 19,813 $ -- $ -- $ 6,786 $ 26,599
Proved properties being amortized............ 882,012 274,785 46,892 -- 1,203,689
---------- ---------- ---------- ---------- ----------
Total capitalized costs................. 901,825 274,785 46,892 6,786 1,230,288
Less accumulated depreciation,
depletion and amortization.............. 307,486 46,328 3,785 -- 357,599
---------- ---------- ---------- ---------- ----------
Net capitalized costs................ $ 594,339 $ 228,457 $ 43,107 $ 6,786 $ 872,689
========== ========== ========== ========== ==========
</TABLE>
The $6.8 million of unproved properties shown for Other in 1997 relate to
the Company's exploration project in Ecuador. As discussed in Note 4, the
Company plans to drill an additional well in 1998 at an estimated cost of $4.0
million. Depending on the success of this planned well, all or a portion of the
Company's costs of oil and gas properties in Ecuador may be impaired in 1998
resulting in a charge to earnings.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996
U.S. Argentina Bolivia Other Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Unproved properties not being amortized...... $ 16,420 $ -- $ -- $ 5,087 $ 21,507
Proved properties being amortized............ 685,692 220,376 37,048 -- 943,116
---------- ---------- ---------- ---------- ----------
Total capitalized costs................. 702,112 220,376 37,048 5,087 964,623
Less accumulated depreciation,
depletion and amortization.............. 240,059 21,688 -- 841 262,588
---------- ---------- ---------- ---------- ----------
Net capitalized costs................ $ 462,053 $ 198,688 $ 37,048 $ 4,246 $ 702,035
========== ========== ========== ========== ==========
</TABLE>
- ----------------------------
48 - Vintage Petroleum, Inc.
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
The following sets forth certain information with respect to costs incurred
(exclusive of general support facilities) in the Company's oil and gas
activities during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997
U.S. Argentina Bolivia Other Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties............. $ 7,138 $ -- $ 560 $ 75 $ 7,773
Producing properties............... 133,548 -- 6,201 -- 139,749
Exploratory............................. 16,463 3,971 -- 2,983 23,417
Development............................. 42,853 50,638 3,053 -- 96,544
-------- -------- -------- -------- --------
Total costs incurred............ $200,002 $ 54,609 $ 9,814 $ 3,058 $267,483
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996
U.S. Argentina Bolivia Other Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties............. $ 9,868 $ 2,080 $ -- $ 3,818 $ 15,766
Producing properties............... 50,480 3,754 37,048 -- 91,282
Exploratory............................. 6,502 1,383 -- -- 7,885
Development............................. 46,187 42,212 -- -- 88,399
-------- -------- -------- -------- --------
Total costs incurred............ $113,037 $ 49,429 $ 37,048 $ 3,818 $203,332
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1995
U.S. Argentina Other Total
(In thousands)
<S> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties............................. $ 6,415 $ -- $ 1,269 $ 7,684
Producing properties............................... 38,896 168,762 -- 207,658
Exploratory............................................. 2,037 -- -- 2,037
Development............................................. 40,801 2,185 -- 42,986
-------- -------- -------- --------
Total costs incurred............................ $ 88,149 $170,947 $ 1,269 $260,365
======== ======== ======== ========
</TABLE>
-----------------------
1997 Annual Report - 49
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED)
Proved reserves are estimated quantities of crude oil, natural gas and natural
gas liquids 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 reserves are those which are
expected to be recovered through existing wells with existing equipment and
operating methods. The following is an analysis of the Company's proved oil and
gas reserves which are located in the United States, Argentina and Bolivia as
estimated by the Company's independent petroleum consultants, Netherland, Sewell
& Associates, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Argentina Bolivia Total
Oil Gas Oil Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MBbls) (MMcf) (MBbls) (MMcf)
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves at December 31, 1994........... 70,789 281,638 -- -- -- 70,789 281,638
Revisions of previous estimates................ 7,160 18,405 2,952 -- -- 10,112 18,405
Extensions, discoveries and other additions.... 338 2,015 -- -- -- 338 2,015
Production..................................... (6,647) (30,610) (961) -- -- (7,608) (30,610)
Purchase of reserves-in-place.................. 8,840 39,486 65,653 -- -- 74,493 39,486
Sales of reserves-in-place..................... (253) (172) -- -- -- (253) (172)
------- ------- ------- ------- ------- ------- -------
Proved reserves at December 31, 1995........... 80,227 310,762 67,644 -- -- 147,871 310,762
Revisions of previous estimates................ 13,382 21,834 12,449 -- -- 25,831 21,834
Extensions, discoveries and other additions.... 458 5,445 308 -- -- 766 5,445
Production..................................... (7,694) (32,366) (4,245) -- -- (11,939) (32,366)
Purchase of reserves-in-place.................. 8,095 20,787 2,849 4,953 57,758 15,897 78,545
Sales of reserves-in-place..................... (130) (1,374) -- -- -- (130) (1,374)
------- ------- ------- ------- ------- ------- -------
Proved reserves at December 31, 1996........... 94,338 325,088 79,005 4,953 57,758 178,296 382,846
Revisions of previous estimates................ (9,693) (18,045) 7,065 607 28,414 (2,021) 10,369
Extensions, discoveries and other additions.... 345 29,451 1,211 -- -- 1,556 29,451
Production..................................... (9,692) (36,623) (5,630) (135) (6,068) (15,457) (42,691)
Purchase of reserves-in-place.................. 24,653 62,253 -- 758 111,212 25,411 173,465
Sales of reserves-in-place..................... (17) (1,277) -- -- -- (17) (1,277)
------- ------- ------- ------- ------- ------- -------
Proved reserves at December 31, 1997........... 99,934 360,847 81,651 6,183 191,316 187,768 552,163
======= ======= ======= ======= ======= ======= =======
Proved developed reserves at:
December 31, 1995.............................. 63,791 270,427 36,928 -- -- 100,719 270,427
======= ======= ======= ======= ======= ======= =======
December 31, 1996.............................. 79,250 289,464 46,582 1,007 51,276 126,839 340,740
======= ======= ======= ======= ======= ======= =======
December 31, 1997.............................. 79,494 316,306 47,806 1,502 140,124 128,802 456,430
======= ======= ======= ======= ======= ======= =======
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES (UNAUDITED)
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under
SFAS No. 69. The Standardized Measure does not purport to present the fair
market value of proved oil and gas reserves. This would require consideration of
expected future economic and operating conditions which are not taken into
account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash inflows
were reduced by estimated future production, development and abandonment costs
based on year-end costs to determine pre-tax cash inflows. Future income taxes
were computed by applying the statutory tax rate to the excess of pre-tax cash
inflows over the Company's tax basis in the associated proved oil and gas
properties. Tax credits and permanent differences were also considered in the
future income tax calculation. Future net cash inflows after income taxes were
discounted using a 10 percent annual discount rate to arrive at the Standardized
Measure.
- ----------------------------
50 - Vintage Petroleum, Inc.
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1997
U.S. Argentina Bolivia Total
(In thousands)
<S> <C> <C> <C> <C>
Future cash inflows......................................... $2,321,760 $1,138,154 $ 357,767 $3,817,681
Future production costs..................................... 1,005,407 448,262 32,321 1,485,990
Future development and abandonment costs.................... 177,792 150,544 27,985 356,321
---------- ---------- ---------- ----------
Future net cash inflows before income tax expense........... 1,138,561 539,348 297,461 1,975,370
Future income tax expense................................... 281,019 99,588 97,739 478,346
---------- ---------- ---------- ----------
Future net cash flows....................................... 857,542 439,760 199,722 1,497,024
10 percent annual discount for
estimated timing of cash flows......................... 253,026 142,735 84,618 480,379
---------- ---------- ---------- ----------
Standardized Measure of discounted
future net cash flows.................................. $ 604,516 $ 297,025 $ 115,104 $1,016,645
========== ========== ========== ==========
</TABLE>
Crude oil and natural gas prices have declined from the year-end prices
used in determining the Standardized Measure at December 31, 1997. Such declines
may reduce the Standardized Measure at March 31, 1998, to the extent that a
writedown of the Company's capitalized oil and gas costs would be required.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996
U.S. Argentina Bolivia Total
(In thousands)
<S> <C> <C> <C> <C>
Future cash inflows......................................... $3,110,810 $1,743,483 $ 188,211 $5,042,504
Future production costs..................................... 1,063,823 575,101 51,578 1,690,502
Future development and abandonment costs.................... 133,243 134,219 14,804 282,266
---------- ---------- ---------- ----------
Future net cash inflows before income tax expense........... 1,913,744 1,034,163 121,829 3,069,736
Future income tax expense................................... 611,554 229,649 38,268 879,471
---------- ---------- ---------- ----------
Future net cash flows....................................... 1,302,190 804,514 83,561 2,190,265
10 percent annual discount for
estimated timing of cash flows......................... 484,288 285,896 27,240 797,424
---------- ---------- ---------- ----------
Standardized Measure of discounted
future net cash flows.................................. $ 817,902 $ 518,618 $ 56,321 $1,392,841
========== ========== ========== ==========
</TABLE>
-----------------------
1997 Annual Report - 51
<PAGE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The following is an analysis of the changes in the Standardized Measure during
1997, 1996 and 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Standardized Measure - Beginning of year.......................... $ 1,392,841 $ 736,546 $ 385,721
Increases (decreases) -
Sales, net of production costs............................... (240,767) (166,452) (93,483)
Net change in sales price, net of production costs........... (824,264) 644,367 131,697
Discoveries and extensions, net of related
future development and production costs................. 56,334 20,085 4,585
Changes in estimated future development costs................ (89,637) (69,433) (31,210)
Development costs incurred................................... 77,127 77,174 37,600
Revisions of previous quantity estimates..................... 3,508 251,736 59,319
Accretion of discount........................................ 180,714 88,411 44,699
Net change in income taxes................................... 215,131 (248,427) (86,296)
Purchase of reserves-in-place................................ 240,658 149,900 311,449
Sales of reserves-in-place................................... (2,518) (1,859) (661)
Timing of production of reserves and other................... 7,518 (89,207) (26,874)
----------- ----------- -----------
Standardized Measure - End of year................................ $ 1,016,645 $ 1,392,841 $ 736,546
=========== =========== ===========
</TABLE>
- ----------------------------
52 - Vintage Petroleum, Inc.
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF VINTAGE PETROLEUM, INC.:
We have audited the accompanying consolidated balance sheets of Vintage
Petroleum, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vintage Petroleum, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Tulsa, Oklahoma ARTHUR ANDERSEN LLP
February 19, 1998
-----------------------
1997 Annual Report - 53
<PAGE>
[LOGO OF VINTAGE
PETROLEUM APPEARS HERE]
STOCKHOLDER INFORMATION
STOCK PRICE INFORMATION
The Company's common stock trades on the New York Stock Exchange.
The table below reflects the high and low sales prices and cash dividends
paid per share during each quarter of 1996 and 1997 (after giving effect to the
Company's two-for-one common stock split effected on October 7, 1997).
- --------------------------------------------------------------------------------
Quarter Ended High Low Dividends
Paid
March 31, 1996 $ 11 1/4 $ 9 9/16 $ .0125
June 30, 1996 13 3/8 9 1/2 .0125
September 30, 1996 14 15/16 11 3/16 .0125
December 31, 1996 17 3/8 14 3/8 .015
March 31, 1997 18 11/16 13 .015
June 30, 1997 18 1/16 12 1/2 .015
September 30, 1997 25 1/2 15 3/8 .015
December 31, 1997 25 7/8 17 .02
DIVIDEND POLICY
The Company began paying a quarterly dividend in the fourth quarter of 1992 and
expects to continue paying a regular quarterly cash dividend.
NUMBER OF STOCKHOLDERS
Substantially all of the Company's stockholders maintain their shares in "street
name" accounts and are not individually stockholders of record. There were
approximately 85 stockholders of record at December 31, 1997.
NYSE SYMBOL: VPI
ANNUAL MEETING
The Annual Meeting of Stockholders will be held:
Tuesday, May 12, 1998, at 10:00 A.M.
Bank of Oklahoma Tower, Ninth Floor
One Williams Center, Tulsa, Oklahoma
TRANSFER AGENT AND REGISTRAR
Stockholders should refer specific questions concerning their stock
certificates, in writing, directly to the Transfer Agent and Registrar, or by
calling toll free 1-800-526-0801:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
www.chasemellon.com
FORM 10-K
Copies of the Company's Form 10-K for the year ended December 31, 1997, as filed
with the Securities and Exchange Commission, are available to stockholders at no
charge upon written request to:
Stockholder Relations
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, OK 74172
INDEPENDENT AUDITORS
Arthur Andersen LLP
6450 S. Lewis, Suite 300
Tulsa, OK 74136
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This Annual Report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this Annual Report, other than
statements of historical facts, that address activities, events or developments
that the Company expects, believes or anticipates will or may occur in the
future, including future capital expenditures (including the amount and nature
thereof), the drilling of wells, reserve estimates, future production of oil and
gas, future cash flows, future reserve activity and other such matters are
forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of its knowledge of its business, such statements are not
guarantees of future performance and actual results or developments may differ
materially from those in the forward-looking statements.
Factors that could cause actual results to differ materially from those in
forward-looking statements include: oil and gas prices; exploitation and
exploration successes; continued availability of capital and financing; general
economic, market or business conditions; acquisition opportunities (or lack
thereof); changes in laws or regulations; risk factors listed from time to time
in the Company's reports filed with the Securities and Exchange Commission; and
other factors. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
- --------------------------------
54 - Vintage Petroleum, Inc.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
State or Jurisdiction Ownership
Name of Incorporation Percentage
---- --------------------- ----------
<S> <C> <C>
Vintage Gas, Inc. Oklahoma 100
Vintage Marketing, Inc. Oklahoma 100
Vintage Pipeline, Inc. Oklahoma 100
Vintage Petroleum
International, Inc. Oklahoma 100
Vintage Oil Argentina, Inc.
(formerly BG Argentina, S.A.) Cayman Islands 100
Cadipsa S.A. Republic of Argentina 97
Vintage Petroleum
Argentina, Inc. Cayman Islands 100
Vintage Petroleum
Ecuador, Inc. Cayman Islands 100
Vintage Petroleum Boliviana Ltd.
(formerly Shamrock Ventures
(Boliviana) Ltd.) Bermuda 100
VP Argentina, Inc. Cayman Islands 100
Vintage Petroleum Yemen Inc. Cayman Islands 100
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 19, 1998, incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8 (File
Nos. 33-37505 and 333-09205).
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 27, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC.]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
---------------------------------------------------------
As Petroleum Engineers, we hereby consent to the inclusion of the
information included in this Form 10-K and incorporated by reference in this
Form 10-K from the 1997 Annual Report of Stockholders of Vintage Petroleum, Inc.
with respect to the oil and gas reserves of Vintage Petroleum, Inc., the future
net revenues from such reserves and the present value thereof, which information
has been included in this Form 10-K in reliance upon the report of this firm and
upon the authority of this firm as experts in petroleum engineering. We hereby
further consent to all references to our firm included in this Form 10-K and to
the incorporation by reference in the Registration Statements on Form S-8, Nos.
33-37505 and 333-09205, of Vintage Petroleum, Inc. of such information with
respect to the oil and gas reserves of Vintage Petroleum, Inc., the future net
revenues from such reserves and the present value thereof.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Frederic D. Sewell
________________________________________
Frederic D. Sewell
President
Dallas, Texas
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,797
<SECURITIES> 0
<RECEIVABLES> 67,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 89,682
<PP&E> 1,251,651
<DEPRECIATION> 370,103
<TOTAL-ASSETS> 990,055
<CURRENT-LIABILITIES> 79,677
<BONDS> 451,096
0
0
<COMMON> 258
<OTHER-SE> 383,272
<TOTAL-LIABILITY-AND-EQUITY> 990,055
<SALES> 419,157
<TOTAL-REVENUES> 416,600
<CGS> 172,676
<TOTAL-COSTS> 172,676
<OTHER-EXPENSES> 117,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,762
<INCOME-PRETAX> 89,556
<INCOME-TAX> 17,146
<INCOME-CONTINUING> 72,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,207
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.39
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 3,858 3,008 9,125
<SECURITIES> 0 0 0
<RECEIVABLES> 53,436 55,867 60,022
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 10,020 14,773 79,214
<PP&E> 1,025,523 1,161,957 1,194,820
<DEPRECIATION> 295,392 320,498 345,972
<TOTAL-ASSETS> 829,566 935,851 948,327
<CURRENT-LIABILITIES> 70,530 75,360 69,154
<BONDS> 357,156 445,983 447,868
0 0 0
0 0 0
<COMMON> 258<F1> 258<F1> 258<F1>
<OTHER-SE> 333,831<F1> 348,260<F1> 362,654<F1>
<TOTAL-LIABILITY-AND-EQUITY> 829,566 935,851 948,327
<SALES> 99,115 199,415 303,419
<TOTAL-REVENUES> 99,234 199,077 303,464
<CGS> 38,690 80,986 125,200
<TOTAL-COSTS> 38,690 80,986 125,200
<OTHER-EXPENSES> 24,391 54,502 86,058
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 8,178 17,952 27,455
<INCOME-PRETAX> 27,975 45,637 64,751
<INCOME-TAX> 6,869 10,212 14,092
<INCOME-CONTINUING> 20,989 35,222 50,456
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 20,989 35,222 50,456
<EPS-PRIMARY> .42<F1> .70<F1> 1.00<F1>
<EPS-DILUTED> .41<F1> .68<F1> .97<F1>
<FN>
<F1>Common, other-SE and EPS have been restated to reflect two-for-one common
stock split effected on October 7, 1997. Additionally, EPS-Primary and
EPS-Diluted have been restated for the adoption of SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 3,697 5,569 5,339 2,774
<SECURITIES> 0 0 0 0
<RECEIVABLES> 47,828 50,136 48,635 72,664
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 10,131 9,240 13,536 9,252
<PP&E> 813,504 841,986 879,737 986,551
<DEPRECIATION> 222,349 238,890 256,645 275,392
<TOTAL-ASSETS> 663,011 678,502 701,358 813,950
<CURRENT-LIABILITIES> 60,574 62,258 62,644 113,376
<BONDS> 321,541 323,752 336,380 372,390
0 0 0 0
0 0 0 0
<COMMON> 240<F1> 240<F1> 240<F1> 240<F1>
<OTHER-SE> 232,353<F1> 241,887<F1> 250,992<F1> 264,865<F1>
<TOTAL-LIABILITY-AND-EQUITY> 663,011 678,502 701,358 813,950
<SALES> 70,876 146,859 222,676 310,796
<TOTAL-REVENUES> 71,340 147,383 223,335 311,682
<CGS> 32,948 65,894 100,329 138,438
<TOTAL-COSTS> 32,948 65,894 100,329 138,438
<OTHER-EXPENSES> 20,826 41,738 63,339 86,498
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 7,319 14,737 22,467 30,109
<INCOME-PRETAX> 10,247 25,014 37,200 56,637
<INCOME-TAX> 3,065 7,846 10,043 14,938
<INCOME-CONTINUING> 7,174 16,970 26,796 41,192
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 7,174 16,970 26,796 41,192
<EPS-PRIMARY> .15<F1> .35<F1> .55<F1> .86<F1>
<EPS-DILUTED> .15<F1> .35<F1> .55<F1> .85<F1>
<FN>
<F1>Common, other-SE and EPS have been restated to reflect two-for-one common
stock split effected on October 7, 1997. Additionally, EPS-Primary and
EPS-Diluted have been restated for the adoption of SFAS No. 128.
</FN>
</TABLE>
<PAGE>
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES,INC.]
EXHIBIT 99.1
March 18, 1998
Mr. S. Craig George
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Dear Mr. George:
In accordance with your request, we have estimated the proved reserves
and future revenue, as of January 1, 1998, to the Vintage Petroleum, Inc.
(Vintage) interest in certain oil and gas properties located in the United
States as listed in the accompanying tabulations. This report has been prepared
using constant prices and costs and conforms to the guidelines of the Securities
and Exchange Commission (SEC).
As presented in the accompanying summary projections, Tables I through
V, we estimate the net reserves and future net revenue to the Vintage interest,
as of January 1, 1998, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
--------------------------------------- --------------------------------------
Oil Gas Present Worth
Category (MBBL) (MMCF) Total at 10%
- --------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 68,691.3 237,705.2 755,635.9 504,549.7
Non-Producing 10,739.9 78,600.4 227,033.5 125,229.3
Proved Undeveloped 20,368.7 44,542.1 204,311.2 103,910.6
Pipeline Revenue/(1)/
Proved Developed 0.0 0.0 10,772.4 5,940.3
---------------- ---------------- ---------------- -----------------
Total Proved 99,799.9 360,847.7 1,197,753.0 739,629.9
</TABLE>
/(1)/ Revenue is from the operations of Vintage Pipeline, Inc.
The oil reserves shown include crude oil, condensate, and gas plant
liquids. Oil volumes are expressed in thousands of barrels (MBBL); a barrel is
equivalent to 42 United States gallons. Gas volumes are expressed in millions of
standard cubic feet (MMCF) at the contract temperature and pressure bases.
The estimates shown in the previous table do not include the effect of
the Section 29 nonconventional fuel federal income tax credit. However, at the
request of Vintage, we have prepared estimates of net reserves and future
revenue including the effect of the tax credit for
<PAGE>
certain oil wells located in the Cat Canyon and Santa Maria Valley Fields, Santa
Barbara County, California, which Vintage believes qualify for the tax credit.
The basis used to identify wells which qualify for the Section 29 tax credit and
the methods used to calculate the effect of this credit were provided by Vintage
and have not been independently verified. As presented in the accompanying
summary projections, Tables VI through X, we estimate the net reserves and
future net revenue to the Vintage interest, including the effect of the Section
29 tax credit, as of January 1, 1998, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (M$)
--------------------------------------- --------------------------------------
Oil Gas Present Worth
Category (MBBL) (MMCF) Total at 10%
- --------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 68,750.0 237,705.2 761,170.0 509,043.8
Non-Producing 10,743.7 78,600.4 227,269.2 125,402.5
Proved Undeveloped 20,440.3 44,542.1 204,458.9 103,928.6
Pipeline Revenue/(1)/
Proved Developed 0.0 0.0 10,772.4 5,940.3
---------------- ---------------- ---------------- -----------------
Total Proved 99,934.0 360,847.7 1,203,670.5 744,315.2
</TABLE>
/(1)/ Revenue is from the operations of Vintage Pipeline, Inc.
The effect of the Section 29 tax credit on estimated reserves and future revenue
is presented in the table following this letter, along with estimated reserves
and future revenue to the Vintage interest in certain oil and gas properties, as
of January 1, 1998, both excluding and including the effect of the tax credit.
As shown in the Table of Contents, this report includes summary
projections of reserves and revenue for each reserve category along with one-
line summaries of reserves, economics, and basic data by lease, excluding the
effect of the Section 29 tax credit. Also included are summary projections of
reserves and revenue for each reserve category along with one-line summaries of
reserves, economics, and basic data by lease, including the effect of the
Section 29 tax credit, for the Cat Canyon and Santa Maria Valley Fields. For the
purposes of this report, the term "lease" refers to a single economic
projection.
The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, and proved
undeveloped reserves. In accordance with SEC guidelines, our estimates do not
include any value for probable or possible reserves which may exist for these
properties. This report does not include any value which could be attributed to
interests in undeveloped acreage beyond those tracts for which undeveloped
reserves have been estimated.
Future gross revenue to the Vintage interest is prior to deducting state
production taxes and ad valorem taxes. Future net revenue is after deducting
these taxes, future capital costs, payments
<PAGE>
to net profits interests, and operating expenses, but before consideration of
federal income taxes; future net revenue for the federal offshore properties is
also after deducting abandonment costs. In accordance with SEC guidelines, the
future net revenue has been discounted at an annual rate of 10 percent to
determine its "present worth." The present worth is shown to indicate the effect
of time on the value of money and should not be construed as being the fair
market value of the properties.
For the purposes of this report, a field inspection of the properties
has not been performed nor has the mechanical operation or condition of the
wells and their related facilities been examined. We have not investigated
possible environmental liability related to the properties; therefore, our
estimates do not include any costs which may be incurred due to such possible
liability. Our estimates do not include any salvage value for the lease and well
equipment nor the cost of abandoning the onshore properties or properties
located in state waters offshore Louisiana and Texas. Future revenue estimates
for properties located in federal waters offshore Louisiana also do not include
any salvage value for the lease and well equipment, but do include Vintage's
estimates of the costs to abandon the wells, platforms, and production
facilities. Abandonment costs for federal offshore properties are included with
other capital investments.
Oil prices used in this report are based on an average December 1997
West Texas Intermediate posted price of $16.18 per barrel, adjusted by lease for
gravity, transportation fees, premiums, and regional posted price differentials.
As requested, additional oil premiums have been included for certain fields when
Vintage is receiving premiums through purchaser contracts over and above those
at the lease level. Oil prices are held constant in accordance with SEC
guidelines.
Gas prices used in this report are based on either the most current
price available for each lease, adjusted to a December 1997 regional spot market
price, or the contract price. The contract prices are escalated according to
contract provisions until contract expiration in accordance with SEC guidelines
for fixed and determinable price adjustments. At contract expiration, gas prices
are adjusted to the December 1997 regional spot market price and held constant
thereafter. All other gas prices are held constant in accordance with SEC
guidelines.
Lease and well operating costs are based on operating expense records of
Vintage. For non-operated properties, these costs include the per-well overhead
expenses allowed under joint operating agreements along with costs estimated to
be incurred at and below the district and field levels. As requested, lease and
well operating costs for the operated properties include only direct lease and
field level costs. Headquarters general and administrative overhead expenses of
Vintage are not included. Lease and well operating costs are held constant in
accordance with SEC guidelines. Capital costs are included as required for
workovers, new development wells, and production equipment.
We have made no investigation of potential gas volume and value
imbalances which may have resulted from overdelivery or underdelivery to the
Vintage interest. Therefore, our estimates of reserves and future revenue do not
include adjustments for the settlement of any such imbalances; our projections
are based on Vintage receiving its net revenue interest share of estimated
future gross gas production.
<PAGE>
The reserves included in this report are estimates only and should not
be construed as exact quantities. They may or may not be recovered; if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts. The sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in this report due to governmental policies and
uncertainties of supply and demand. Also, estimates of reserves may increase or
decrease as a result of future operations.
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland,
Sewell & Associates, Inc., nor has the actual degree or type of interest owned
been independently confirmed. The data used in our estimates were obtained from
Vintage Petroleum, Inc.; other interest owners; various operators of the
properties; and the nonconfidential files of Netherland, Sewell & Associates,
Inc. and were accepted as accurate. We are independent petroleum engineers,
geologists, and geophysicists; we do not own an interest in these properties and
are not employed on a contingent basis. Basic geologic and field performance
data together with our engineering work sheets are maintained on file in our
office.
Very truly yours,
/s/ Frederic D. Sewell
TJT:LJH
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC.]
March 19, 1998
Mr. S. Craig George
Vintage Petroleum, Inc.
4200 One Williams Center
Tulsa, Oklahoma 74172
Dear Mr. George:
In accordance with your request, we have estimated the proved reserves
and future revenue, as of January 1, 1998, to the combined interests of Vintage
Oil Argentina, Inc. and Shamrock Ventures (Boliviana) Ltd. (collectively
referred to herein as "Total South America") in certain oil and gas properties
located in the South American countries of Argentina and Bolivia as listed in
the accompanying tabulations. This report has been prepared using constant
prices and costs and conforms to the guidelines of the Securities and Exchange
Commission (SEC).
As presented in the accompanying summary projections, Tables I through
IV, we estimate the net reserves and future net revenue to the Total South
America interest, as of January 1, 1998, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue (USM$)
--------------------------------------- --------------------------------------
Oil Gas Present Worth
Category (MBBL) (MMCF) Total at 10%
- --------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 37,537.5 42,165.3 276,139.5 200,318.8
Non-Producing 11,771.1 97,958.8 215,182.6 115,826.0
Proved Undeveloped 38,525.0 51,192.1 371,336.1 183,732.5
-------------- -------------- ----------------- -----------------
Total Proved 87,833.6 191,316.2 862,658.2 499,877.3
</TABLE>
The oil reserves shown include crude oil and condensate. Oil volumes are
expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United
States gallons. Gas volumes are expressed in millions of standard cubic feet
(MMCF) at the contract temperature and pressure bases. All prices, costs, and
revenue estimates are expressed in United States dollars referred to hereinafter
as $.
As shown in the Table of Contents, this report includes summary
projections of reserves and revenue for each country by reserve category along
with one-line summaries of reserves, economics, and basic data by lease. For the
purposes of this report, the term "lease" refers to a single economic
projection.
The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, and proved
undeveloped reserves. In accordance with
<PAGE>
SEC guidelines, our estimates do not include any value for probable or possible
reserves which may exist for these properties. This report does not include any
value which could be attributed to interests in undeveloped acreage beyond those
tracts for which undeveloped reserves have been estimated.
Future gross revenue to the Total South America interest is prior to
deducting provincial production taxes. Future net revenue is after deducting
these taxes, future capital costs, and operating expenses, but before
consideration of Argentine, Bolivian, or United States federal income taxes. In
accordance with SEC guidelines, the future net revenue has been discounted at an
annual rate of 10 percent to determine its "present worth." The present worth is
shown to indicate the effect of time on the value of money and should not be
construed as being the fair market value of the properties.
For the purposes of this report, a field inspection of the properties
has not been performed nor has the mechanical operation or condition of the
wells and their related facilities been examined. We have not investigated
possible environmental liability related to the properties; therefore, our
estimates do not include any costs which may be incurred due to such possible
liability. Also, our estimates do not include any salvage value for the lease
and well equipment nor the cost of abandoning the properties.
Oil prices used in this report for Argentina are based on a NYMEX price
of $17.45 per barrel, the weekly average price in effect on December 31, 1997,
as specified by the contract under which the oil is sold. These prices are
adjusted by lease for gravity, transportation fees, and regional posted price
differentials. An oil price of $16.75 per barrel, based on a long-term sales
contract, is used for Bolivia. Oil prices are held constant in accordance with
SEC guidelines. Gas prices used in this report are based on contract prices,
adjusted for transportation fees and BTU content. In accordance with SEC
guidelines, these prices are adjusted according to the provisions of existing
gas contracts which remain in effect throughout the life of the properties.
Lease and well operating costs are based on operating expense records of
Vintage Petroleum, Inc. (Vintage). For recently acquired properties for which
there are not adequate historical operating expense records, the operating
expense estimates of Vintage have been used. For non-operated properties, these
costs include the per-well overhead expenses allowed under joint operating
agreements along with costs estimated to be incurred at and below the district
and field levels. As requested, lease and well operating costs for the operated
properties include only direct lease and field level costs. Headquarters
general and administrative overhead expenses of Vintage are not included. For
certain recently acquired properties, lease and well operating costs are
adjusted to reflect Vintage's intention to modify procedures upon obtaining
operational control of the properties. In accordance with SEC guidelines, lease
and well operating costs are held constant throughout the life of the properties
with the exception of the adjustments described herein. Capital costs are
included as required for workovers, new development wells, and production
equipment.
We have made no investigation of potential gas volume and value
imbalances which may have resulted from overdelivery or underdelivery to the
Total South America interest. Therefore, our estimates of reserves and future
revenue do not include adjustments for the settlement of any
<PAGE>
such imbalances; our projections are based on Total South America receiving its
net revenue interest share of estimated future gross gas production.
The reserves included in this report are estimates only and should not
be construed as exact quantities. They may or may not be recovered; if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts. A substantial portion of these reserves are for
behind pipe zones, undeveloped locations, and producing wells that lack
sufficient production history upon which performance-related estimates of
reserves can be based. Therefore, these reserves are based on estimates of
reservoir volumes and recovery efficiencies along with analogies to similar
production. As such reserve estimates are usually subject to greater revision
than those based on substantial production and pressure data, it may be
necessary to revise these estimates up or down in the future as additional
performance data become available. The sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in this report due to governmental policies and
uncertainties of supply and demand. Also, estimates of reserves may increase or
decrease as a result of future operations.
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland,
Sewell & Associates, Inc., nor has the actual degree or type of interest owned
been independently confirmed. The data used in our estimates were obtained from
Vintage Petroleum, Inc., and the nonconfidential files of Netherland, Sewell &
Associates, Inc. and were accepted as accurate. We are independent petroleum
engineers, geologists, and geophysicists; we do not own an interest in these
properties and are not employed on a contingent basis. Basic geologic and field
performance data together with our engineering work sheets are maintained on
file in our office.
Very truly yours,
/s/ Frederic D. Sewell
TJT:KBS
